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An Epic Battle Between Solar Firms and Power Utilities Could Leave One Side Unplugged

Solar panels under construction in Sun City.
Ray Stern

Solar's a no-brainer to Joelyn Higgins, spokeswoman and marketing director for Recreation Centers of Sun City Incorporated.

The nonprofit company, which manages bowling alleys and seven recreation centers in the politically powerful Phoenix-area retirement community, has a large solar-panel project going up at its facilities. In the Lakeview Recreation Center parking lot on a recent summer day, workers on lifts finish connections beneath the panels, which double as shade for covered parking. Solar arrays at two of the company's centers already are finished and producing power.

"The anticipated savings is about $15 million," Higgins says from the lobby of RSCS' corporate office at Lakeview. She adds that the electricity generated from the photovoltaic panels could power an estimated 347 homes.

Her dollar figure is averaged over more than 30 years, according to numbers the company posted on its website. The savings come partly from $185,000 per year in direct incentives from Arizona Public Service Company, to be funded over the next 20 years by APS customers. Most of the savings come in the form of a power bill that's been slashed by more than half. But this bonanza doesn't happen as simply as you might think.

As with a residential solar setup, APS pays for power fed back to the grid in the form of credits on the power bill. The scheme is called net metering: Customers pay only for the net amount of electricity used after what they generate is subtracted. Besides billing and receiving, the utility continues to provide all energy needs that solar — a part-time power source — can't handle.

Another example of benefits to solar customers can be seen in the popular lease schemes that some solar companies, such as SolarCity and Sunrun, offer. In these purchases, homeowners avoid upfront costs of thousands of dollars but don't own the equipment on their roofs. As Bryan Miller, former campaign staffer for the 1996 Clinton/Gore campaign and a Sunrun vice president of public policy, explains, "The homeowner enters into a lease with Sunrun. The lease has a payment in it. That payment is less than what the customer will save on their utility bill."

Rooftop solar is a no-brainer to power utilities like APS, too.

They say they're getting screwed in deals like these.

To which you might think, "Where do I sign up to help screw them?"

After all, power utilities are monopolies whose service you can't do without. They tell you what to pay, and you pay it. You change companies only by moving. The utilities benefit from government subsidies both directly, as in tax loopholes, and indirectly, as in healthcare costs of people who become sick from pollution that traditional power-generation methods cause. They're mostly operated like any other corporation: money first, people second.

But what's bad for a utility company has a way of becoming bad for its customers.

Such as last year's rate increase by APS, brought on by the success of energy-efficiency programs. Less electricity was sold because of the programs, leaving APS' parent company, Pinnacle West Capital Corporation, with less revenue to pay bills. Because APS is allowed by the Arizona Corporation Commission to make a predetermined profit to promote stability for such a vital service, the company is allowed to boost its rates to make up losses.

APS and other utilities nationwide are worried that they're paying too much to people and businesses with solar panels. Much worse, they say, the spectacular growth in rooftop-solar panels will have a major effect on their bottom lines — and, in turn, their customers' bills.

The power APS buys from solar customers is up to five times more expensive than what it could buy elsewhere, argued Don Brandt, the utility's chief executive officer, in an April op-ed on www.azcentral.com.

"The result is higher rates for customers who do not have rooftop solar," Brandt wrote. "As more customers install solar . . . the burden on non-solar customers becomes greater and greater. Eventually, you run out of your neighbor's money."

Asked if it were possible that the Sun City company's solar project could be a burden on other utility customers, Higgins referred to studies showing that rooftop solar actually benefits non-solar-using ratepayers.

Does this mean APS is wrong?

"Yes," she says. She stands up, cutting off another question. "That's it!"

Higgins had agreed to meet with a New Times reporter who surprised her at her office after she'd failed to return voice messages. The meeting was now over.

Clearly, the subject of net metering is not the typically sunny solar-power story that interested parties like Higgins tell.


