Duane Bennett

Regulators facing complex controversy over rooftop solar

Article 9

(12/02/2016) The Public Service Commission of Utah has issued a scheduling order in the fee
and rate structure changes. It has to approve or reject the changes to fees that Rocky Mountain Power
has requested. The Commission, by issuing the scheduling order, has created uncertainty in the solar
company community and has driven down interest in solar power by 40%, according to Vivint.
Rocky Mountain Power (RMP) is a regulated monopoly1 (only supplier of a unique good or
service with no close substitutes). RMP has a natural monopoly2 (an industry where one firm can
achieve an economy of scale over an entire range of market supply) as they operate with a large
economy of scale3 (reductions in average minimum cost achieved through large size of capital). They
are seeking to create a tariff4 (a fee or tax on imported goods or services) on rooftop solar users. Their
hope is that they will be able to recoup a loss of revenue5 (profit plus costs). RMP is claiming that the
typical rooftop solar customer is underpaying cost of service by about $400 a year. This
underpayment represents what RMP considers fixed costs6 (costs that do not vary) that they claim
these customers are not paying their fair share of. In reality, what it is doing is affecting their excess
profits7 (revenue less costs) that they are earning. By seeking the rate increase, they are seeking to
also reduce the consumer surplus8 (difference between what consumers are willing to pay and what
they actually do pay) that currently exists.
RMP is controlling the market for energy and is reducing the interest in solar systems by at least
40% according to Vivint CEO David Bywater. The nudge9 (form of manipulation used to get someone
to do what you want them to do) being used is this request for a two tiered rate system, one for
rooftop solar users and another for regular customers. Since everybody needs power for their houses,
the price RMP wants to charge is almost perfectly elastic10 (when consumers are willing to pay any
price to obtain a good or service, usually out of necessity). This demonstrates the imperfect
competition11 (competition where there are firms with significant advantages over others in a market)
in the market12 (a place and time where buyers and sellers transact). Solar power generation
represents a potential substitute13 (a replacement good or service) to the service that RMP is

providing. Solar power is a renewable natural resource14 (anything in the air, under the water, in the
water, in the ground or on the ground), which makes it currently very hard to legislate.
The Utah Solar Energy Association commissioned a survey to conduct a poll of registered voters
to determine attitudes about rooftop solar systems in the area. This poll was normative15 (allowing
biased judgements and opinion) in that it asked those polled for their opinions on a variety of
scenarios. Vivint believes that the official notice given by RMP to the commission means that rates will
increase for customers. This rate increase is affecting demand16 (the ability and willingness to buy a
good or service at a specific time and price) for rooftop solar systems industry wide in the state of
Utah. They are concerned that the solar industry had been thriving in the state, creating 4,000 jobs in
the last five years. This rate change would affect labor17 (physical/ mental effort done by humans) for
the solar industry, which is a resource18 (anything used to produce a good or service). A further
constraint19 (limiting factor) is that the state legislature is considering a proposal to eliminate the state
tax credit on rooftop solar in five years because of its impact associated with state education funds.
That RMP is using the Public Service Commission and its regulation of itself to their advantage to stifle
the solar industry is an example of a barrier of entry20 (obstacles that prevent admittance of more
firms into a market) into the market.

Article referenced:
ODonoghue, Amy Joi. Regulators facing complex controversy over rooftop solar. Deseret News, 2
Dec 2016. p.A1, A6