Energy Exchange: Electricity pricing

Secretary of Energy Rick Perry – whose agenda as governor of Texas was squarely focused on states’ rights and free markets – is now pushing for a federal plan that could disrupt organized electric markets. Perry’s proposal to the Federal Energy Regulatory Commission (FERC) aims to prop up uneconomic coal at the expense of Americans’ health […]

By Rory Christian and Larissa Koehler Electric vehicles (EVs) don’t make much noise on the road, but they’re generating a lot of buzz about the future of this technology and what it means for business and the environment. Cars, buses, and trucks are the second biggest source of pollution in the U.S. after electricity production. […]

Electricity is becoming increasingly affordable throughout the United States. This fact was not lost on the Federal Energy Regulatory Commission (FERC), the entity charged with overseeing our interstate electricity grid, during a Technical Conference held last month. Although the Conference was initially organized to focus on how regional electricity markets and state public policies interact, […]

By Larissa Koehler and Jamie Fine California has worked hard to build up a nation-leading clean energy portfolio. And the state has been hugely successful in adding renewable energy, especially solar, to the electric grid. However, having too much solar energy on the grid relative to energy demand can lead to grid operators turning off […]

More than 25 U.S. cities, 12 countries, and at least 89 companies have all committed to transition to 100 percent renewable energy. That’s because they all recognize the unstoppable potential clean energy has to create jobs, strengthen and protect the economy, and fight climate change. Now, U.S. states are throwing their hats into the 100-percent […]

Andrew Bilich, Clean Energy Analyst, contributed to this post. Here in California, we know a thriving economy and forward-thinking clean energy policy go hand in hand. An important way for us to do this is to keep using cost-competitive renewable sources of energy to power our economy. Transitioning California to a clean energy economy is […]

By Jeremy Proville and Jonathan Camuzeaux  Just 60 days into Trump’s presidency, his administration has wasted no time in pursuing efforts to lift oil and gas development restrictions and dismantle a range of environmental protections to push through his “America First Energy Plan.” An agenda that he claims will allow the country to, “take advantage of […]

How do we compensate those who add clean electricity to our shared power grid? This fundamental question has affected the rate at which the U.S. has adopted, deployed, and put into use clean, distributed energy resources such as energy efficiency, batteries, electric vehicles, and rooftop and community solar. At the core of our new distributed […]

By Diane Munns

Distributed resources – like residential solar, storage, and electric cars – are becoming more mainstream every day. This presents new challenges for utilities and utility regulators who are struggling to capture their benefits, while balancing shareholder interests and reliability.

To help utility commissions around the U.S. navigate the challenges, considerations, and policy developments related to the emergence of distributed energy resources, the National Association of Utility Regulators Association (NARUC) board of directors accepted a rate manual written by its staff subcommittee at its annual meeting. The Distributed Energy Resource Compensation Manual supports a deliberate, reasoned approach to making rate design changes by providing practical guidance to its members.

Why is the manual important?

In 2013, Peter Kind wrote a paper for the Edison Electric Institute entitled “Disruptive Challenges” foreshadowing the impact of distributed energy resources on the utility industry. At the end of the paper, he recommended that utilities take immediate action to increase the fixed amounts collected in a customer’s bill regardless of how much a customer uses to ensure revenue certainty and stability.

The utilities have been quick to respond, despite Mr. Kind’s retraction of his advice in 2015. For example, according to the North Carolina Clean Energy Technology Center, 42 states considered increasing fixed charges in the second quarter of 2016 – and this number was down from the first quarter, when 61 utilities in 30 states proposed fixed-charge increases.

Utility Regulators Guided To Set New Rates Deliberately, Using Data
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While increases to fixed charges have proven to be popular among utilities, they have been vigorously opposed and largely unsuccessful before regulators. According to the North Carolina report, in over half the cases decided so far in 2016, utilities have not been allowed to increase the fixed charge. Rate design is clearly an area of significant contention and is requiring increasing attention and resources from utility regulators and parties in contested proceedings. The Manual provides a consistent framework for evaluating rate-design decisions in the age of distributed energy resources.

Deliberate, data-driven approach

NARUC rolled out a draft rate-design manual at its summer meeting, and all interested parties had a chance to submit written comments. The staff subcommittee received comments from 76 parties, and after reviewing the comments, the manual expanded from 66 pages to 180. Additions include case studies for reference and recommended questions for state commissions to consider as they consider new rate plans.

Industry comments on the draft Manual (once again) advocated for immediate, proactive action on rate design. However, the final manual rejected this call for fast, preemptive change and adopts a very deliberate approach based on data. The manual makes the case that penetration of distributed resources remains low in most of the United States and suggests that states carefully monitor the pace of adoption and use the time to investigate, learn, and ask a series of questions to test out proposed designs against policy goals.

This approach is consistent with comments sent to NARUC in June by 32 environmental advocates (including Environmental Defense Fund), low-income advocates, technology-specific advocates, and consumer advocates from across the country. That letter asked that commissions adopt a collaborative approach to rate design change, in addition to a data-driven process. The manual builds on that request and provides a practical approach to monitoring and gathering information for thoughtful change.

Several of the comments noted that the tone of the draft manual could be improved as it appeared to portray the new resources as causing problems to be solved, as opposed to viewing them as technologies offering flexibility and opportunities for optimizing grid assets, reducing greenhouse gases, and providing consumer benefits. The final manual stresses throughout that utility commissions must not only assess the costs related to distributed energy resources, but also take into consideration their potential benefits. That’s progress.

What’s next?

The final chapter of the manual is entitled ‘A Path Forward for Regulators.’ While NARUC does not have any authority to bind its members, the guidance offered in the manual provides a way to get beyond what some have referred to as regulatory bickering, to understanding where, when, and how these new energy resources impact the grid and can be used for everyone’s benefit. It is my hope that regulators will use this manual to implement thoughtful, data-driven rate design change that works for all involved.

By Lenae Shirley

New installed renewable energy capacity surpassed coal for the first time last year, the International Energy Agency reported recently.

It means that we added more wind and solar to our global energy system than oil, gas, coal or nuclear power combined – a trend that is expected to continue over the next five years.

But to truly transition to a global clean energy economy, we must accelerate this growth rate and modernize our electricity grid to maximize the potential of these new renewables. That way we can use as much clean energy as possible on any given day.