APS is expected to submit an application by Friday, July 12, to the Corporation Commission asking for approval to lower the amount paid to solar users for their power — with the stated goal of protecting its non-solar customers.

 

The request follows months of posturing by the utility industry and by solar advocates, both of which have painted the scene as an epic battle that may result in the death of one side or the other.

Net metering is policy in 43 states and Washington, D.C. — and the possibility of reducing net-metering payments has caused an uproar in states with lucrative payments to solar users, including California and Louisiana. Arizona, among the states that are more generous to the solar industry (which makes sense, considering its 300-plus days of sunshine annually), is poised to be a leader in siding with utilities over solar companies.

In the past few weeks, regulators in Idaho and Louisiana denied power-company requests to change the rules. No utility has been successful as APS in reducing payments to solar users: "[It] wants to make Arizona first [in the category]," Sunrun's Miller says with detectable bitterness.

In spite of the eyeball-glazing term "net metering," the issue is debate gold for political junkies and energy-policy wonks. Sparks often fly.

A vaguely Republican group fronted by Jason Rose, former PR man for Maricopa County Sheriff Joe Arpaio, is among voices claiming that the utility's ultimate goal is to destroy the rooftop-solar industry. TUSK, as the group calls itself (for Tell Utilities Solar Won't Be Killed) and other solar advocates label officials at APS, the state's largest utility and taxpayer, as liars and cheats.

The utility industry, meanwhile, sees rooftop-solar units as parasites that, although beneficial in some ways, may destroy its host body if left unchecked. APS has responded to criticism by TUSK and solar-company executives with vigor, turning the charge of lying back on the solar firms, accusing them of not caring about rate hikes or of making the power grid less reliable.

"They don't want to change the current net-metering incentive because a change would hurt their bottom lines," Mark Schiavoni, APS executive vice president of operations, stated in a June 24 op-ed in the Arizona Capitol Times.

In a YouTube video enjoyed by many in the solar field, APS manager of renewable energy Greg Bernosky gets tag-teamed on the issue on stage at an April 2013 solar-power conference by fellow panel members, including Sunrun co-CEO Edward Fenster and Nat Kreamer of Clean Power Financing.

"Utilities have never thought about cost control or how to do things more effectively," Fenster says as Bernosky — who spends much of the question-and-answer session looking as if he'd rather grab a live power line than be where he is — shakes his head.

For energy-market watchers, this is better than MMA cage fighting.

Public hearings on the issue before an administrative law judge are expected to be scheduled as soon as APS pulls the trigger on its request. The rhetoric about net metering will grow more heated before the anticipated vote, possibly this fall, by the five-member Corporation Commission.

Naturally, net metering has conservatives and liberals at loggerheads.

Last November's election of three new Republican Corporation Commissioners — who joined two Republican incumbents — has spawned nastiness and suspicion by liberals and solar enthusiasts.

In January, the Corporation Commission voted to reduce residential solar incentives that APS must provide, and it eliminated APS' subsidies entirely for new commercial rooftop projects. The board briefly considered lowering the goal set by the Renewable Energy Standard and Tariff, the rule that requires 15 percent of Arizona's electricity to come from renewable sources by 2025. (The rule applies to APS, Tucson Electric Power, and other state utilities but not to the quasi-governmental Salt River Project, which isn't governed by the commission but set its own goal of 20 percent "sustainable" power, mostly hydroelectric, by 2020.)

On June 17, Commissioner Bob Burns filed a formal letter about net metering, declaring his concern for the likelihood that non-solar users will be unfairly affected.

It's safe to say the Corporation Commission has acted differently than it would have if the "Solar Team" of three pro-solar Democrats hadn't been defeated at the polls in November.

Along with Rose's group, TUSK, some Republicans have taken a stand against traditional right-wing opposition to renewable energy. Former California Congressman Barry Goldwater Jr., son of the legendary GOP icon and longtime Arizona senator, is the most prominent face of the group, his presence alone symbolizing the message that it might be safe for conservatives to support solar.

