Entitlement

Entitlement November 8, 2021

If you are the owner of a business that harms people, are you still entitled to maintain your profits?

Let’s say your business provides an essential service to the public, and it operates without any competition. Now that would be a perfect situation for a profit-making business, right? If there is no competition, you can decide how much profit you want to make and set the prices accordingly. Your customers are captive. They have no alternative. That is the situation for many private, for-profit utilities like natural gas, water, and electricity providers. To protect the public from price gouging, government has regulatory agencies. In California, it is the California Public Utilities Commission. (CPUC)

That sounds good until you realize that the members of the CPUC are appointed by politicians, who are (surprise!) handsomely supported with lavish “campaign contributions” from those huge utility companies. As are the members of the Legislature and…yes…the governor.

This has worked reasonably well for a long time, even though a recent chairman of the CPUC was a former CEO of Southern California Edison, one of the largest electricity providers in California. He regularly held closed meetings at his palatial home with the management of those companies. No press were allowed, Nobody except the attendees knows what went on in those meetings, what private agreements were reached. The fox was guarding the chicken coop.

And then, about ten years ago, residential solar power became a practical possibility for many people. The government decided that this was a good idea. It helped to reduce the use of fossil fuels to generate power. So, they worked out an incentive plan called Net Energy Management Agreements (NEMA’s). Solar panel owners were allowed to deduct excess power that they generated during the day, and returned to the grid, from their power bills. In effect, the power companies paid retail price for that power. In return, it lowered their peak daytime demand, and reduced transmission losses, because that power coming from the rooftops was used locally, instead of being transmitted over wires for, sometimes, hundreds of miles from the power generation station. The power companies supported this enthusiastically initially.

Rooftop solar really took off in southern California. And then the power companies noticed that demand for their product was dropping. So, to compensate, they raised prices to maintain their profits. But that increased the incentive to install solar panels. It quickly became apparent that this was a race to the bottom for those huge corporations. Something had to be done. The first thing they did was hire public relations firms and concocted a public message that makes residential solar panel owners into the bad guys. They are portrayed as wealthy white elites who could afford the solar panels, while poor people could not. And the power companies, who were really, REALLY (not) concerned about poor people, were forced to raise prices, which transferred the costs of power generation and distribution from the rich to the poor. The fact that they were generating less power was irrelevant. They were ENTITLED to those profits, no matter how little power they generated.

The solution they proposed was to remove the NEMA incentives for residential solar panels. The utility companies were fine with solar-generated power, but they wanted to do it themselves, on huge solar “farms” out on open lands in rural areas. This would “solve’ the problem of cost transfer to the poor, because everybody would have to buy power from the monopoly…and nobody would have any incentive to install a solar panel on their roof, and those suckers who had rooftop solar panels could just tear them off their rooftops and send them to the landfill. Problem solved.

And so, this is now being fought out in the state government, and it is very likely that the owners of residential solar panels are gonna get screwed. It’s a classic bait-and-switch. They bought those panels with the understanding that they could recoup their investment though NEMA’s. Now, the government is going to say, “Sorry, we changed our mind. Screw you.”

The cost of residential solar has been declining steadily. This is such a good, environmentally sound, alternative to burning fossil fuels. Furthermore, it doesn’t cover square miles of open land with solar farms. Rooftops are the perfect solution. They even decrease household A/C needs in the summer by shading the roof, further reducing demand. And, they help the utilities to achieve “load leveling,” a major cost reduction factor for utilities.

The utilities have some legitimate issues. The unpredictability of solar generation due to weather introduces some complexity into grid management. On cloudy days, they might have to spin up an additional generator to handle the shortfall. But, as previously mentioned, it also reduces the peak A/C load on hot summer days. When electric vehicles are added into the equation, overnight charging also levels the nighttime lows in demand. Load leveling is the Holy Grail for power companies. But they are carefully ignoring that in their attack on residential solar.

The power companies see the writing on the wall. If residential solar continues to grow, their business is gonna shrink. So what’s to be done? You already know the answer. And they are working hard on it:

Solar panel owners are greedy rich whites who want to screw the poor. 

That is what you are going to hear over the next few months.

A Final Note: Those of you who are familiar with my writings, probably recognize a familiar topic in this piece. Here is a basic principle that I think government should follow in cases like the one described above:

Providers of essential services to the public under quasi-monopoly conditions should NOT be private, for-profit companies. The obvious conflict-of-interest between maximizing profits and minimizing the price of services makes this a constant tug-of-war between the companies and government regulators. Given the immense financial power of large utility corporations, this is a perfect recipe for corruption and exploitation of the public.

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