Wednesday, July 27, 2011

Californian utilities are having a FIT over good clean energy policy

When I first came to California to report on the clean energy industry a few months ago, I was surprised to find the absence of feed in tariffs, in particular for domestic users. 
I have since puzzled why the US was so resistant to such a simple system, which has created massively successful solar PV markets in Europe, particularly in Germany. Craig Lewis of the Clean Coalition has even had to resort to call FITs something else - clean programmes - to break through the mental block in the US.
I have not been able to find a good reason why European-style FITs don't fit in the US - until now. I don't so much have a definitive answer, but at least I have a plausible theory.
Nowhere on this earth could the reasons behind resistance in the US to FITs have been more obvious than at the Intersolar conference earlier this month. Armadas of European companies, analysts, academics and politicians flooded the halls of the Moscone Centre in San Francisco to win business and report from their own frontline on policies that create value for society, rather than just profits for investors.
The California Public Utilities Commission does some valuable work in shielding ratepayers from excessive price hikes from utilities. If only the UK’s Ofgem had similar powers. But Californian ratepayers pay the CPUC to act in their interest through a tariff on their monthly energy bills.
But I am increasingly uncertain that the CPUC is always acting in the interests of ratepayers, instead favouring close relationships with utilities, which is why it launches half-way house schemes such as reverse metering instead of hitting FITs with both barrels.
When people ask me about my experience of the US so far, I wonder whether Winston Churchill was thinking about the US (he was proudly half American, after all) when he described Russia as a riddle inside of an enigma.
My experience of California and the San Francisco Bay Area has been one of contradictions – bright sparks of first-world innovation that set the world alight start in Silicon Valley. It is exhilarating and a privilege to witness this clean energy evolution at the fringes as a journalist.
Yet it is difficult to stomach the desperate poverty of the street homeless. I would guess a disproportionately higher percentage of the city of San Francisco’s official population of 800,000 would classify as homeless or insecurely housed than other “world-class” cities.
But this rot that undermines social cohesion doesn’t stop at those who sleep next to their shopping carts on the pavements during rush hour. The multiplier effect of allowing these desperate souls to sleep rough resonates way beyond the blocks have turned into no-go zones such as the Tenderloin. For every drug addict, there are probably at least 3 dealers. For every dealer, there are probably three suppliers no doubt connected only by a few degrees of separation from the ugly and extreme violence that curses Mexico.
This is where I abandon liberal values and romantic notions of people choosing to live like this. I’m sure even Republican politicians would advocate zero tolerance of such visible social decay… as long as they don’t have to pay taxes to support it.
What has this got to do with utilities and their resistance to FITs? Put simply, it is just one example where commerce trumps common sense. 
The chasm between the elite of Silicon Valley and the homeless on the streets of San Francisco should be filled by good public policy. But problems over funding for the basic requirements of a healthy economy, such as mass transit, expose the failures of public policy to bridge the gap. The valley of death means something quite different for San Francisco’s homeless…
Policies are meant be designed to create value to society, not just individual companies. But in the US, there is an emphasis on policy and regulation that encourages commerce, rather than restricting it.
For the most part, the CPUC balances its regulations with the need for utilities to make money. But some critics have argued that the CPUC has gone too far.
The San Bruno disaster has already cost the "retirement" of PG&E’s chief executive Peter Darbee. And it might not end well either for Michael Peevey, the chief commissioner of the CPUC.
The investigation is ongoing. But has already thrown up some fairly awkward moments for Peevey’s CPUC regarding its oversight of utilities and why the commission hadn’t followed up when it granted PG&E $5m to fix the faulty stretch of pipeline that then blew up. The CPUC had previously not followed through with enforcement of fines after PG&E  was found at fault when a gas pipeline explosion killed one person in Rancho Cordera in 2008.
A few months ago the Bay Area Guardian ran an excellent piece of investigative work into the CPUC’s junkets overseas. I disagree that poachers never make good gamekeepers – who wants a regulatory authority run by someone who doesn’t understand the industry after all?
It is also of tangible benefit to send CPUC and utility executives to see how other jurisdictions in Spain and Germany for example structure their energy industry. God forbid they should never look beyond the walls of the Californian or US energy industry for examples of best practice. I don’t care how big the hotel pool is – but I do care about what they take away from meeting energy industry executives in Europe.
It also describes the California Clean Energy Fund as “obscure” which it transparently is not…
But I agree with the well-researched article that, given his background at Southern California Edison, that Peevey will have taken a generously sympathetic attitude towards utilities into his role at the PUC.
Light winds of change are blowing, however, after Governor Jerry Brown made his first CPUC appointment in March. Mark Ferron, has a background in financing so badly needed in the energy industry. And a fresh pair of eyes without direct experience of working in the energy industry may be an advantage.
Perhaps Brown is playing a shrewder strategy here. By keeping Peevey in post, he keeps him accountable for the San Bruno disaster.
Until there is fresh blood at the top of the CPUC, the state is unlikely to see any significant movement on FITs.
As Dan Adler, CalCEF president, said in the article:
"Utilities are effectively monopoly, or oligopoly, controllers of the energy industry," he said. "And they don't like outside innovation coming and disrupting their work process or their relationship with their customers."
Adler’s comments are a common refrain in the energy innovation sector in California and go a long way to explain why the CPUC has resisted at least domestic FITs on behalf of utilities … because they will sell less electricity and lose money.
Proponents of clean energy have told me that they still see themselves as electricity retailers and the electric vehicle is the best thing to happen to them since air conditioning. All electricity retailers want to sell their commodity regardless of how it's generated and a shift to renewables is a shrewd move to avoid the risk of the inevitable rising cost of carbon.
Utilities are fearful that their revenues will dwindle as US investors wake up to energy efficiency. And making money in a market where energy is cheaper than it is in most other rich nations is going to be a problem when more homes and businesses start producing their own electricity.
But utilities need to stand aside on FITs and allow the policy stimulus to do its work and prove that not all regulations are bad for business. More than that, good regulations should create businesses that bring benefits greater than the sum of their dividends to shareholders. 
More on FITs and the view from Europe tomorrow…

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