Finding a Balanced Solar Policy in Kansas

How does a utility company structure charges for the electricity it sells? That depends on where you live, and across the country, utilities are filing for rate increases with state agencies and commissions. The utility’s charges may be some combination of a fixed monthly fee, a fee based on the volume of electricity used, and a fee connected to the customer’s peak energy use.

Westar Energy in Kansas is one example of a utility company filing for rate increases. The company recently asked the Kansas Corporation Commission for permission to increase the fixed monthly charge for residential customers. That’s not unusual in itself, but the amount of the fixed charge increase was shocking.

Westar also proposed a special rate structure squarely aimed at residential customers with solar panels, essentially penalizing them for using clean energy and discouraging more people from installing solar panels.

Environmental Defense Fund disagreed with Westar’s approach, and we filed expert testimony with Kansas regulators explaining why. Westar finally reached a settlement with the other stakeholders – and our recommendations were instrumental in eliminating the utility’s proposal to impose discriminatory rates on solar customers. Last week the Commission issued the order to approve the settlement.

The Westar case shows how utilities are grappling with the growing adoption of clean, distributed energy resources, like rooftop solar. As more people have begun owning and producing their own electricity on-site – but are not quite independent enough to go completely “off grid” – many non-solar-owning customers are asking: Are rooftop solar owners paying their fair share to build and maintain our central electric grid? And utilities are asking whether they will have an opportunity to recover their costs to serve solar customers. In many instances, the answer to these questions comes down to how well a utility’s rates are designed.

Residential demand charges: fair or unfair?

Electricity rates should be designed to give utilities a fair opportunity to recover their costs and to eliminate subsidies among different groups of customers. With that in mind, rates should also be designed to avoid harming or favoring one type of customer over another – including solar customers.

Westar claimed it needed a new rate plan because non-solar customers were subsidizing solar customers under the existing rates, and it wanted to impose a demand charge on customers with rooftop solar. EDF believes that if a utility is introducing demand charges, then all customers should receive the same options, without singling out solar customers.

A demand charge is a fixed monthly charge based on how much a customer’s peak electricity demand contributes to the utility’s peak demand during a given time period. Peak demand is typically during the hottest or coldest months of the year, depending on where you live, and when you crank up your AC and heating units. Utilities have used demand charges for commercial and industrial customers for many years, but applying them to residential customers is fairly new.

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Demand charges can be good policy, if done right. They can give the utility a better opportunity to recover its costs and provide an incentive for customers to manage their peak energy demand, which can lead to lower rates for all customers. Demand charges can also be more fair for smaller customers than a higher fixed monthly charge because the fixed charge eliminates the customers’ ability to lower their bills by managing their usage.

But demand charges can harm solar customers if not implemented or designed correctly. And if we are to avoid the most catastrophic effects of climate change, we need to scale clean energy technologies (like rooftop solar) faster and more efficiently than ever before. That’s why it’s imperative that we get rate designs right. They should provide incentives for clean energy deployment – not hinder it – while being fair toward the utility and non-solar customers.

Westar is a case study

 Westar originally proposed that solar customers would be required to choose between a plan with a demand charge and a $27 monthly fixed charge versus a plan with a $50 monthly fixed charge – both much higher than the current $12 monthly fixed charge. Also under Westar’s proposal: solar customers would not have the option, available to other customers, of remaining on the present plan with a low monthly fixed charge and no demand charge. Westar’s plan was unfair for solar customers. If demand charges are being used, then all customers should have the same rate options.

EDF efforts helped achieve a settlement in which Westar agreed to a very small fixed charge increase (from $12 per month to $14.50 per month) instead of the $27 monthly charge it originally sought. In addition, Westar agreed to give solar customers the same rate options other customers receive. We believe this is a much more balanced solution that considers the interests of the utility, solar customers, and non-solar customers.

While rate design may seem arcane and boring, it has an important impact on whether customers choose to install solar panels. A recent study by the Lawrence Berkeley National Laboratory shows that having the right rate design has a huge influence on a customer’s decision to add solar panels.

As utility leaders and policymakers from other states continue to explore the most equitable path toward a cleaner electric grid, the Westar case provides important lessons.