Many of these optimizing solutions already exist today.

They include technology such as powerful batteries that can store energy when renewables don’t produce electricity, for example, when the sun is shaded by a cloud.

There are also energy management tools such as demand response that pay customers for saving energy at critical times when the grid needs it. And innovative electricity pricing programs that encourage customers to shift some of their power use to times of day when clean energy sources are plentiful and electricity is cheaper.

All can, with the help of good policy, make the most of variable energy sources – as would a modernized and more dynamic electric grid.

A flexible energy system paves the way

Between now and the end of  2021, the United States will add around 100 gigawatts of new renewables, the equivalent of about 80 coal plants, the IEA reported. To integrate and value all this new, clean energy we need a smart and forward-looking grid strategy.

Because our energy system was initially designed for large, centralized power plants running mainly on fossil fuels, it depends on a steady supply of power and a network of transmission lines to deliver it to peoples’ homes and businesses.

As we expand smart grid solutions that empower businesses and households to make and move their own energy – for example, by selling solar power back to the grid – we begin to build a more flexible energy system that can accommodate intermittent sources of electricity and increased elasticity in demand. It also helps people reduce their power consumption and energy bills when they see that the cost of electricity fluctuates at different times.

A smart grid can detect when one house can’t use all the rooftop solar energy it produces and shift that electricity to the family next door that is charging an electric vehicle or running an air conditioning unit. It avoids using costly transmission systems to move power where it’s needed, reduces emissions and creates space for new and cleaner energy sources to move in.

A larger grid makes renewables go farther

But we must also expand the grid to allow for an influx of new renewable generation, or we may risk wasting even more precious resources.

If California’s electric grid were connected to neighboring states, for example, the state could export its excess renewable energy when the sun is shining there, and buy wind from Wyoming when it isn’t. This, again, would make wind and solar go farther.

The surge in renewable investments can change the equation – but it’s up to us to break down barriers and pave the way.

The rapid deployment of renewable energy technology worldwide is putting in place critical infrastructure and volume needed for a shift away from polluting fossil fuels.

But this growth needs to continue and accelerate. Renewable energy has a lot of catching up to do with coal and natural gas, which are enjoying a decades-long head start on infrastructure and investment.

Even though U.S. investment in clean energy soared from an impressive $10 billion to $56 billion between 2004 and 2015, renewables still represent a tiny fraction of the power produced by the American electricity sector. Nationwide, wind accounts for less than 5 percent and solar for less than 1 percent.

The surge in renewable investments can change the equation – but it’s up to us to break down barriers and pave the way for the clean energy economy. We have the solutions and know what to do.

This post originally appeared on our EDF Voices blog.

Photo source: CPS Energy

By Diane Munns

On November 13, 2016, the nation’s state and federal utility regulators – also known as the National Association of Utility Regulators Association (NARUC) – will meet for their 128th annual meeting in La Quinta, CA and host over 1000 participants. As a former NARUC president and seasoned observer of these meetings, I study the issues that rise to the top for the limited amount of meeting time available. The topics making the cut offer a snapshot of what is trending nationally in the various regulated sectors.

Distributed resources – like residential solar, storage, and electric cars – not long ago nascent technology, are now mainstream. At this year’s NARUC meeting, issues related to the impact of distributed resources on business models and regulation dominate the electricity agenda as states strive to capture their benefits.

The conversation will tackle next-level questions of grid modernization, interconnection, valuation, business models, and rate design. Utility planners aim to correctly set conditions for continued growth in the transforming electricity sector. The meeting topics reveal changed thinking, from fixing “problems” caused by these technologies to  maximizing their potential  benefits.

The agenda

This year’s annual meeting agenda explores these next-level issues.

The Staff Subcommittee on Consumer Affairs will examine attitudes towards residential solar, and the Staff Subcommittee on Rate Design will do a deep dive into the states with the most experience in residential solar: Arizona, California, and Nevada. That staff subcommittee will also preview a framework for how to increase residential solar use and preview its manual on properly valuing distributed energy resources.

The Committee on Energy Resources and Environment has a session on  disaster response and grid resiliency, recognizing the unique attributes of distributed resources.

The Electricity Committee will discuss capturing the locational value of power sources that are dispersed throughout communities, rather than centrally located. The National Regulatory Research Institute, NARUC’S research arm, has a session on interconnection rules for a future where customers plug-and-play their own distributed energy resources.

Finally, there are sessions on grid modernization, rate design and electric vehicles, performance-based ratemaking, and storage. Once again, the prevalence of distributed energy resources in the agenda recognizes that we are in a transformational time and genuinely desire to update ratemaking to capture the benefits of these resources.

Distributed Energy Resources to Dominate at Gathering of Nationwide Utility Regulators
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The manual

You can also expect a finalized Distributed Energy Resource Compensation Manual to be presented through a case study at the final session of NARUC 2016.

NARUC’s work on the manual to guide public utility commissions when designing electricity rates began last year at the 127th annual meeting through a resolution that created a Staff Subcommittee on Rate Design. The resolution creating the subcommittee recognizes the increasing interconnectedness of rate design and forward-thinking policy, most notably as it applies to helping the new distributed-energy economy.

Then incoming president for 2016, Travis Kavulla, quickly put the subcommittee to work, charging them to prepare the Distributed Energy Resource Compensation Manual to help utility commissions around the U.S. navigate the challenges, considerations, and policy developments related to properly valuing distributed energy resources.

The subcommittee released a draft Manual and convened a Town Meeting to receive comment in advance of NARUC’s July meeting in Nashville, TN. Opportunity for comment continued and the manual that will be presented next week is a culmination of this extensive collaboration and review. The decision to cap off the annual meeting with a general session devoted to use of the manual demonstrates the importance of this work.

Stay tuned

NARUC leadership will once again transition at this meeting, and the new president will set the organization’s priorities for the following year. President Kavulla and the association’s leadership are to be commended for acknowledging and focusing on the impact of distributed energy resources on the grid and regulatory system. Their work has created a positive agenda and an initial set of rate design tools to approach the complicated issues related to the emergence of distributed generation. This is not an end to the work, but marks an important milestone in providing practical guidance and assistance to its members to ensure the transformation results in clean, affordable, efficient energy available to all Americans. We have every expectation that the incoming president and leadership will build upon this good work.

