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The Solar Tax, Part 2

Aug 6, 2019

Last month I discussed Al Gore’s visit and talk in Hayneville in February and his criticism of Alabama Power Company’s Capacity Reservation Charge. I also discussed how electric utilities’ costs are incurred and how utilities recover their costs. This month I will close out the article with a discussion on how Alabama Power Company’s Capacity Reservation Charge prevents subsidization of solar customers by non-solar customers and saves poor electric customers money on their electric bill.

To make recovery of a solar customer’s fixed costs more difficult, solar panels do not produce electricity when it is most needed. Alabama Power customers and PowerSouth’s end-use members have their highest usage period between 6 and 7 a.m. on a cold winter morning. At that time, the sun is not shining, solar panels do not produce electricity and retail customers rely solely on their electric utility to warm their homes, etc.

The generation, transmission and distribution systems and other equipment supporting the electric grid are built to serve the peak load of all customers whenever they need it. The utility’s fixed costs are incurred to provide service on a cold, dark winter morning – not a bright sunny day when solar panels are producing electricity. Solar panels provide no contribution to the utility’s fixed costs to serve its peak load.

The fixed costs incurred to make sure customers will have service are charged to customers across their electric usage the entirety of the year. If a customer installs solar panels, they avoid paying the variable cost for some electricity but also avoid paying for some of the fixed costs committed by the utility to serve them when the sun is not shining. That is a very good deal for solar customers but not a good deal for the non-solar customers of the utility.

Electric utilities charge and earn profits based upon an established rate of return, not how much electricity they sell. Therefore, revenue not paid by one class of customer, such as solar customers, will be shifted to other customers so the utility will recover its rate of return across its entire retail customer base. Therefore, if one customer doesn’t pay his share of the fixed costs invested on his behalf, those unpaid costs are shifted to the overall rate pool and are paid by the other customers that haven’t installed solar panels. In that case, the non-solar customers are subsidizing the customers with solar panels.

Alabama Power’s Capacity Reservation Charge merely is a charge that ensures customers with solar generation pay all the fixed costs incurred to provide them service. It is not a tax; it is not discrimination. Contrary to Mr. Gore’s statements and the allegations of environmental groups, it is in the public interest for all utility customers to pay the costs required to provide them service.

Instead of the charge being punitive to the solar customer, the charge keeps non-solar customers from subsidizing the costs of the solar customers. Alabama Power collects the same revenue and makes the same amount of profit regardless of the Capacity Reservation Charge. The only difference is where the revenue comes from – the affluent solar customer or the poorer non-solar customer.

With very few exceptions, people who install solar panels are affluent and have the money and resources to afford to install panels, as well as owning the homes and lands on which the panels can be installed. People living in mobile homes or apartments do not have those same resources or options. Poor people usually don’t have the resources to install solar panels.

Mr. Gore and the environmental groups know California utilities shift more than $2 billion in electric costs from more affluent solar electric customers to poorer non-solar customers. They know the Arizona electric utility structure is under siege because so many affluent solar customers are being subsidized by poorer Arizona non-solar customers.

It is sad that Mr. Gore and the Southern Environmental Law Center (SELC) promote their agendas for expanding renewable energy on the backs of the poor electric customers. Alabama Power’s Capacity Reservation Charge does much more to protect the interests of the poor people in the Alabama Black Belt than Mr. Gore or the SELC ever will.

I hope you have a good month.

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