If the failure mode is "public utilities have achieved regulatory capture", then isn't having something like Tesla come in with billions of dollars of support an effective solution?

You're asking a different question, in a very loaded way.

Bringing your question back to SCTY, one of the critiques of SCTY in NV was that SCTY was expecting/betting to be able to sell back electricity to the grid at retail (not wholesale) rates via net-metering. Inarguably, this was a threat to the utility and its ability to re-coup its large capital investments (sunk costs) in the grid.

There are other solar companies whose business model doesn't rely as directly on "billions of dollars of (taxdollars in) support."

There are two different regulatory things going on here. The first is a tax rebate for installing solar. The second is a policy requiring utilities to purchase excess energy from people with solar installations. My interpretation of the article you linked was that the utilities were attempting to conflate these by arguing that the money to pay consumers for their excess power originated from the public, and that they're attempting to place caps and how much energy can be sold back to the grid and don't care much about the installation subsidies.

From what I can tell, the biggest jumps in Solar City's business were when the caps on excess power were lifted. Which makes sense. Rebates are nice and reduce their risk and increase how deep they can go in, but increasing the net metering cap from 3% to 10% more than triples their revenue and cuts their return period to a third what it was. Those caps are not subsidized, in fact often being implemented as trivial accounting tricks where a user gets credits during the day that they can spend that night or next month.

1) if people get script money, which they spend on energy, they effectively get to use the utility as a battery - at a cost for the utility.

2) The utility can't (and honestly, shouldn't) directly shoulder that cost, so they pass it on to other clients.

3) net-metering cap serves as a limit to prevent the utility from being unsustainable, because the rooftop energy business can't survive without it.

What SolarCity effectively wants is to move the cap so that they get more parts of a pie which they are stucturally forced to share with the utility. Effectively, we're witnessing the woes of a growth-hacking model in an environment where the main source of margin and growth is regulatory decision.

Net metering is effectively a subsidy for solar for customers with solar once you take into account things like the cost of maintaining the grid, and will become more and more of one as tech improvements and economies of scale drive down the cost of utility-scale solar and the actual free-market price of power at peak solar times compared to the rest of the day.

Eventually that's true. However, we have yet to hit that point as solar is still a small fraction of electricity production in the US and the daytime peak is huge.

Utilities must build for worst case load. This going to be a nightmare for utilities. To learn more, read about the duck-curve http://instituteforenergyresearch.org/solar-energys-duck-cur...