Jonathan Small & Paul Blair | January 12, 2016
Common sense on 'Net Metering' electricity rate changes
Jonathan Small & Paul Blair
By Jonathan Small and Paul Blair
What would happen if a grocery store customer decided, in addition to buying, to start selling his own garden produce to other customers out of his shopping cart? Almost certainly, the store manager would kick him out. The customer-turned-seller might object: this is where the grocery customers are and he has products they want. All well and good, but not in somebody else’s store.
Once someone has made the investments and taken the risks to build the infrastructure that makes his business possible, it is unfair to force him to allow competitors to use what he has built. This principle is at stake in a debate over “net metering” rules for electricity customers, an issue currently before the Oklahoma Corporation Commission.
Rooftop solar panels and small wind turbines used to be niche items for people living “off the grid.” This, of course, is a very small market. Because solar and wind power generation remains relatively inefficient and subject to weather—not to mention sunset—most people want to stay connected to the power grid.
In order to expand their market, companies that make and sell rooftop solar panels convinced politicians to do something extraordinary. They convinced politicians to force utilities to buy electricity back from customers, sometimes even at retail rates. This arrangement goes even further than our grocery store example. This is like politicians ordering a grocery store to buy whatever produce a customer brings in and pay full retail price.
Such mandates are known as “net metering” laws. Initially they were of little concern because of the tiny number of customers with their own generating capacity. Rooftop solar companies, however, began marketing their products based on claims of eventual cost savings because of net metering. Propped up by subsidies from federal and state governments, plus the indirect subsidy from these mandates, rooftop solar panels have proliferated.
The trouble for customers is that our retail price for electricity includes all the costs—not just generation, but also installation and maintenance of the whole power grid. When another customer gets to sell power back at full price, he becomes a free rider. Net metering mandates force traditional customers to subsidize those who can afford their own solar panels or wind turbines.
Companies like Elon Musk’s SolarCity and San Francisco-based Sunrun are desperate to keep the subsidies flowing. That’s why they and other well-funded environmental activist groups like the Southern Alliance for Clean Energy have spent hundreds of thousands of dollars funding Republican-branded organizations to make the argument that their mandate-and-subsidy scheme is about free markets.
“Tell Utilities Won’t Be Killed” (TUSK) is one such organization, run by former Congressman Barry Goldwater Jr. TUSK has aligned with left-leaning environmental groups and companies to push for renewable energy mandates throughout the U.S. These organizations are not representative of a conservative push for market competition or consumer choice. They represent crony capitalists seeking to protect their bottom lines.
Governments regulate electric utilities because they are natural monopolies—they rely on massive, networked infrastructure to operate. It makes sense to establish fair rules for utility customers who also want to generate some of their own power. Utility companies are willing to pay or provide a credit to customers who generate excess electricity. The rate, however, must be fair. Other customers should never be forced to subsidize their neighbors, let alone big out-of-state companies that already enjoy massive subsidies from taxpayers.
The Oklahoma Legislature overwhelmingly adopted exactly that position last year and tasked the Corporation Commission with determining that fair rate. The Commission is under pressure from solar companies and other interested parties to find a way to keep the subsidies flowing. Their job, however, is to stand up for all Oklahoma electricity customers.
Jonathan Small is president of the Oklahoma Council of Public Affairs; Paul Blair is state affairs manager at Americans for Tax Reform.
Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.
Paul Blair is state affairs manager at Americans for Tax Reform.