Tuesday, March 1, 2016 | 2 a.m.
Since Nevada utility regulators decided to increase bills for rooftop solar customers, Warren Buffett has found his name at the center of the debate over the rates.
Media reports have depicted Buffett — the chairman of Berkshire Hathaway, NV Energy’s parent company — as locked in a battle with SolarCity Chairman and Tesla CEO Elon Musk over the future of the grid. Solar advocates have been critical and politicians have been outspoken about him on the campaign trail.
Meanwhile, the billionaire investor remained largely quiet. But in past days, Buffett has broken the silence, including Monday to CNBC.
He said the new rate structure will shield NV Energy’s over one million non-solar customers from cost shifts. He also discussed his relationship with Musk, detailing a telephone conversation they had about the solar issue, one that also touched on subsidies for Tesla’s massive battery plant in Northern Nevada.
Debate over rooftop solar reached a peak in December when the Public Utilities Commission of Nevada voted to raise a fixed service charge for solar customers and slash the value of credits those customers could earn by generating excess electricity under a program known as net metering. Following the decision, several solar companies, including SolarCity, laid off hundreds of employees as it ceased installations here.
Buffett says rates protect non-solar customers
On Monday, Buffett said the new rates are necessary to avoid shifting costs to non-solar customers.
“We do not want our million plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it for them at 4.5 cents,” he told CNBC Monday morning during a wide-ranging interview. “So we do not want the non-solar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers.”
At the center of the issue is how rooftop solar customers, who produce energy and purchase electricity from the grid, should be integrated with the utility. The commission argued that rooftop solar customers were not paying their fair share for the grid and shifting costs to other ratepayers. That conclusion led regulators to cut the rate NV Energy reimburses solar customers for the excess electricity they generate.
Large solar plants typically charge utilities about 5 cents per kilowatt hour for electricity, significantly lower than the rate — about 11 cents per kilowatt hour — that NV Energy had been paying to purchase electricity from rooftop solar customers.
Under the new rates, phased in over 12 years, solar customers would be reimbursed at a lower rate, about 2.6 cents per kilowatt hour. But solar advocates say the lower rate undermines the economics of net metering, noting that most states, including some where Berkshire utilities operate, reimburse customers at the higher rate.
Advocates of the solar industry and the Bureau of Consumer Protection, the state agency that represents all ratepayers before the Public Utilities Commission, have also said the cost shift is overstated, arguing that the subsidy had been improperly calculated and contextualized. The commission relied on an NV Energy study the bureau said was an inappropriate method that did not consider the benefits of solar.
Buffett vs. Musk
In January, Bloomberg Businessweek ran a cover photo depicting Buffett putting Musk in a stranglehold. When asked on Monday about the reported battle between the two billionaires, Buffett said Musk had called him about the rate structure.
“He was unhappy,” Buffett said of Musk. “He’s being subsidized with his battery plant big time.”
Following a special session of the Nevada Legislature in September 2014, Tesla received an estimated $1.3 billion in tax incentives to build a 5.5 million-square-foot factory near Reno. As part of the package, Tesla was authorized to receive eight years of discounted NV Energy electricity rates. At the time, Northern Nevada power customers were expected to see their utility bill increase by about $1.50 a year.
Asked whether Musk was upset on the phone call, Buffett said: “Well, he would like the million people to subsidize the 17,000 (solar customers) just like the rest of Nevada is subsidizing his battery plant.”
Musk has often fought back against criticism of the incentives, including as recently as last month. The incentive package represents about a one percent discount on the factory, known as the Tesla Gigafactory, Musk said during the company’s financial results conference call in early February.
He added the incentives are relatively minimal, given that the battery factory will be the largest-footprint building when it is completed.
“It makes sense that if something is the biggest thing on Earth, it’s probably going to have incentives that are big in the absolute, but small in relative terms,” Musk said.
Around the same time, Musk’s company waded into the net-metering debate, with one of Tesla’s top executives urging the utilities commission to reconsider its decision to increase bills for solar customers.
The effect of solar and wind
The Buffett vs. Musk narrative reflects a larger debate about the future of the electricity grid.
On one hand, Buffett’s utilities have invested heavily in renewables. His company has invested about $16 billion in clean energy, and Buffett has said his company would take part in a White House climate pledge.
In a letter to shareholders last week, Buffett said the company’s future commitments to renewable energy investments “make great sense, both for the environment and for Berkshire’s economics.”
But renewable energy may also pose a threat to utilities, especially those that are inefficient.
Buffett also wrote that, in the past, “utilities were usually the sole supplier of a needed product and were allowed to price at a level that gave them a prescribed return upon the capital they employed.” That dynamic is changing, Buffett said, as the government provides incentives for renewables, a move that “may eventually erode the economics of the incumbent utility, particularly if it is a high-cost operator.”
Rooftop solar advocates argue that NV Energy supports investment in large-scale solar plants but not customer-generated solar because regulated utilities are allowed to profit on infrastructure investments. When customers generate their own electricity through private investments, solar advocates argue that it cuts into the utility’s revenue because it reduces the utility’s need to invest in infrastructure for electricity.
Before the utilities commission ruling, NV Energy CEO Paul Caudill said the utility did not stand to gain after it proposed a rate structure similar to what the commission adopted.
“We stand in no way to benefit from the proposals we make,” he said. “These are all cost-based decisions. It is not about Berkshire Hathaway and Berkshire Hathaway Energy and what they want. The solution we fashioned was designed for our customers’ needs in the state. This is all about how you allocate costs.”