Net metering even has caused division within the ranks of solar companies. James Hughes, CEO of Tempe-based First Solar, a panel-manufacturing company, wrote a guest opinion column in local newspapers in early June that took the side of the utility. The motivation is clear enough: If anything's going to be subsidized, First Solar would prefer priority be given to large-scale solar-power-generation plants, like its 290-megawatt Agua Caliente Solar Plant 65 miles east of Yuma.

 

The fight over how much credit solar customers deserve from utilities primarily is about money. But it's also about what Arizonans think of rooftop solar as a way to decentralize electricity production and reduce emissions.

As New Times related in a December 27, 2012, feature about the weaknesses of solar power ("Solar Eclipsed"), the forecast is bleak for anything other than fossil fuels to power most of even sun-drenched Phoenix and the rest of Arizona for at least the next 20 years. Solar companies probably won't offer any real alternative to power utilities for decades to come.

And solar won't save the Earth from climate change anytime soon. India and China are building CO2-belching coal plants that erase in just days carbon dioxide emissions saved by U.S. solar installations over an entire year.

Still, the public supports paying a modest amount to help research and development of solar-power technology, which has the side benefit of — if you compare it to fossil-fuel-burning energy sources — lowering the amount of carbon dioxide and other pollutants, such as sulfur dioxide and particulates, that foul the environment.

But there's a limit to the public's generosity.

People may not care now, APS maintains, but as solar grows in the next few years, the public no longer will be able to stomach the cost. Looking further ahead, a major disruption of the utility industry's business model could lead to electric-bill mayhem. Utility experts believe this scenario is likely in a few years, if net metering remains at current levels.

In other words, rooftop solar power is a win-win — for solar companies and their customers.

Everyone else loses.


Both sides in the net-metering debate say it's about fairness. Those who generate electricity with solar panels deserve to be paid for their product, everyone agrees. But what's a fair price?

In 2006, the Corporation Commission, then with a more solar-friendly makeup, approved net metering for renewable energy sources as a way to kick-start solar and other industries.

The utilities fear it's growing into a monster.

Last fall, APS began complaining publicly about what it perceives as a serious future problem for its ratepayers.

As New Times explained in the December article, the day has not yet arrived when energy collected from the sun can be stored efficiently for constant use when the sun's not shining.

Solar panels take a break at night and when clouds are overhead, but customers expect their air conditioners and computers to keep humming. The need for continuous demand isn't met by solar panels' intermittent power. Only utility companies, with their coal, natural gas, and nuclear resources, can provide smooth, (nearly) uninterrupted electricity in quantities that match the needs of customers who suck the most energy.

Without the ability to store electricity collected during times when power isn't needed, solar customers use APS as what the utility describes as a "virtual battery."

Most residential-solar installations start and end the solar process connected to the same old wires everybody else uses, and solar customers must keep dealing with the same utility company to which they've always been tethered.

The good part for solar users is that when they upload power to the grid — the network of wires used to transmit and receive electricity — APS pays them a relatively high rate. The payment roughly matches the per-kilowatt retail rate that the customer pays the utility for power when the sun isn't overhead.

It's somewhat analogous to forcing a grocery store to buy a bushel of apples you grew in your backyard for the same price it sells them for.

On its face, buying power — or apples — at retail rates doesn't sound like a good business plan. As anyone who took high school economics knows, it's buy low/sell high, not buy high/sell high.

APS officials say solar users reduce their bills so much with this process that they aren't paying a fair share of the fixed costs of providing access to the electrical grid on which they rely.

As stated in a December 2012 study prepared for APS by Navigant Consulting, the cost of serving customers with solar is below what these customers pay — and other customers pay more because of it.

To make the system reliable and relatively cheap, the costs of electricity generation, transmission lines, wires, substations, and various other equipment and services must be borne by all ratepayers, the study states. Solar users do have to pay for whatever electricity they need — above what their rooftop systems generate — but it's not enough to help cover all these costs, APS insists.

