Data shows gap between cost to serve solar customers, what they are billed

October 08, 2015

During the August 18 Open Meeting, APS committed to preparing a cost of service study in connection with the Commission’s consideration of the issues raised in this docket. APS submits this letter to notify the Commission that it has completed the cost of service study.
 
Cost of service studies show the specific costs incurred to provide electric service to customers, and how much of these costs that each customer class actually pays. All costs are considered in these  studies, including those related to generation, transmission, distribution, and metering. APS prepares and files a cost of service study in each rate case, and APS prepared its study in this docket using Commission-accepted methodologies. This study is based on financial and load information from 2014, the most recent full year available.

The results, summarized here, are consistent with APS’s prior analysis. After accounting for the system savings provided by solar, APS incurs $67 each month in costs that customers with solar do not pay under the current design of APS’s rates:

CostofServiceResultsForTypicalSolarCustomer_SM.jpg

Stated differently, customers with rooftop solar pay 36% of the cost to provide them electric service.
 
The conclusions of APS’s cost of service study are based on actual data. Many insist that the benefits of solar should be considered and incorporated along with the costs. APS agrees, and consistent with its analysis in 2013, has done so here. APS’s cost of service study incorporates and credits to solar customers the measurable costs that APS avoids when a customer installs rooftop solar. These savings primarily stem from reduced fuel costs and reduced reliance on infrastructure.

Because it is a cost of service study, however, intangible, policy-related or hypothetical future benefits—such as reduced carbon emissions, speculative reductions in future infrastructure, or societal benefits, are not included. These types of benefits are not consistent with cost-based rates, and to include hypothetical benefits in rates is a policy question.

This policy question, along with other important considerations, are part of the discussion about whether and how to consider the “value of solar” when setting cost-based rates. APS looks forward to continuing this discussion with all stakeholders, and supports Commission Staff’s recommendation that a hearing be held on the value of solar. But the value of solar is a policy issue that involves resource planning questions. To begin the value of solar discussion with the conclusion that the value should be reflected in rates is to make the policy decision before the discussion has even begun.
 
The discussion regarding the value of solar, and whether this value can be obtained at a lower cost from grid-scale solar, parallels a broader discussion regarding how to modernize rate design. The place to start this broader rate design discussion is a cost of service study. APS has completed that study. At the appropriate time, APS will file its full cost of service study with accompanying testimony. APS looks forward to the Commission’s deliberations on this issue and is confident that an evidentiary
hearing on APS’s cost of service study will establish a foundation to make meaningful progress in APS’s next rate case.