By Guest Author

By Bret Fanshaw, Solar Program Coordinator, Environment America

This week, Environment America Research & Policy Center is showcasing Shining Rewards, a new review of 16 value-of-solar studies from around the country. The report shows what we already know intuitively: Solar panels provide pollution-free energy that delivers far reaching benefits to people, the environment, the economy, and the electric grid.

Powering homes and businesses with rooftop solar can help communities avoid greenhouse gas emissions, reduce air pollution that’s harmful to public health, and avoid the cost of increasingly expensive fossil fuels.

In our report, we found at least 8 key benefits of rooftop solar, all of which have real value that can be measured by regulators, policymakers, and utilities as the conversation around the future of distributed energy – solutions like rooftop and community solar – evolves.

1. Reduced waste

Solar energy systems produce clean, renewable electricity on-site, reducing the amount of power utilities must generate or purchase from fossil fuel-fired power plants. In addition, distributed solar-systems reduce the amount of energy lost in generation, long-distance transmission, and distribution, which cost Americans about $21 billion in 2014.

1. Lower cost

By reducing overall demand for electricity during daytime hours that form the peak period for most utilities, solar energy production helps customers and utilities avoid investments in new power plants.

1. Less risk

Because the price of solar energy tends to be stable over time, whereas the price of fossil fuels can fluctuate sharply, integrating more solar energy into the grid reduces consumers’ exposure to volatile electricity prices. Also, by reducing demand for energy from the grid, home and business solar systems reduce the overall price of electricity, saving money for all customers.

1. Stronger grid

Distributed energy decentralizes the grid, potentially safeguarding people in one region from other areas that are experiencing problems, like blackouts. Emerging technologies, including smart meters and small-scale battery storage systems, will enhance this value.

8 Benefits of Distributed Solar that Prove it’s Worth More than Dollars and Cents
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1. Clean electricity

Increasing solar energy capacity helps utilities avoid the costs of meeting renewable energy requirements or installing new technologies to clean-up fossil fuel-fired power plants. It also helps avoid the cost of emission allowances where pollution is capped, like in California and New York.

1. Reduced greenhouse gases

In 2014, the electricity sector was the largest source of global warming emissions — responsible for 30 percent of all U.S. greenhouse gas pollution. Generating energy from the sun provides a renewable source of energy that produces little to no greenhouse gas emissions. In 2015, distributed solar energy alone – just solar panels on households and businesses – averted approximately 8 million metric tons of carbon dioxide emissions.

1. Improved public health

Solar can help us reduce health costs. According to the American Lung Association, 52 percent of Americans live in a place where pollution often reaches dangerous levels. As described in a recent blog post, a National Research Council study in 2005 found that health-impacting pollutants from coal- and gas-fired power plants, respectively, cost society 3.2 cents and 0.16 cents per unit of generated electricity (kilowatt-hour). With an average household in the United States using about 11,000 kilowatt-hours of electricity each year, the health cost associated with that electricity consumption would be about $350 per year if it all came from a coal plant.

1. Economic growth

The American solar industry is growing rapidly, creating new jobs and businesses across the nation. In 2015, the solar industry added jobs at a rate 12 times that of the overall economy, and as of November 2015, employed more than 208,000 people.

Solar value leads electricity policy               

Our report also shows that solar panels on homes, schools, and businesses often provide more benefits than they receive through programs like net metering, which credits solar panel owners when they generate more power than they use, providing electricity for other customers. This “credit” is based on a fixed rate – often the retail price of electricity – for providing excess power to the grid, similar to rollover minutes on a cell phone plan.

Net metering has helped solar energy skyrocket in recent years, but some utilities oppose it, arguing net metering is a subsidy for solar owners. For example, in Nevada, utility NV Energy urged regulators to end the state’s net metering program.

Our report tells a different story. It shows that nationwide, the dollar and cents value of solar that homes and businesses send back to the grid is often higher than the credit utilities provide to customers.

In other words, the study shows that utilities are likely often underpaying solar panel owners, not subsidizing them. Of the 16 studies reviewed, 12 found that the value of solar energy was higher than the average local residential retail electricity rate. The median value of rooftop solar energy across all 16 studies was 16.35 cents per kWh, while the average residential retail electricity rate in included states was of 13.05 cents per kWh.

The 2016 Shining Rewards report equips electricity regulators and policy makers with peer-reviewed data that shows solar users deliver net benefits to society and the electric grid; benefits with value reflected closely under policies like net metering, which we hope will continue to drive the growth of solar power.

Photo source: GRID Alternatives

By Marc Rauch

For New Yorkers wanting more clean, distributed energy, the recent Con Edison rate case offers some good news.

Presented to New York’s Public Service Commission (NYPSC), which regulates utilities in the state, a rate case is a process utilities use to adjust policies and set rates charged to customers. A rate case occurs once every few years and provides an opportunity for state and local governments, along with consumer and environmental advocacy groups, to seek cleaner, cheaper, and more customer-friendly electricity.

The Con Edison rate case is considered a bellwether for similar proceedings involving electric utilities throughout New York State – which is part of why a recent filing with the NYPSC is so important. Along with more than 20 other parties (including Con Edison, the Real Estate Board of New York, the New York Energy Consumers Council, and several environmental advocacy groups), Environmental Defense Fund (EDF) on September 20th filed a joint proposal with NYPSC that (among other recommendations) calls for changes to the current standby tariff that are likely to be approved by the Commission.

The standby tariff is a special rate charged to commercial and industrial customers who produce some of their own electricity, but remain connected to the grid. It has been a significant roadblock to widespread deployment of distributed generation, such as combined heat and power (CHP) systems, because it imposes burdensome costs and complex regulations on businesses and institutions that produce some of their own electricity independently from the utility.

The joint proposal filed by EDF, Con Edison, and others presents several solutions for improving the standby tariff that will make it easier for people, businesses, and institutions to invest in clean, distributed energy resources.

Exemptions for “Efficient CHP”
Together with the Pace Energy and Climate Center (the Pace Center), Environmental Defense Fund (EDF) called for changes to the standby tariff that favor clean, distributed generation, i.e. customer-sited power sources that emit low or zero greenhouse gases and greatly reduce nitrous oxides (NOx), which are harmful pollutants. This is an important distinction, since some distributed generation – like diesel generators – actually contribute to pollution and harm public health. That’s why EDF and the Pace Center recommended that clean distributed energy resources be given preference in qualifying for exemptions from the standby tariff.

