Beggar Thy Neighbour

“Beggar Thy Neighbour” is a classic economic policy through which one country attempts to remedy its economic problems by means that tend to worsen the economic problems of other countries. In 1776, Adam Smith wrote about “Beggaring Thy Neighbour” in The Wealth of Nations, the foundation for modern economic theory. Smith’s theory was developed from an earlier economics concept termed, “Tragedy of The Commons,” which appears in the works of Plato and Aristotle. Helping oneself at the expense of one’s neighbors has been around a while. It doesn’t appear to be going away anytime soon.

Recently, Dennis Pillion at supported a classic Beggar Thy Neighbor policy in his article about the Southern Environmental Law Center’s (SELC) complaint against Alabama Power Company’s solar rates and policies. The SELC alleges Alabama Power’s Capacity Reservation Fee, a $5.00 charge per kilowatt of installed customer-owned generation, is unreasonable, unjust, discriminatory, contrary to the public interest and otherwise unlawful.

Then Katie Ottenweller, senior attorney at the SELC, states, “This unwarranted fee is limiting Alabamians’ rights to create solar power on their own properties and reduce their electric bills.” To that extent, Ms. Ottenweller is correct. However, Ms. Ottenweller neglects that lowering solar customers’ electric bills shifts the solar customers’ fixed cost of service to non-solar customers and beggars their neighbors.

The SELC also cites Alabama law which provides, “utility rates cannot unjustly discriminate against particular customers or a class of customers” and “rates must be based upon the cost of providing service to each class.” The SELC is correct about Alabama law but wrong about the injured class of customers. It is discriminatory for Alabama Power’s non-solar customers to be burdened with paying the fixed costs of solar customers.

Mr. Pillion states, “Alabama Power pays less than most utilities for excess energy fed back onto the grid when solar panels produce more energy than the solar customer is using. Alabama Power only pays the avoided cost of it generating that power (3 to 4 cents per kilowatt hour) instead of the average retail rate (12 cents per kilowatt hour).” He also states, “Many states have enacted so-called net metering policies that require utilities to credit customers for extra energy returned to the grid at the same rate those customers are charged to take power off the grid. Some utilities, looking to increase the amount of solar energy they produce [sic], pay more than the retail rate for solar energy on the grid.” He implies that Alabama Power doesn’t pay enough for solar power from its customers.

Why does the SELC position beggar thy neighbor? A solar customer only produces power when the sun is shining. Without energy storage facilities – primarily batteries – the solar customers rely on their utility and the electric grid to provide their electricity the remainder of the time. To provide that service, the utility must build and maintain distribution electric lines, substations to convert the voltage of the electricity, transmission lines to move the electricity to the substations, electric generation plants to produce the power exactly at the time it is needed, and complex energy control centers to keep load and generation balanced.

Alabama Power’s total system and its residential customers demand more instantaneous power very early on a cold winter’s morning than any other time. The sun is not shining at the peak hours; therefore, solar customers provide no assistance in helping serve the annual peak power demand. The distribution system, substations, transmission lines, and power plants must be sized to serve the total system load at the time of the peak. The solar customers individually contribute to the peak because they are using electricity when their solar generation is not producing electricity.

Traditional electric rates are designed to recover a customer’s fixed cost primarily through a volumetric energy usage bill each month. If a solar customer reduces his monthly electric energy usage from the utility and uses grid service on the utility’s peak, he avoids some of the fixed costs invested to provide him service when the sun is not shining. Alabama Power’s Capacity Reservation Charge merely recovers the solar customers’ fixed costs that are avoided with their reduced usage through the daylight hours.

Utility costs and rates are a zero sum proposition. If solar customers don’t pay their share of the fixed costs invested to provide their electric service when the sun is not shining, their non-solar neighbors have to pay it for them. The neighbor is beggared.

I close by pointing out that the more affluent customers will install more solar facilities than poorer customers. The rich will shift their fixed costs to their poorer neighbors. The SELC thinks that is fine. It is odd that an organization that claims to protect the common man supports policies that will hurt poorer electric customers.

I hope you have a good month.

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