Sunday, April 19, 2015

Electric Utilities Thwart Solar Applications: A Conflict of Interest Rewarding the Status Quo

Considering the contribution of coal-burning power-plants to atmospheric carbon-emissions and thus global warming, governments around the world should be encouraging rather than discouraging home-owners to install solar panels. That is to say, we ought not privilege the status quo when it has contributed so much already to an uncomfortable or even uninhabitable Earth for mankind. So it is unfortunate that energy officials in Hawaii’s government had to step in to pressure—no, order—the Hawaiian Electric Company to approve its “lengthy backlog” of solar applications.[1] I submit that the officials should have gone further in correcting for the conflict of interest in the utility. Put in the vernacular, electric companies tended at the time to screw customers who could sell back “home-grown” solar power. The root problem here is in the utilities’s dual roles of seller and consumer of power.

By April 2015, 600,000 solar systems had been installed in the United States; 3.3 million was expected by the end of the decade.[2] In spite of the associated coal-fueled energy being displaced, the Edison Electric Institute, the main utility trade group, had been warning its members of “the economic perils of high levels of rooftop solar since at least 2012.”[3] Accordingly, the Salt River Project in Arizona added about $50 a month to a typical bill for new solar customers. With an increasing number of homeowners producing their own electricity, the utility’s revenue was taking a hit. Profitability, on other words, is more important than limiting global warming. To the extent that such warming was already at work elongating a drought in the Southwest, including Arizona, the utility’s own priority was at odds with the public good that public policy is supposed to advance.

Generally speaking, governments could structure utility revenues so as to include an incentive to shift off the status quo in which coal played such a part even in 2015. To be sure, utilities were doing just fine for themselves in arranging the prices at which they buy excess solar-generated power from homeowners relative to the prices at which those utilities supply power to those customers and others. It should come as no surprise that the utilities buy power for less than they sell it. In other words, a homeowner who generates surplus electricity from solar panels must sell it at a price below that which the homeowner must pay to buy electricity. Unfortunately, this tidy profit for the electric companies is not enough to incentivize them to approve as many solar-power applications as quickly as possible; the hit to their revenue from the spread of solar power must be significant indeed.

Besides the problematic impact of thwarting or delaying solar applications on pollution and climate change, forcing solar customers to sell rather than store their excess generated electricity and then forcing them to buy electricity for a higher price is unethical. The conflict of interest in the utility companies lies in their roles of market-maker (i.e., setting both prices), seller, and buyer. A governmental entity independent of power companies should see to it that the homeowners rather than the utilities profit from the surplus solar-generated power. Firstly, the property owners deserve to make a profit from producing the commodity (i.e., electricity). Secondly, the incentive ought to be on the side of expanding the supply of solar energy, given the plight of mankind from just the climate change that could be discerned and predicted in 2015.

To leave the matter up to the utility companies is to privilege the status quo—essentially allowing it to decide how much change can occur. The status quo has a conflict of interest in determining the extent to which change will be permitted. I suspect that our species is genetically oriented to the status quo, and that we are therefore insufficiently adaptable even to environmental changes that the species itself has caused. The warped incentives at utility companies may point to such a bias in the fabric of our genetic code. The question may be whether our use of reason can circumvent the stickiness from our other instincts. Will government officials, for example, design systems incentivizing solar power both to homeowners and energy companies (i.e., reason), and implement those “markets” by resisting the political lobbying of the utility industry (which can be understood as projections of our genetics protecting the status quo at the expense of adaptive change)? If not, we as a species may have hell to pay. Concentrating on designing and implementing systems that incentivize real change instead of the status quo may be our best chance at our species being viable beyond the twenty-first century.



[1] Diane Cardwell, “Utilities See Solar Panels as Threat to Bottom Line,” The New York Times, April 19, 2015.
[2] Ibid.
[3] Ibidl.