The joint proposal recommends a much longer exemption for combined heat and power systems. Known more commonly as CHP, combined heat and power systems are most likely to be installed by businesses, industry, and institutions such as universities and hospitals. CHP systems recapture waste heat from natural gas-fired electricity generators and use it to produce steam or hot water for space heating, domestic hot water, or industrial processes. By recapturing waste heat for useful purposes, CHP can cut fuel costs and simultaneously reduce greenhouse gases and NOx pollution.

As defined in the standby tariff, “Efficient CHP” means CHP systems that meet minimum standards of efficiency (currently 60 percent average annual efficiency) and maximum limits on NOx emissions (currently 4.4 lbs./megawatt hour). Efficient CHP systems are currently exempted from the tariff for four years, which is not long enough to recoup the multimillion dollar investment typically needed to install CHP systems. The joint proposal pushes the exemption to 10 years, which would make for a much more attractive investment and spur greater investment in CHP systems.

New York and the Standby Tariff: A Breakthrough for Clean, Distributed Energy
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Importantly, the new exemption would tie the length (and therefore, financial value) of the exemption to the degree of efficiency achieved by the CHP system: the more efficient the system, the longer the exemption. CHP systems that achieve average annual efficiencies of 63 to 65 percent will be entitled to a 7-year exemption, and systems that achieve average annual efficiencies of 63 percent or greater and achieve peak efficiencies of 65 percent or greater will be entitled to the full 10-year exemption.

The new standby tariff exemption would be available for up to 50 megawatts of new or expanded efficient CHP between now and 2019. A recent report by Sue Tierney of the Analysis Group suggests, based on data showing current deployment of distributed generation , that this new exemption could increase deployment of CHP systems in New York City by at least a third in just the next few years, as CHP developers race to bring their projects within the 50 megawatt cap and meet the 2019 application deadline.

Benefits of expanding Efficient CHP
Stronger efficiency standards are critical for fighting climate change because the more efficient the CHP system, the less fuel that must be burned (and the lower the corresponding greenhouse gas emissions) to produce the same amount of electricity and usable heat energy.

An additional benefit of the new exemption is that it would improve public health because only CHP projects that can reduce NOx emissions to 1.6 lbs. per megawatt hour or less will qualify for the exemption, resulting in a projected reduction of 64 percent in permitted emissions of this pollutant.

The new exemption incorporates several concepts advocated by EDF and the Pace Center and would likely spur rapid growth of clean distributed generation because it recognizes that up to 10 years of freedom from the onerous standby tariff may be needed to spur greater investment in Efficient CHP systems.

New exemptions for batteries
EDF and the Pace Center also proposed a standby tariff exemption for energy storage technology, specifically batteries. Energy storage is a vital part of clean, distributed energy systems because it helps balance the intermittency of renewable energy sources like wind and solar. As a result of our advocacy, the joint proposal contains an exemption from the standby tariff for battery storage systems up to 1 megawatt, and a further exemption for battery storage systems larger than 1 megawatt (available for up to 25 new megawatts in total of this kind of battery storage). 1 megawatt of battery storage is enough capacity to significantly reduce peak electricity demand in commercial buildings, operate emergency lighting and other safety systems in the event of a power outage, or supply the power needs of a few hundred homes.

A Promising Future
New York is in the midst of a promising effort to reinvent its electricity system called Reforming the Energy Vision. The measures outlined in the September 20th joint proposal are integral to its success.\

Assuming the Public Service Commission approves our recommendations in the Con Edison rate case, New Yorkers can look forward to a burst of new clean distributed generation that could reduce air pollution, curb climate emissions, and strengthen our 21st century grid.

This is the second installment in a two-part blog series about the standby tariff. Click here for part one.

By Diane Munns

More than 1,000 people gathered in Nashville, TN this week for the summer meeting of the National Association of Regulatory Utility Commissioners (NARUC). The meeting is one of three yearly where thought leaders gather to socialize the knottiest issues of the day in regulated utility industries, including telecommunications, electricity, natural gas, and water. Two electricity debates dominated the stage and the halls during this summer’s meeting: nuclear power and rate design.

NARUC meeting participants represent state public utility commissioners and their staffs, federal energy agencies, regulated industries, and special interest groups. The meetings are a place to define issues, float solutions, and begin to understand and narrow disagreements.

Nuclear power and rate design were hot topics at this summer’s meeting because of cracks in the present electricity system created by new technologies and environmental regulation.

Nuclear conversation

Making electricity using nuclear energy and whether – and how –  states can keep open existing nuclear power plants were among the most debated topics of the meeting. The big question: Can existing nuclear power plants compete in the current market structure and stay open to deliver carbon-free electricity as we transition to a new clean energy economy?

Nuclear energy currently produces 62 percent of all U.S. emission-free electricity. In states with competitive electricity markets, market rules do not factor in the value of carbon benefits associated with nuclear power, and existing nuclear plants can’t compete on price with new, cheaper gas and renewable energy. As a result, the owners of nuclear power plants in Illinois, Pennsylvania, New York, Connecticut, and New Jersey have publically stated they will need to retire these units unless the market rules are changed or states step up and make out-of-market payments to prop up the source until a solution can be found.

The rubber hit the road at the NARUC summer meeting when participants faced this real dilemma of carbon-free electricity plants closing on the one hand, while the country sets goals to further cut emission through state policies and the Clean Power Plan (the nation’s first ever limits on carbon pollution from existing power plants) on the other.

Hot Topics at the Summer’s Biggest Electricity Meeting
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Chris Crane, CEO of Exelon, laid out the issue during a plenary session. He said Exelon has argued to put a price on carbon, but “we’re not there and we are at a critical point.” Subsequent panels got into details, exploring recent Supreme Court cases, like Hughes vs. Talen, that reveal the conflict between federal and state authority over power production within states that have competitive electricity markets. The Hughes ruling was narrow and did not offer a bright-line test for where authority lies. Some state action supporting in-state generation that does not directly set the wholesale rate may be doable, and other actions may not, but which are which is not immediately clear. State options, like bilateral contract structure, that promote certain generation within their borders, were discussed.