Power companies nationwide view the trend toward "distributed energy" (that is, energy that comes from geographically spread-out sources, as opposed to a centralized utility) as a major problem.

 

In January, a report titled "Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business" placed net metering squarely in the crosshairs. The paper — prepared for the Edison Electric Institute, a think tank on energy policy, by Peter Kind of Energy Infrastructure Advocates — identifies the explosive growth in solar power as a probable future threat to utilities' business models and customers.

If the electricity sold declines by 10 percent, Kind warns, non-solar customers could face corresponding rate increases of up to 20 percent.

In a worst-case scenario, Kind states, a "vicious cycle" could develop in which the expansion of rooftop solar causes rates to rise, which would cause more people to become attracted to solar systems, which would cause rates to rise even higher. Soon, too few people would bear the costs of keeping the whole machine running.

Thus, the utilities' gravy train would run out of steam.

"Investors [in utility companies] have no desire to sit by and watch as disruptive forces slice away at the value and financial prospects of their investments," Kind wrote. By the time investors "start to witness significant customer and earnings erosion trends," it may be too late "to repair the utility business model."

Immediate changes need to be made to the "tariff structure" that subsidizes solar, Kind urges.

APS, with 16,000 net-metered solar customers now and new residential-solar applications coming in at the rate of 150 a week, is heeding the call with its pending request to change net-metering rules.

Bernosky, APS' renewable energy manager, admits that the problem hardly is "crisis scale" yet. He refers to a study showing that for every solar customer, $1,000 gets "shifted" to the overall customer base.

Doing the math, it sounds like a lot of money over 20 years: $320 million, just for existing customers. But APS has 1.1 million customers — so that breaks down to $14.55 per year. Just $1.21 a month for each customer.

That amount seems plenty palatable for most Arizonans.

Surveys show bipartisan support in Arizona for continued taxpayer-funded subsidies for renewable-energy sources, including solar power, and support for pro-renewable policies that result in higher power bills. The requirement that 15 percent of Arizona's electricity needs must be met with renewable energy by 2025, for example, means that each APS residential user is hit with a maximum monthly surcharge of $3.84 to help pay for subsidies for renewables, not including APS' estimated net-metering bump.

Not much money, for now. For all but the most impoverished ratepayers, it's seen as a relatively inexpensive way to help promote solar power.

Jobs are created. The product, though not totally free of the taint of pollution, produces cleaner kilowatts per hour than nearly any other generation source — as long as the sun's up.

But Bernosky notes that solar customers expect their power to be purchased for a retail-equivalent rate for as long as systems work, which may be more than 20 years. Right now, it's possible to lock in the current plan for existing solar customers, he says. Eventually, though, if rooftop keeps growing at a fast clip, too many solar customers will have sprung up to "grandfather" them all in, he says.

APS' solution is to have solar customers (new ones, anyway) pony up more money for the privilege of using the "virtual battery."

If that change helps thwart what APS calls a "disruptive technology," all the better from the perspective of the utility's investors. Customers can only trust that blowing up the rooftop-solar business will be good for them in the long run.

Still, nobody likes the winner in a game of Monopoly.


Clouding the debate on net metering is a contested question: Does the subsidy really cost money for utilities and, therefore, their ratepayers, or does the juice from rooftop panels actually make money for utilities?

Under the latter theory, backed up by a Crossborder Energy study commissioned by solar companies, utility execs are so greedy that they aren't sharing the bounty with all customers by lowering rates accordingly, and they want to game the system even more in their favor by slashing payments to customers who provide a source of clean power.

If true, APS is stealing from its 1.1 million customers, with the Corporation Commission as a willing accomplice.

This, in fact, is the position of solar advocates such as Michael Dee, publisher and editor-in-chief of Arizona Foothills Magazine, which publishes a Solar Style section on its website and columns blasting APS for its stance on net metering.

