Home Solar in Arizona Takes Hit After Vote by Corporation Commission to Add Surcharge

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Arizona home solar users will save less money on electric bills in the future following a move by the Corporation Commission that's also likely to impact rooftop-solar sales.

In a 3-2 vote on Thursday, the five-member, all-Republican panel decided to allow Arizona Public Service to impose a fee on their roughly 18,000 home solar users. Those users currently reap lucrative payments from APS for the excess power they generate through a process known as net metering.

Small for now, the fee will likely grow in the next few years if commissioners continue to accept the idea pushed by APS and public utility advocates that solar users aren't paying enough for their use of the electrical grid.

See also: -Epic Battle Between Solar Firms and Power Utilities Could Leave One Side Unplugged -Don't Change Net Metering Policy for Solar Customers -- Yet, ACC Staff Recommends

The vote followed two days of contentious hearings and an accompanying demonstration by hundreds of solar supporters on Wednesday at the Corporation Commission's headquarters at 12th Avenue and Washington Street. It also comes after months of posturing, fighting and sparring TV ads by the utility and "dark money" supporters on one side, and solar companies and a group led by public relations specialist Jason Rose on the other.

As our July feature article detailed, utilities like APS claim that for every residential solar unit connected to the grid, non-solar APS customers face a slight increase in their rates. The "cost-shift" problem will grow to nightmare proportions in the next few years at the current pace of home-solar installations in Arizona, APS contends, requiring action to be taken now.

The commissioners agreed, their understanding of the problem grounded partly in their staff members' report last month that the cost-shift effect is real and likely to get bigger.

Solar advocates, however, claim that home-solar power generation allows utilities to put off building expensive, new power plants, and therefore save money for all ratepayers. Some advocates, like SolarCity director of government affairs Meghan Nutting, argue strongly that net metering is not really a "subsidy," but rather fair compensation for power generated by home users and sold by the utility.

Nationally, advocates on both sides of the fight are following the Arizona situation closely, concerned that utility regulators in the 43 other states with net-metering schemes may eventually follow Arizona's lead and tamper with the savings offered to home-solar customers.

Commissioners Susan Bitter Smith, Bob Burns and commission chairman Bob Stump agreed to allow APS to impose the fee of 70 cents per installed kilowatt of solar power, per month, for new home solar customers starting on January 1. Commissioners Brenda Burns and Gary Pierce vote no on the proposal; Burns wanted a much higher fee imposed and Pierce preferred to replace the current net-metering process with a new round of up-front incentives that would address APS' concerns.

The change amounts to a few bucks extra per month for solar users. For what SolarCity calls a "medium sized 4kw unit," the fee would amount to $2.80 a month.

However, in popular lease deals offered by companies such as SolarCity, the customer might only be saving about $5 or $10 a month -- the difference between the cost of their solar lease and what they save on their electric bills. Most solar installations these days involve a lease deal or power-purchase agreement with the solar company in which the homeowner doesn't own the solar equipment.

Solar advocates worry that's going to mean at least a slight slowdown in the growth of new installations in Arizona next year.

While APS didn't get what they wanted -- fees that would erase most or all the savings for solar lease customers -- the new plan sets a negative precedent for the home solar industry.

Last night's move "deeply troubled" Rhone Resch, president and CEO of the national Solar Energy Industries Association, according to a written statement emailed to the press.

"Despite having some of the best solar resources in the nation, Arizona now has one of the shakiest policies for encouraging its development," Resch says.

One thing made clear at yesterday's day-long Corporation Commission hearing yesterday was that both current and future home solar customers have no guarantee their solar system will save money over the long haul.

The vote sets the stage for increasingly larger fees in the coming years that APS insists are needed to protect non-solar customers. The commissioners said repeatedly that their actions do not prevent a future commission from imposing fees on existing customers, despite their intention that existing customers are grandfathered-in for a 20-year period.

One ACC staff member noted during Thursday's hearing that some solar users claimed they had a 20-year contract with the utility, but that such a claim was uninformed.

Court Rich, a Scottsdale lawyer and representative of the solar-installation companies, told the commission that contracts between the companies and their customers do not guarantee any net-metering number.

Essentially, that means that companies like SolarCity and SunRun cannot really promise customers will save money over the life of the lease, even if overall electric rates go up over that time, because the amount paid by the utility for the excess electricity generated can change dramatically on the whims of the Corporation Commission.

The possibility that solar customers were over-promised led to a discussion about whether solar customers should have to sign a separate document indicating they understand the possibility of saving money is not set in stone.

Chairman Stump also pressed solar boosters to comment on a statement by SolarCity spokesman Will Craven that "power generated (by home solar users) never touches the grid."

Rich admitted that the power does "touch the grid at times." Stump also read a 2009 statement by SolarCity CEO Lyndon Rives that acknowledged the company's customers typically remain connected to the grid. Stump said he had to conclude that Craven had been "engaging in rhetoric."

The critical questions by Stump, the general skepticism of the solar advocates' claims and the late-evening, pro-cost-shift vote lent a clear anti-solar atmosphere to Thursday's proceeding. With no Democrats or solar believers on the five-member panel, the lack of support by the commission for rooftop solar power was palpable.