Different opinions were offered on the long-term impact of state action in regional electricity markets and on other market participants. A discussion between former Ohio state regulators gave two perspectives on the current Ohio debate, which centers on state action within competitive electricity markets. The only area of consensus seemed to be that additional litigation will arise as we work through the issues related to what generation actions states can take in competitive electricity markets.

Rate design

Historically, electricity rates have been designed around the idea that power companies collect money from customers for utilities. New technologies are changing the fundamental idea around which rates are designed. For example, with residential solar, a homeowner might not only buy electricity, but sell it to the local grid operator. Solar companies have grown their businesses using an existing policy called “net metering” to manage this new buy-sell relationship between homeowners and grid operators.  The continuing role of net energy metering is the current focus of debate as we struggle to find pricing that will fairly compensate solar customers and utilities.

Issues of revenue erosion for the utility and equity for all customers abound as parties to the issue try to find common practices for reform. But net metering will not be the only issue to resolve as the market brings more options to the grid: energy management technologies, demand response (a conservation tool that rewards customers for shifting their energy use to off-peak hours), energy storage, electric cars, and future technologies we cannot yet predict. The meeting included vigorous sessions focused on net metering, demand charges, and a glimpse into the potential energy data and data analysis holds in enabling this revolution.

Our way forward

The meeting didn’t solve any of the issues of the day. But a recent letter submitted by Environmental Defense Fund, consumer and environmental advocacy organizations, as well as advanced electricity distribution companies, urging NARUC to continue the conversation on rate design, may offer a path forward. At the same time, the meeting did what it does best: educate, explain, narrow, test, and explore in a rapidly changing environment. It also offered a safe place for conversation and relationship development necessary to find answers that will advance the public interest.

Photo source: Cydcor/flickr

By EDF Blogs

By: Beia Spiller and Kristina Mohlin

The price of most goods we purchase is generally based on the costs associated with the goods' production, including the raw materials used to generate them, the labor associated with their manufacturing, and so on. However, when it comes to pricing residential electricity, many regulators choose to use a flat price per unit of electricity (kilowatt-hours, or kWh) that unfortunately fails to adequately reflect the underlying costs of generating and delivering energy to our homes.

This creates incorrect incentives for conservation and investments in distributed energy resources (like rooftop solar, energy storage, and demand response). Getting these incentives right can go a long way in creating more opportunity for efficiency and clean energy resources.

Pricing electricity generation

The cost of generating electricity from large-scale power plants varies significantly over the course of a day. When demand is low, electricity providers call upon the most efficient and inexpensive power plants to produce electricity. As demand increases, they must also utilize more inefficient and expensive power plants. So, for the price of generation to accurately reflect these costs, it too must vary with the time of day. Time-variant pricing charges customers more for using electricity during periods of high demand (such as during hot afternoons) and less when demand is not as great. This pricing system is an accurate reflection of generation costs.

In contrast, flat rates that don’t vary over time incentivize customers to consume more electricity when it’s most valuable to them, even though consuming during times of high demand places a larger cost on the system. Thus, the current, static pricing system creates incorrect incentives for conservation and electricity use.

Pricing electricity delivery

At the other end of the system, we have the local delivery of electricity, which relies on infrastructure such as substations and distribution lines. To understand the challenges associated with pricing this part of the electricity system, a useful analogy can be found in bike share programs – such as Citibike in New York City.

These programs are made up of certain resources – a number of stations and bikes at different locations – that are difficult to increase in the short run even though demand for these bikes is shifting throughout the day, year, and location. Currently, customers usually pay a fixed fee for having access to bikes at any location and time. However, this way of pricing can cause problems: during peak times in the morning and afternoon, increased demand from commuters reduces the availability of bikes at the most popular stations. Accurate pricing could alleviate this.

For example, customers could be charged extra for using bikes during peak periods, and potentially even charged more for renting at popular locations. This would reduce the demand for bikes at these key times and locations. We can extrapolate the same kind of logic to pricing electricity delivery, where the infrastructure and, thus, the costs are generally fixed in the short run. However, high demand can cause constraints, forcing utilities to replace strained infrastructure or expand the system, leading to greater costs in the long run. Unfortunately, similar to the Citibike example, most customers pay only a flat fee per unit of electricity they use in order to pay for these infrastructure costs. This charge does not send the signal that high demand during peak times causes constraints and increased costs on the delivery system.

There are different possible approaches to efficiently recovering the costs associated with the delivery system. One option is to implement time-variant pricing as described above, where electricity use during the delivery system’s peak hours is more expensive.

How More Transparent Electricity Pricing Can Help Increase Clean Energy
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Another option is to use peak demand charges. These charges make it more expensive to use a lot of electricity simultaneously during certain high demand hours of the day (e.g., running your dishwasher, dryer, and TV all at once). This is because in doing so, you are demanding more from the electric grid at one time, increasing the need to expand the system over time. It’s like timed lights for merging onto a freeway. If all the cars were to merge at once, there would be constant back up at high traffic times and locations, which could lead to a widening of the freeway on-ramp. Instead, the lights stagger the cars, lessening the traffic and the need for expensive construction. So, by incentivizing customers to stagger their appliance usage throughout the day, the maximum demand can decrease and grid planners can reduce the size of the system, saving money.

Utilities have not implemented peak demand charges in a widespread manner for residential customers, but they present a promising new price option when carefully and thoughtfully carried out.

There is an important caveat. While employing these tools can have positive effects on the electric grid and reduce costs, regulators and utilities need to ensure they do not harm low-income customers – people who already bear a heavier energy burden than others. Studies show solutions like time-variant pricing work well for these customers, but education and technology enablement are essential for success. By providing people with tailored information about these tools and access to technology that can help them take advantage of them, they can shift their energy use and save money on their monthly bill.

Pricing environmental impacts

Electricity charges that more accurately reflect the cost of generating and delivering electricity can help send the correct price signals to customers for conservation and distributed energy resource investments. But, something is still missing: how do we price the environmental costs of electricity production? These external costs (including greenhouse gas emissions, water consumption, and local air pollutants) can be quite large, and are currently not reflected in the price we pay for electricity.