The site also produced a YouTube video for a song performed by Krystal Baker that takes a sarcastic bite at the utility to the tune of Bonnie Tyler's "Total Eclipse of the Heart."

A lyric goes: "We don't know what to do / They want to keep us in the dark / APS is a monopoly / That acts like a shark!"

 

Dee didn't respond to a request for comment.

The song sums up the spirit of TUSK, the group fronted by Jason Rose.

"If APS is successful in changing [net metering], it will effectively end the rooftop-solar market in Arizona," Rose tells New Times.

He pins the timing of this debate squarely on the all-Republican ACC panel. "They see this as their opportunity to have it their way."

Rose, whose wife, lawyer Jordan Rose, has solar companies as clients, says the utilities "fear the future — it's like the typewriter holding back the computer."

APS makes money on solar customers, Rose maintains.

He points to the Crossborder study, released in May, that shows how rooftop solar purportedly adds $34 million a year to APS' bottom line. It seems that rather than $1.21 a month extra on customers' bills, as the APS study estimates, there should be an average reduction of $2.58 a month.

Solar advocates claim the threat of rate increases is bogus, nothing but fear-mongering. They say utilities like APS are just interested in hoarding profits — at the expense of public health.

In what sounds like a conspiracy theory, advocates claim utilities' fears mentioned in the Edison paper constitute propaganda designed to fool the public into supporting local proposals to change net-metering payments.

In fact, they say, as the Crossborder study states, the addition of distributed-energy generation to the grid means that APS can put off buying new transmission lines, natural-gas plants, and other equipment for a few years — a significant financial benefit to the power company.

The study points to APS' own data that shows rooftop solar is a cheaper way for APS to meet its renewable-standard requirement than other renewable sources and that the power provided by solar users meets peak demands that the utility would otherwise fill by ordering up power from more-expensive sources.

Nonetheless, APS officials continue to tout that net metering is a subsidy, saying the Crossborder study misinterprets APS data.

Even if it's indeed a subsidy, APS also receives subsidies, solar advocates argue. One example of this, as mentioned by Sunrun's Fenster at the April conference, is how APS benefits from not having to pay insurance in case of a major accident at the Palo Verde Nuclear Generating Station west of Phoenix.

But the reality is that all ratepayers benefit from this kind of subsidy.

With direct handouts dwindling (residential incentives have dropped from 75 cents per installed watt of solar capacity in 2012 to 10 cents) solar companies feel increasingly on the ropes. They can't survive without the utility because solar provides only part-time power, and they can't survive without public support for net metering and other subsidies. Influencing public opinion is crucial.

Fortunately for solar, advocates don't have to do much to convince the general public that solar is worth supporting. But solar advocates need to do more than sell the idea that solar is good — they must convince the public that future solar customers should make just as much money on net metering as do current solar customers.

Democrats don't need much convincing. Solar companies hired PR expert Rose to help them sway GOP voters. Rose and TUSK have tried to get Republicans behind the idea of supporting current payments to solar users. But even though polls show Republicans generally agree on continuing modest solar subsidies, the TUSK group hasn't pulled in Arizona's heavy hitters.

Arizona Governor Jan Brewer, who has referred to herself as the "Solar Queen" because of her support for utility-scale solar plants (which don't take advantage of net metering), isn't a member. Senator John McCain prefers to push for nuclear plants. Republican Congressman David Schweikert, who claims to be a proponent of solar power, refused to return messages asking for his thoughts on TUSK.

The involvement of its most noticeable name, Barry Goldwater Jr., actually strains the TUSK's credibility even further. Goldwater Jr. is on the board of the Goldwater Institute, which proudly takes his father's name to help represent its strict adherence to fiscally conservative governing.

But the Institute has spent piles of donor money fighting the state's Renewable Energy Standard and Tariff, apparently with Goldwater Jr.'s blessing. The former congressman failed to return repeated requests for comment.

