Every entrepreneur understands that overhead costs can sink a business, which leads many to find creative ways -- such as bootstrapping to outright living in squalor conditions -- to reduce them.
One utility, electricity (power), is an essential part of running an office, warehouse or manufacturing plant. Unfortunately, power is expensive, and with few exceptions is one expense over which entrepreneurs have very little control.
So how would you feel if you knew that your competition had access to incredibly cheap and reliable power? Moreover, you knew their power was being subsidized by you -- through your power rates and taxes?
I imagine you would be hard pressed not to be a little miffed.
Related: Why SolarCity Plans to Ditch Nevada
This about describes the situation currently unfolding in Nevada. Over the past few years, solar panels have been widely adopted by residential and commercial consumers, thanks in large part to sinking solar panel costs, friendly net-metering rules (a process whereby customers who generate their own electricity from solar power feed electricity they do not use back into the grid for credit) and competitive pricing by solar-panel installers (in some cases, with zero money down initially).
All these factors have created a perfect storm for consumers in Nevada, with over 18,000 customers proudly adorning solar panels on their roofs and saving a tremendous amount of money in the process. In one case, a Nevada residential consumer reported his energy costs falling from $330 to $80.
Everyone was happy, including solar-panel companies like SolarCity, a $350 million venture owned in part by billionaire Elon Musk, which even opened its main service center in Nevada, employing over 1,000 people.
There were a couple of problems, however, with this solar utopia.
First, the solar energy produced by customers still travels through the power grid, which is maintained by the power company, NV Energy. How does NV Energy pay for maintenance of the grid? Through subscriber rates and fees, of course. Logically, when you reduce these sources of revenues -- even issuing checks to those generating and selling back solar energy -- you reduce the resources necessary to maintain the power grid, which the vast majority of the public uses and relies on.
Second, not all customers can afford or have access to solar panels. Only a few companies offer leasing options with no money down, and even then the equipment still has a cost for service and maintenance. Many families simply do not have the resources necessary to install and benefit from them. And if you rent or lease your property, solar panels are only available to you if your landlord or property manager front the expense for installation.
This leaves everyone without access to solar panels paying the higher utility rates that ultimately subsidize the maintenance of the public power grid.
For these reasons and more, Nevada legislators stepped in and passed new rules in December of 2015 that raised rates on those households with solar panels, essentially making solar energy completely uneconomical. A day after the ruling, SolarCity announced the company would cease all operations in Nevada and layoff 550 employees. Other solar companies quickly followed.
The ruling predictably prompted outrage among homeowners and business owners alike, many of whom had made significant investments in their solar-panel systems hoping that the cost savings would eventually pay for the expense. And, of course, there is the environmental concern that this ruling would undercut continued efforts to develop cheaper and cleaner renewable energy, which would help wean the U.S. of its reliance off of fossil fuels.
Protests ensued this past January, with community members and business owners pleading to legislators to change the ruling. Even Mark Ruffalo, the recognizable actor who recently portrayed Hulk in The Avengers movie series, was on the scene to pronounce his support of the solar-energy customers and industry. All of this was to no avail, as legislators unanimously agreed to stick with the ruling.
Fueling (pardon the pun) the outrage further was the fact that NV Energy had only recently been purchased by Warren Buffett’s company, Berkshire Hathaway, for $5.6 billion. Many speculate that Berkshire leveraged powerful and influential lobbyists who were pulling the strings to get the ruling passed. Like so many before, this became a story of a billionaire’s influence and putting profits ahead of the community.
In the end, this story epitomizes the ultimate business ethical dilemma, one not unlike those faced by entrepreneurs every day -- just not to this scale, perhaps.
For instance, if you fall on the side of environment and community, you would be completely right supporting SolarCity and other companies trying desperately to manage the cost of innovation and bring solar energy to the masses. This type of legislation undermines this effort and sets a dangerous precedent, one in which could hinder the tremendous progress already made in the industry.
And, if you fall on the environment and community, you also would be completely right to support Berkshire. The company has already committed $15 billion in investments in renewable energy, and it is doubling that pledge for the coming years as part of the Obama administration climate pledge. If Berkshire’s energy holdings do not continue to create value for its shareholders now, much of this valuable research and development may never get accomplished.
Moreover, should we continue to ask those who cannot afford or do not have access to solar energy to subsidize the expansion and adoption of the technology and ultimately foot the bill for maintenance of the power grid, which is essential for our country and economy to survive.
Lastly, consider the fact that Berkshire has an obligation to their shareholders -- which includes everyone from shareholders to the families of employees -- to step in and influence decisions like these if they directly affect the welfare and value of the business, which the solar energy sector was clearly doing. The number-one rule of business, after all, is increase shareholder value.
What would you do as the entrepreneur on either side?
I do not pretend to have the answers to this complicated ethical dilemma. But one thing is certain -- that the products and services that will shape our future, including energy, will come from the ambitions and innovations of entrepreneurs, not legislators. We just need to understand and embrace the fact that many of the most challenging issues we face in business cannot be resolved now, tomorrow or even in the next 10 years. It requires, however, working together toward solutions that benefit stakeholders on both sides.
On this issue of solar energy, we are forced to leave it to Musk and Buffett -- the battle of billionaires -- to settle. Personally, I am okay with this. Renewable energy, including solar, is a frontier that will be pioneered by the most innovative and creative thinkers, but it will not be cheap. Musk and Buffett ultimately are pioneers and philanthropists, so while it may not happen tomorrow, I believe they have the resources, desire and the shared values to get the right thing done.
And, if things get sticky, perhaps we can put more pressure on Mark Ruffalo to intervene. Someone will have to push a little harder to aggravate him, because it is not so much Ruffalo we need, but rather his green, alter ego.