Importantly, each unit of electricity has a different amount of external costs associated with it, depending on the efficiency and cleanliness of the power source. If each generator were responsible for paying the external costs, then cleaner, more efficient generators would pay less than their dirty counterparts, making clean electricity cheaper. This would have two impacts:

• First, in a well-functioning market, the dirtier generators would have higher costs, and would therefore be utilized less, leading to a reduction in harmful pollution from these sources.
• Second, because these prices would be passed on to customers, electricity would be cheaper when it is cleaner. Time-variant pricing that incorporates these environmental costs can thereby incentivize customers to use less energy during times of the day when the system relies on dirty power.

By ensuring these costs are internalized by the generators, time-varying electricity prices can reflect these external costs, helping us reduce harmful pollution and other negative impacts on the environment.

When electricity prices reflect costs, everybody wins

Electricity pricing that accurately reflects the underlying internal and external costs of producing electricity can lead to better, more efficient use of energy, more targeted distributed energy resource investments, and a direct reduction in emissions, resulting in a cleaner and more efficient electric system for all.

This blog post is part three in a three-part series that takes a deep dive into economics of the electric system and the role pricing can play in accelerating the clean energy economy.

Photo source: Eastern General Electric

By Diane Munns

As a former state utility regulator, I know the difficulty of balancing competing interests in making decisions and communicating those decisions to constituents. Solutions deemed “fair” by some parties may have harsh or unintended consequences for others.

This challenge of balancing competing interests is playing out with the current debate on electricity rate design as the system struggles to deal with the impact of new, distributed forms of energy like rooftop solar. From Nevada and Arizona, to Kansas and New Hampshire, we’ve seen these debates leave the hearing rooms of public service commissions and enter the public arena. Increases to fixed charges, changes to net metering, demand charges, time-of-use rates, minimum bills, or a combination of these options, are just some of the policies that states have either implemented in response to this debate, or are currently considering.

But many questions remain about the best path forward: What design will adequately compensate utilities for their investments, support the need to upgrade the electric grid, and encourage new technologies and innovation, while being perceived and accepted as fair? To answer these and related questions, a “good” rate design process needs to be put in place – one built on transparency, fairness, accessibility, and accountability.

Getting to good rate design

Instead of the traditional confrontation in a contested rate case proceeding, we should look for opportunities to engage collaboratively in constructive, stakeholder processes that explore new ways of moving forward together, even if it takes a little longer. Rate design change can have unintended consequences if not done thoughtfully. For example, increasing fixed charges may support utility revenue stability but adversely impact customer costs, conservation, equity, and the ability for customers to control their energy bills. Collaborative solutions can lessen the strident public debate, dissention, and confusion arising from change.

What is good rate design, and how will we get there?
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Solid data and transparent modeling that is credible and available to all parties should also be a tenet of good rate design. It should be gathered and used to evaluate the impact of proposed rate changes. This includes understanding how changes to electricity rates will impact goals set and paying particular attention to customers who are particularly vulnerable to change.

By following these best practices, regulators can anticipate whether or not to take additional action to mitigate the impact of rate changes. This approach can also help regulators evaluate whether testing is needed before going to scale, perhaps through pilot or demonstration projects. Finally, regulators can gauge when it is appropriate and necessary to implement the change and think about necessary education and outreach efforts to help customers better understand.

A collaborative path forward

As a former member and president of NARUC, I have great faith in its leadership and ability to guide the country’s regulators through times of change.

Built on the principles outlined above, a large and diverse group of environmental, consumer, and technology advocates – of which I am a part – have come together to develop recommendations for getting to good rate design. We sent these principles in a letter last week to the National Association of Regulatory Utility Commissioners (NARUC) – an association made up of utility commissioners from across the U.S. By submitting this letter, our hope is twofold: NARUC will consider the recommendations when revising its rate design manual, but also use its power of convening, gathering information, and driving consensus to take some of the controversy out of rate changes. As a former member and president of NARUC, I have great faith in its leadership and ability to guide the country’s regulators through times of change.

Regulators and advocates may not always see eye-to-eye. But the fact that organizations from 32 environmental, consumer, and clean technology perspectives worked closely together on this letter speaks volumes about the importance of these issues, and signals the inclusive, collaborative path forward needed to get good rate design done right. By working together, we can build a foundation that supports the goals of a clean, equitable energy future, while ensuring the electricity system our country worked so hard to build continues to be reliable, efficient, and profitable for all.

By Marc Rauch

Late last month, New York took a major step toward rethinking utility economics when it issued the “Order Adopting a Ratemaking and Utility Revenue Model Policy Framework” (also known as Track 2 Order). This action aims to better align New York’s electricity system with Reforming the Energy Vision (REV), the state’s initiative to transform the electric grid into a cleaner, more efficient, and affordable system.

But buried in this 180-plus page document is another important development for New York’s clean energy future: Nearly 10 pages are dedicated to re-examining the state’s controversial standby tariff.

Frequently cited as a major obstacle to distributed power generation (e.g. combined heat and power (CHP) systems, rooftop solar panels, energy efficiency, and storage), the standby tariff is a special electricity rate charged to large commercial and industrial customers who produce some of their own electricity but remain connected to the grid. While utilities say they need standby tariffs to recover the costs of maintaining a reliable electric grid, many potential and existing large electricity customers producing their own power see standby tariffs as perversely designed to undermine the business case for distributed generation.

Unless the standby tariff is fixed in a manner that clears the way for investment in customer-owned and sited distributed generation, it will be hard to make REV’s revolutionary vision for a decentralized, competitive electricity market a reality.

The argument for standby tariffs

New York’s standby tariff: Standing in the way of distributed energy?
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In their argument for standby tariffs, utilities say they must recover not only their ordinary costs of distributing electricity, but also their incremental costs of maintaining the reserve electricity needed in case customer generators break down and need to draw more electricity from the grid. Additionally, utilities argue the standby tariff protects non-power-generating customers by ensuring reserve-electricity costs are not shifted from the power-generating customers to non-power generating customers.  The utilities claim that absent a standby tariff, there would be an unfair subsidy for large customers who choose to generate their own electricity.

But the standby tariff must be viewed in the context of how conventional, regulated utilities have made money for more than 100 years. Unlike just about every industry in our economy, utilities and their investors are guaranteed above-market rates of return on capital investments, such as new power plants, transmission lines, and distribution facilities. Since distributed generation lessens the need for investment in these types of facilities, utilities have scant incentive to encourage its adoption. Hence, the widespread skepticism on the part of large electricity customers producing their own power.