The Goldwater Institute itself has no specific position on net metering — it's too busy lobbying for deregulation of the power industry, which could result in more electricity-buying options for customers, similar to how deregulation of AT&T spawned firms like Sprint and CenturyLink. It's too early to say what deregulation would do to solar companies, but the solar industry isn't necessarily opposed — as long as subsidies flow.

TUSK's other main Republican voice is longtime Scottsdale City Councilman Bob Littlefield, who admits he's not a "typical" party member.

 

Littlefield says he neither gets paid for boosting TUSK nor has solar panels on his home. He believes firmly that APS should pay its solar customers more, not less. But he has a softer take than TUSK in general, saying diplomatically that "disagreement" may exist, but APS isn't "lying." He prefers to see the issue aired out in public.

"We can discuss whether the [net metering] rate should be retail or something else," he says. "What I don't want them to do is do away with the thing altogether or neuter it to the point that it's not viable."

Over the next several months, it will be up to the experienced Corporation Commission staff — who may or may not share the same biases as the politicians they work under — to recommend to commissioners which side to believe.

For one or the other in this debate, the Commission's upcoming decision might be the beginning of the end.


Someday, especially in sun-soaked Phoenix, people may be able to unfurl solar panels mated with batteries on their homes, an innovation that would be unlike anything yet seen. Such a possibility isn't too far-fetched: Recent articles have broached the possibility of making super-efficient batteries from graphene, a super-substance discovered in 2004 that's made of one-atom-thick layers of carbon atoms. Graphene is touted as a substance that could be used to make photovoltaic paint, eliminating the need for installed panels.

If the public is able to store and use all its electricity from cheaper-than-ever solar systems, utility companies would be kaput.

But with today's reality of on-the-grid hookups, utilities still hold the cards.

There's no question that solar power, in its current form, will keep growing. APS believes that by 2030, solar power (from residential, commercial, and industrial projects) will provide up to 20 percent of its electricity demands for at least a few hours each day.

Current Corporation Commission rules require that nearly a third of renewable energy used by Arizona come from decentralized sources, with half of that coming from residential systems and the other half from non-utility commercial systems. APS is counting on rooftop-solar systems to help it meet the state's renewable-energy goal.

But as long as these systems are connected to the grid, solar users should have to abide by the rules that provide the best deal for the most customers.

This is not necessarily a boon for rooftop-solar companies, who say they'll have a much tougher time selling their product if customers can't earn as much for power.

In the short term, solar customers like the Recreation Centers of Sun City are lobbying hard to make sure they're grandfathered in to any changes to net metering. The company sent a letter in May to the Corporation Commission expressing concern that the topic was brought up at all.

"RCSC has [14] solar projects that will be completed and online in the very near future, and many of our residents in Sun City have invested in rooftop solar, because of the net-metering policies that the Commission adopted," the letter states. "Net metering allows RCSC and our residents the choice of solar while also providing those on a fixed income the ability to manage their energy costs and needs."

Though the company is saving money thanks to net metering, some of the recreational centers' users take a more cynical view.

"Doesn't everybody take advantage of a government giveaway?" asks Tim Kelleher, a 70-year-old Sun City resident who'd just finished a morning workout at Lakeview Center.

It's not just solar companies receiving "corporate welfare," he argues. The government ought to rethink such programs, he says. But Kelleher, who's up on the net-metering debate, acknowledges that APS has cause to complain about the solar-payout scheme: "[APS buys] that power at retail. If they don't make profit on something, why buy it?"

The utility doesn't want to buy it. Not for the going price. And the public wants to buy solar-power systems at heavy discounts. (The federal government's 30-percent-off sale on solar installations doesn't end until 2016.)

Last year's rate increase made it clear that when the utility sells less power because people use less electricity, utility customers get stuck with higher rates.

The solution for now — contrary to the wishes of liberals and some conservatives — looks to be less solar power instead of more.


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