Ordering Xcel to retain Solar Rewards is neither legal nor smart
By Peter J. Nelson
Peter J. Nelson is the director of public policy and associate general counsel at Center of the American Experiment, which describes itself as "a nonpartisan, tax-exempt, public policy and educational institution that brings conservative and free market ideas to bear on the hardest problems facing Minnesota and the nation."
Minnesota Commerce Commissioner Mike Rothman recently ordered Xcel Energy to continue subsidizing solar panel installations through its Solar Rewards program and, in doing so, clearly overstepped the Dayton administration's executive authority.
Not only did he step well beyond his authority, his decision is just plain bad policy. Requiring Solar Rewards to continue will both raise electricity rates on Xcel customers and damage the effectiveness of Xcel's energy efficiency program.
Solar Rewards is funded through Xcel's conservation improvement program, established more than 30 years ago to lower energy usage by making homes and businesses more energy efficient, such as through rebates on energy-efficient appliances. Funding solar with energy efficiency dollars is rather odd. While subsidizing solar panels might achieve a similar goal as energy efficiency — reducing demand for electricity from traditional power sources — solar panels are all about energy generation, not energy efficiency.
Nonetheless, in 2001, a law was enacted that required utilities to spend 5 percent of what they spend on energy efficiency on renewable electricity generating projects to the extent "cost-effective projects are available." Two years later, this law was amended. Instead of a requirement to spend 5 percent on cost-effective renewable projects — something that clearly did not include costly solar projects — the Legislature made the spending optional. But it was only optional for utilities that met their energy efficiency objectives. As Sen. Steve Kelly explained when he amended the language on the floor of the Senate, "we want to create an incentive for folks to meet the objective and then get additional flexibility in how they spend their conservation improvement money." Thus, the language is all about giving utilities flexibility in how they administer their energy efficiency programs.
But now the Department of Commerce is using that statute to do just the opposite. Instead of giving Xcel flexibility, Commissioner Rothman ordered Xcel to continue spending money on Solar Rewards.
This order is an astonishing abuse of power. No fair reading of state statute can justify Rothman's actions. The absurd legal justification Rothman put forward is even thinner than the Dayton administration's daycare unionization arguments that a judge tossed out last spring.
The order is also just plain bad and counterproductive policy.
Rothman's order argues that "there is a significant public interest in continuing Solar Rewards." He claims the program provides economic benefits by creating jobs in the solar industry and provides environmental benefits by adding cleaner, renewable energy to Minnesota's energy portfolio.
There is no question that Solar Rewards is a jobs killer for Minnesota. The money the Solar Rewards program is pumping into the solar industry isn't free money. It comes straight out of your pocket, my pocket and the revenue of your employer. It's the money that you and I spend to support all of the jobs in our communities. It's the money that Minnesota businesses spend on wages for their employees and on investments to build their business to employ even more people.
Robbing Sven to pay for Ole's inefficient and expensive solar panels redirects Minnesota's scarce resources to a less productive use, which must mean fewer jobs. Consultants at Verso Economics found that for every job created in renewable energy due to the United Kingdom's renewable policies, 3.7 jobs are lost. Because solar is more expensive than most renewables, the number of jobs lost to every solar job created would be much higher than 3.7.
And there is one more major economic problem with solar subsidies: We all pay for the subsidy through higher electricity rates, yet the folks who benefit from the subsidies tend to be the well-to-do. Even after subsidies, solar installations still tend to cost thousands and only the more financially secure of homeowners or business owners can afford them. In a New York Times story from June, David K. Owens, executive vice president of the Edison Electric Institute, points out the obvious: "Low-income customers can't put on solar panels." He then asks the obvious, "So why should a low-income customer have their rates go up for the benefit of someone who puts on a solar panel?" Many wealthy homeowners are driven to install solar simply to prove their environmental bona fides. Solar panels act as an environmental billboard arrayed on the roof that neighbors can't miss. The economics profession calls that conspicuous consumption. Everyone else calls it bling. Low-income Minnesotans should not be subsidizing environmentalist bling.
Maybe losing some jobs and raising electricity rates on low-income households would be OK if the solar subsidies actually improved the environment for the rest of us. Unfortunately, solar subsidies actually harm the environment when you consider that the money could be spent on more effective environmental improvement programs. Though costs have come down, solar is still expensive — four to six times more expensive than other renewable energy sources, according to Xcel. And solar is many multiples more expensive when compared to energy efficiency programs.
Furthermore, if the goal is to reduce the future need for gas, coal or nuclear power plants, solar energy won't get us there. Because the sun doesn't shine all the time, solar panels will always need to be backed up by these traditional power sources. Only energy efficiency programs that truly reduce the demand for electricity can reduce the need for these power sources.
In sum, there is neither legal authority nor any economic or environmental sense to continuing the Solar Rewards program.
What is Xcel to do? It can appeal Rothman's decision to the Public Utilities Commission and would likely be successful. But, if it does so, it risks souring its relationship with its regulator.
The Star Tribune reports that "Xcel said it appreciated the 'thorough and thoughtful process,' which prompted dozens of people to write letters of support for Solar Rewards." In praising the process as "thorough and thoughtful," Xcel sounds like it plans to accept the decision.
The trouble is, the process was anything but thoughtful. A thorough and thoughtful process would strive to collect and consider the full diversity of views. But the people who weighed in on the issue were almost exclusively people who benefited financially from the subsidy. Of the 45 letters commenting on the Commerce Department's preliminary recommendation to require Xcel to continue Solar Rewards, every single letter sided with Commerce and against Xcel's ratepayers. Twenty-five of these letters were from people who work in the solar industry, 11 were from people who benefited from solar subsidies, and five were from solar advocacy groups. Only three were from citizens who didn't have a clear financial interest.
And this fact exposes one of the great weaknesses in the way Minnesota regulates utilities. No one aggressively represents the interests of the average residential electricity consumer. Consumers need to get more involved in the process, and they can start by calling Xcel and demanding the company appeal Commissioner Rothman's decision.