Con Ed’s standby tariff critics

The potential and existing large energy consumers who own and operate distributed generation, notably New York City’s real estate developers and their trade association, the Real Estate Board of New York, have been among the most vocal and persistent critics of Con Ed’s standby tariff.

In fact, the Durst Organization, a prominent New York City real estate developer, announced in January that its Hallets Point residential project slated for development in Astoria, Queens would generate all of its own electricity, and not connect to the grid. This announcement was widely viewed as a reflection of the Durst Organization’s prior disputes with Con Ed over the standby tariff.

At a panel discussion on standby tariffs convened by the Public Service Commission (PSC), New York’s utility regulator, in late January, the concerns voiced by representatives of large energy consumers fell into four broad categories:

• The standby tariff amounts to an excessive and arbitrary tax on distributed generation;
• The exemptions that have been inserted on the tariff over the years (e.g. for small scale CHP plants) have stunted growth of distributed generation, as the main goal of project developers has become to keep generators small enough to qualify for exemptions rather than to install bigger generators that could provide cost savings and other benefits to facility owners;
• The exemptions tend to be time-limited, leading to regulatory uncertainty on whether they will be renewed or extended, which further discourages investment; and
• The tariff is so complex and difficult to apply that even high-priced energy consultants can only predict its financial impact with great difficulty and many qualifications, creating still another disincentive to investment in distributed generation.

Customer proposals for “fixing” Con Ed’s standby tariff

Short of a Durst Organization-style grid defection, the large energy consumers who own and operate distributed generation (or would be inclined to do so) offer three types of proposals for “fixing” Con Ed’s standby tariff. Some insist that the standby tariff should simply be abolished. Nearly all stress the need for more transparency to make the underlying rationales for divvying up reserve capacity costs among different categories of customers clearer, and to make it easier for power-generating customers to understand the complex tariff formulas that must be applied. Many seek quick and dirty fixes such as modifying particular cost allocation formulas, credits or exemptions.

Much more work must be done to hash out the complexities of the standby tariff and its barriers to clean, distributed energy.

The recent issue of Track 2 Order serves as an important starting point for reforming the standby tariff, and shows that state officials are beginning to work toward comprehensive, long-lasting solutions. But much more work must be done to hash out the complexities of the standby tariff and its barriers to clean, distributed energy. In Part two of this post, I will expand on the large energy consumers’ proposals to fix the standby tariff, show how a course can be charted toward long-term, equitable, and broadly-acceptable solutions that can foster significantly more investment in distributed generation, and propose modifications that will lead to cleaner distributed generation.

This is one of two blogs exploring the standby tariff in New York and how it discourages  distributed, on-site, customer-owned and operated power generation. In part two, we’ll explore how a course can be charted to fix it.

Photo source: CUNY

By EDF Blogs

By Jayant Kairam and Timothy O’Connor. 

Adding insult to injury, Californians learned this spring that the disastrous four-month methane leak at the sprawling Aliso Canyon natural gas storage facility could result in a new problem: outages.

The failure at Southern California Gas Company’s massive storage site exposed a critical weakness in the state’s energy system. Densely populated Southern California is over-dependent on natural gas from a single provider.

As a result, a vast area stretching from San Diego in the south to Los Angeles and San Bernardino County in the east may face power and gas shortages during the hot summer and cold winter months, a recent report by a group of state regulatory agencies warned.

Will lights stay on?

Some analysts have suggested the possibility of power and gas outages might be exaggerated, but there’s no debate that the region is cutting it way too close for comfort.

Millions of people and thousands of businesses could be exposed to costly service disruptions if the region’s 17 gas-fired power plants can’t operate as expected and other gas needs go unmet.

It’s going to take time for the state to diversify its energy mix and create a stronger, more resilient system.

There’s recognition today that by balancing market incentives we can fuel competition between natural gas and clean energy resources to gradually transition to a more dynamic, reliable, and modern electric grid.

In the meantime, there are four steps regulators, utilities and consumers are already taking – and which must now be fully utilized and expanded to relieve immediate pressure:

1. Speed up deployment of demand response programs

This tool rewards customers for shifting their energy use to times of day when there is less demand on the power grid, or when renewable energy is more abundant. In turn, demand response reduces strain on the system when it’s most likely to hit or exceed maximum capacity.

Programs such as California’s Flex Alert, the Demand Response Auction Market and so-called automated demand response programs are all models that should be maximized.

2. Help consumers take advantage of time-of-use pricing

A different approach uses the power of prices to encourage consumers to adjust their energy use to times when the grid is not stressed – and renewable energy sources are plentiful. In addition to conserving energy, this program reduces bills.

This option is being piloted in California and already in use in other states. Southern California Edison’s pilot has more than 20,000 participants. If the utility educates consumers, they can take full advantage of this new program as we move into the summer months and the risk for power outages rises.

As SoCal braces for Aliso Canyon-related blackouts, these energy programs can help
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3. Invest in energy efficiency

Energy efficiency investments in residential and commercial buildings are among the most cost-effective and fastest ways to reduce peak energy and natural gas use.

California recently authorized an additional $250 million to target efficiency measures to households most affected by the Aliso Canyon leak, and to capture greater energy savings. These efforts can ease demand and reduce bills, especially in low-income communities. It’s critical that utilities fully leverage these funds.

4. Fast-track energy storage

Utilities and third-party providers can quickly build, connect and use home batteries and other energy storage systems to balance high energy demand. A leader in this area, California is already requiring utilities to invest in such projects – but more needs to be done.

Om a direct response to the Aliso Canyon disater and subsequent power reliability issues, the state’s Public Utilities Commission recently authorized fast-track procurement and deployment of this rapidly emerging technology to minimize the risk of outages. It’s an opportunity Southern California doesn’t want to miss.

California already generates more than one-quarter of its energy from renewable sources, and plans to boost that to 50 percent by 2030.

Turning the Aliso Canyon disaster into opportunity

California already generates more than one-quarter of its energy from renewable sources, and plans to boost that to 50 percent by 2030. By diversifying its energy portfolio for the long-term and designing a more competitive market, this state – like others – can become less dependent over time on one single fuel source.

But as the risk for power outages shows, these targets alone are not enough.

By rapidly scaling up programs that exist today, in addition to doubling down on clean energy investments, we can turn the Aliso Canyon disaster into an opportunity while keeping the lights on and our economy humming.

It’s what Americans expect.

