Dive Brief:

A recent ruling by the Kansas Supreme Court reversing the Kansas Corporation Commission's approval of a higher residential rate for customers with home solar could have an impact in other states where environmental advocates oppose utilities' assertion that owners of large arrays become "free riders," whose monthly bills do not pay for the cost of the distribution lines.

The highest state court reversed an appellate court approval of a dual residential rate created by the Topeka-based utility Evergy, and approved by regulators. The court ruled the rate was designed to be "discriminatory." Under that rate, about 300 solar-equipped customers faced an additional demand charge, which could significantly boost monthly bills, especially in the summer months when demand for power is heavy.

Spokespersons for Evergy and the KCC said a new rate plan will be developed to comply with the court's ruling but that a time frame has not been established. In its ruling the court suggested the company find other ways to deal with the "free rider problem" without creating discrimination, for example, by restructuring rates with a flat monthly fee on every bill to cover the fixed costs of maintaining the distribution system.

Dive Insight:

The court's ruling gave a victory to the Sierra Club and the advocacy group Vote Solar. The decision also puts the utility industry on notice that there is an underlying fairness issue that cannot be dismissed as some utilities seek to slow the development of customer-owned solar installations by adding special charges to the bills of those customers.

David Bender, an attorney for Earthjustice, the non-profit environmental law firm that represented Vote Solar and the Sierra Club, said the Kansas Supreme Court decision came down to language in the state utility law, which prohibits rate discrimination.

"We were not complaining about this because we wanted [the court] to solve global warming, although we would appreciate that, but the issue here is treating two sets of people differently in how you price a product that does not have to do with their costs," said Bender. "That premise is broadly applicable. Many states will have a version of [anti-discrimination] in their regulations. We think [federal regulations] have a version of it."

"We have litigated demand charges, higher fixed charges, grid access charge in front of the commissions in Michigan, Wisconsin, Montana, Nevada, Arizona, Texas, Utah, Colorado, New Mexico and Massachusetts. This is the first one where we have lost at commission level and took it to state courts," he said.

Rick Gilliam, a program director at Vote Solar, said Evergy's demand charges on solar customers had been "held up by our opponents as what utilities should do to properly account for the lost revenue associated with solar. This decision will help us."

The Edison Electric Institute, representing the nation's investor-owned utilities, views the ruling as unfortunate for Kansas but not applicable in other states.

"This decision by the Kansas Supreme Court removes a tool from the regulatory toolbox that would have helped ensure that everyone who uses the energy grid pays their fair share to maintain and operate that grid, including those customers with private solar systems," said Adam Benshoff, EEI's executive director for regulatory affairs, in an email. "Rate design fundamentally is about fairness and protecting customers from unreasonable costs, including costs that are being shifted from one subset of customers to another."

"Given that the court based this decision off of a state-specific statute, we do not anticipate other states moving to limit the tools that regulators have at their disposal to help protect customers from unreasonable costs," he said.

The Kansas court's ruling comes after New York-based Elliott Management, an activist hedge fund, muscled its way onto the Evergy board of directors after publicly criticizing the company for not phasing out old coal plants and not investing in renewable energy.

Evergy has since said it will build new wind farms with a combined capacity of 650 megawatts and phase out coal by 2050.

Elliott, which owns about 5 percent of Evergy's shares, has also persuaded the company's board to create a new Strategic Review and Operations Committee to recommend further changes.