Yet the arguments of the solar companies, as we pointed out in our July feature article, have several weak points. As was brought up in the hearing yesterday, APS has simple math on its side.

One reason we agree with this argument: Imagine if 100 percent of APS' residential customers had rooftop solar under the current net metering scheme, which requires APS to pay retail rates for the semi-wholesale power. That's a ridiculous business model that would cause the utility to go broke, meaning it would be unable to provide the power those same customers need during part of the day and at night. (The utility's argument, of course, is that it would have gone broke long before all customers had solar.)

Rich also claimed that since the average APS bill was $71 a month, math dictates that half of customers therefore pay less than average and aren't paying what APS would call a fair share for grid services, just like APS claims solar users aren't paying a fair share. Rich said that home-solar is identical to taking energy efficiency measures like turning off appliances and planting shade trees.

"Every single customer who pays less than average is getting a free ride," Rich said.

But that analogy's flawed. In fact, home solar users have three distinct phases of electricity use: When they use nothing but the utility's juice, when their generation outstrips personal demand and the excess juice is exported to the grid, and when their solar systems take care of their personal demand. Only in the latter phase does the solar system resemble energy efficiency.

The commissioners repeated that they were concerned for the non-solar customers being affected by solar subsidies like net metering.

Brenda Burns told the story of a senior citizen she knows who carries a space heater from room to room in the winter instead of using central air, hoping to save as much on her electric bill as possible. It would be wrong for solar users to drive up costs for that woman, she argued.

Standing close to APS' corner in the battle, the Residential Utility Consumer Office, established by the State Legislature in 1983 to represent the interests of utility customers, pushed the commission to adopt some kind of change for solar users that could offset costs for non-solar-using customers. RUCO analysts said they believed the cost shift for non-solar users might be as high as $20-50 a month due to solar customers.

Yet it was RUCO that hammered out the compromise deal along with the Alliance for Solar Choice, represented by former Tempe Mayor Hugh Hallman.

The 70-cent deal was much lower than what was sought by APS, which has stated the cost shift is more like $83 per month on non-solar customers for every new home-solar customer added to the grid. (Spread out over all 1.1 million customers, the per-customer cost isn't too onerous, yet.)

Bryan Miller of SunRun previously called the APS estimate "made-up math."

The actual number, or even whether it's a positive or negative number, isn't known by anybody due to the complexity of the question. The commission members said they wanted to see both sides get together in workshops to try to settle the question next year.

Commissioner Bob Burns said he believed the current cost shift to non-solar customers was the "tip of the iceberg" compared to what's to come as rooftop solar grows in popularity.

Thursday's vote doesn't mean the battle is over -- it's just beginning. The commission and RUCO expect to monitor rooftop sales closely in the coming months and years to monitor how large the estimated cost shift gets.

The ironic part for solar companies is that the more units they install in Arizona, the more likely their customers will be zapped by increasing fees that tend to erase the savings from solar. That will lead to rejection of solar units by potential customers, or at the least, reduced enthusiasm for the projects.

Ultimately, though, everyone seems to acknowledge the utility model of the past will not work with the home-generation technologies of the future. As our feature article pointed out, a paper by the pro-utility group Edison Electric Institute states that investors in utility companies are unlikely to stay invested in a sinking ship. Tampering with net metering and forcing solar users to pay more is one way to slow down or halt the problem, the paper said.

Yet future technology may allow a significant number of people to unhook from the grid entirely, at a reasonable expense. That, in turn, would upset utilities' ability to provide the same continuous and ultra-reliable, 24/7 electrical power that Americans demand.

For now, though, residential solar companies and their customers must continue to make deals with the devil, a.k.a. the utility, which they cannot do without.

Yesterday's vote by the Corporation Commission sets a pro-utility precedent for Arizona and the rest of the country that's poised to affect solar sales in the near future.

Got a tip? Send it to: Ray Stern.

Click on the next page if you want to read a statement put out at 1 p.m. today by RUCO regarding yesterday's vote:

Statement by RUCO Director Pat Quinn

"The Residential Utility Consumer Office applauds the Arizona Corporation Commission for adopting a RUCO-based proposal to resolve the immediate net metering issue.

RUCO exists to protect the interests of all residential customers - whether or not those customers have solar panels on their roofs, and on behalf of these customers, we worked diligently over the last several months to support a fair and balanced approach to resolve this issue.

The proposal we negotiated and the one approved by the ACC yesterday is a step in the right direction; and it sets up a sustainable framework to deploy rooftop solar energy.

With APS as the sole holdout, all parties including ACC staff, Commissioners, and RUCO found common ground. We are grateful for the careful, thoughtful and reasoned process all of the Commissioners applied in rendering their decision.

Four important successes have now emerged from the ACC decision:

First, the decision starts to address the shifting of costs between solar and non-solar customers while recognizing the value of clean solar energy.

Second, the decision preserves the ability of residential customers to go solar.

Third, the decision establishes a framework for us to closely monitor the issue and implement changes if necessary.

And, fourth, the decision ensures that net metering and other similar issues facing Arizona ratepayers receive proper scrutiny in Arizona Public Service Company's (APS) next rate case.

We believe this proposal fairly balances the interests of solar and non-solar customers and puts the issue in a more appropriate venue for future consideration."

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