This post originally appeared on our EDF Voices blog.

Photo credit: Flickr/Justin Brown

By Diane Regas

We know we need massive decreases in greenhouse gas emissions by 2050 if 177 countries are to meet the goals of the Paris climate agreement.

But before emissions go on a steep decline, we need to turn the corner. At Environmental Defense Fund, we have analyzed what it would take to turn the corner by 2020, and zeroed in on a few key actions that will halt the rise in global emissions and make them start to go down. For good.

Christiana Figueres, the United Nations official who led the Paris climate talks, rightly talks about technology, finance and policy – technologies to store and distribute energy, financing to scale the technology we have, and policies to reward innovators who deliver results.

In my home town of San Francisco this week, the Clean Energy Ministerial will bring together innovators, investors and key government officials, marking a shift toward serious focus on achieving the Paris goals.

The energy ministers of the United States, China, Europe and India should heed the terrific work to chart paths for the future (including this global partnership). And this year, they can note three key policies already yielding measurable results.

1. A price on carbon 

A price on carbon rewards those who reduce pollution, and penalizes those who lag behind. It helps market forces spur innovation and make sure we meet our goals. The good news? Some major carbon-emitting nations and states are moving ahead.

Most critically, China has committed to putting a nationwide emissions trading system in place by next year – making the country the global leader in carbon markets.

Sixty-seven jurisdictions have or are implementing carbon markets. Globally, there is a realistic path to doubling the amount of greenhouse gas emissions covered by carbon pricing mechanisms, from about 12 percent today to 25 percent of global emissions by 2020.

3 key energy policies that can help us turn the corner on climate
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2. America’s climate action plan 

In the U.S., an ambitious plan is already under way, one that will protect people from diseases such as asthma, reduce carbon pollution, and boost clean energy.

Maybe the best news is that the centerpiece, the Clean Power Plan, is designed to reduce household energy bills by about $80 per year by 2030, while driving down pollution. We are also moving to reduce methane emissions.

Make no mistake, the U.S. still has work to do. We will need new laws and policies in the next few years to get us on track to compete in a low-carbon future, and to meet our commitments made in Paris.

3. Policies accelerating the clean electricity grid

Every environmental advance in the U.S. has been preceded by experimentation and progress in the states. The urgent work of decarbonizing our electricity system is no different and for that, we need significant advances in transparency and dynamic pricing.

Every environmental advance in the U.S. has been preceded by experimentation and progress in the states.

Transparency: The grid of the future envisions home appliances, electric vehicles, rooftop solar, and smart thermostats operating seamlessly with the power grid. And, today, more than 50 million smart meters connect American homes and businesses to the grid. Unfortunately, information is almost always hidden from the people who could use it to reduce costs and pollution.

In Illinois, EDF and the Citizens Utility Board developed a solution to create transparency – now adopted by state regulators and local utilities. Energy entrepreneurs such as Nest and Google plan to use the data to help customers save energy and money.

Dynamic pricing: For 20 years, the Nobel prize-winning theory of dynamic pricing has benefitted a range of industries from hotels to Uber. Dynamic pricing could also benefit utilities, and smart states are taking notice. By 2019, nearly 9 million residential customers in California will have “time-of-use” as their default pricing, for example.

We do not have to choose between a healthy environment and shared prosperity. If we raise our ambitions and reward those who do the right thing, we can turn the corner on climate change by 2020.

Photo credit: U.S. Department of Energy

This post originally appeared on our EDF Voices blog.

By EDF Blogs

By: Roger Stephenson, EDF’s Senior Advisor for New Hampshire Affairs

New Hampshire’s solar industry has an opportunity to stand as an example of the economic gains and consumer savings that are possible when lawmakers reach across the aisle.

But the state’s public utilities commission must act quickly and responsibly.

Earlier this year, Republican and Democrat state lawmakers reached across the aisle to move forward on clean energy “net metering” legislation allowing the solar industry to continue growing in the state. (As many readers of this blog know, net metering is a policy that allows solar-equipped businesses and homes to sell their unused solar energy back to the grid.)

As it has in many other states, the solar industry in New Hampshire has seen tremendous growth in recent years. There are more than 73 solar related companies in New Hampshire, employing about 770 people. Last year, more than $45 million was invested in solar installation in the Granite State. But also, like other states, New Hampshire remained handcuffed by policies that stacked the deck in favor of legacy utilities and kept solar energy from truly taking off.

In April, a broad cross section of New Hampshire leaders came together to remove the shackles. Getting to this point required a lot of work among leaders in the legislature and clean energy advocates, as well as negotiations with the utilities and solar installers. Environmental Defense Fund, NH Sustainable Energy Association, the state Nature Conservancy chapter, and other environmental stakeholders were at the table.

The decision reached doubles the statewide net metering program cap, from 50 MW to 100 MW. In other words, the total amount of solar energy residential and commercial customers could sell back to the grid in New Hampshire had doubled.

New Hampshire Just Doubled Its Solar Net Metering Cap – And It Already Needs More
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But now, just weeks after the bill was signed, solar providers are already nearing the increased net metering cap for larger solar projects, at least in the Eversource service area (Eversource serves about 70 percent of electricity customers in New Hampshire). While the bill signed into law is unquestionably a big step in the right direction, a problem many stakeholders foresaw in the negotiations is being realized: New Hampshire solar needs a cap higher than 100MW.

New Hampshire’s legislature did their part by lifting the cap on an interim basis. Now the cap is being considered by the New Hampshire Public Utilities Commission, and it is up to them to use the regulatory process to ensure net metering provides a reasonable, reliable, and consistent clean energy choice for businesses and residents. The Commission now has ten months to complete its work, but in the interim, solar in New Hampshire is once again hitting an artificially low ceiling.

New Hampshire solar needs a cap higher than 100MW.

The Granite State has a lot to be proud of, especially compared to some other states. In Nevada and Arizona, the old utilities are pushing for rules that would run the solar industry out of town. In Florida, outdated policies side with big utilities and limit the opportunity for businesses and homeowners to go solar.

In New Hampshire, at least, lawmakers, clean energy advocates, and solar installers are embracing a robust, clean energy future with strong economic growth and savings for all who want them. Now it’s up to the Public Utilities Commission to move the state a step closer to this reality.

Photo credit: Fred Greenhalgh/Flickr