It may not be getting big headlines, but a two-year legal battle between Salt River Project (SRP) and Tesla is being closely watched by the utility industry. A fascinating court case that has now reached the U.S. Supreme Court centers on the question of how to properly value our transmission and distribution grid as more and more solar energy and other distributed generation comes online.

In a nutshell, it's a traditional utility taking a stand for appropriate pricing for solar grid connections, versus solar entrepreneur Tesla arguing that SRP’s interconnection policies create a barrier to entry for their potential solar customers. 

Looking past all the legal noise, this battle is all about consumer behavior. Most consumers who are interested in solar are not ready to cut ties with the grid. They still value the security of knowing the grid is always there on days when their solar or battery storage units are not producing the power they need. The grid has value, even for consumers who want other power sources. So, the real issue everyone is dealing with: What is the appropriate value of the grid

The Grid Has Value

Our legacy grid has served the public safely, reliably and affordably for decades. If we are to smoothly transition to an integrated grid featuring distributed renewable power generation and the advanced technologies needed to address a broad range of issues, the legacy grid must be preserved.

The grid has value. Without it, the public policy initiatives and regulatory directives for large penetration rates of distributed generation cannot be achieved.

There is no question the grid is the platform for the future. It must continue to evolve — grid modernization is happening  and no utility is arguing against the investments needed to improve reliability, flexibility and resiliency.

It Must Be Paid for

SRP is taking a stand that may set a precedent in determining a path for compensation as more and more consumers turn to solar energy. Costs are coming down and more rooftop solar is being installed, depleting funds utilities need for ongoing maintenance and operation of the grid. Regulators generally agree these costs are justified and must be paid if a customer with rooftop solar remains connected to the grid. The only question is what is the right level for demand charges.

Arizona utilities have been dealing with the question of demand charges, or net metering charges, for years. In February 2017, Arizona Public Service reached a settlement with solar and environmental groups to make demand charges optional as they implement a system of time-of-use rates. Arizona regulators are pushing all state utilities to adopt time-of-use rates for solar and non-solar customers; Tucson Electric Power is on the path toward implementing a TOU structure to be rolled in sometime next year.

New Business Model or Rate Is Needed

Time-of-use rates, coupled with some reasonable demand charge mechanism may be the path forward. Arizona Public Service and Tucson Electric Power are moving forward with some combinations of these mechanisms to resolve the problem of utility rate development.

Utilities must move toward a new business model that recognizes new realities while still answering some age-old questions — like cross-subsidization of various customer classes.

SRP is taking a stand for social justice and fairness. Power consumers have every right to switch to solar or any other distributed generation resource. But they do not have the right to offload their share of the cost burden for the benefit they derive from remaining connected to the grid.

We’ll all be watching closely as this issue is resolved.

 

For a more detailed analysis, download the white paper paper “Capitalizing on the Value of the Grid,” which I co-authored with Ken Bowes of Connecticut Light & Power.

Download the White Paper

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With extensive experience in industry policy and advanced technologies applied throughout North America, Mike Beehler is a Vice President at Burns & McDonnell.