History of Solar Issue

Arizona leads the way for sustainable solar reform 

In 2013, Arizona blazed a trail in becoming the first state to formally recognize that current rates did not reflect the changing ways customers use the electricity grid. The decision, which set an important national precedent, came after almost a full year of discussion.

The Background
In 1954, Arizona Public Service Co. brought the pioneers of solar power to Phoenix for the first national solar conference in the United States. Decades later, solar power is a reality. Today, APS customers receive more than 950 megawatts of solar energy, putting APS among the leading utilities for solar in the country.
To jump-start the rooftop solar market for customers, a number of federal, state and utilities incentives were established. At first, the number of customers with rooftop solar was small, and the cost of the subsidy was spread among nearly a million customers. It was hardly noticeable.
Times changed. Technology improved, the cost of solar panels declined, the leasing model was introduced and the rate of rooftop solar installations increased dramatically. Yet the ongoing subsidy remained unchanged and largely unknown, and as it grew, fell disproportionately on customers who did not have solar.

The Workshops
In February 2013, a diverse group of stakeholders with strong interest in fostering the growth of solar energy in Arizona, including APS and Arizona Corporation Commission (ACC) staff, began participating in technical conferences to address a fair pricing model. Experts from both utilities and the solar industry presented their perspectives. In addition, APS Chairman, President and Chief Executive Officer Don Brandt contributed this Arizona Republic op-ed.

The Political Theater
In the spring, while the technical conferences were under way, national rooftop solar leasing companies based in California and the “grassroots” groups created by these companies began to attack APS and the company’s reputation. The political theater created confusion about the issue, misled customers and questioned the company’s solar leadership, even as APS added a record amount of solar capacity to its system for customers.
The industry-sponsored groups launched what Arizona Republic columnist Robert Robb would later describe as “highly deceitful public-relations campaign(s).” The groups lobbed political attacks against APS and the company’s motives. For instance, one group spokesman said on a Phoenix current-affairs program that “Manson getting out of prison maybe a little more popular than what APS is proposing.” (Arizona Horizon, KAET, April 16, 2013) That comment came three months before APS made a proposal.

The Proposal
APS filed a proposal with the Arizona Corporation Commission in July 2013 to establish a fair pricing model. The goal was to set up solar for long-term success, while ensuring all customers pay their fair share to maintain the poles, wires, substations and other infrastructure that provides reliable service to 1.2 million homes and businesses, as Brandt outlined in another Arizona Republic op-ed.
One option would have preserved net metering, with new solar customers using a “demand charge” based on the amount of energy they use, similar to SRP’s recent rate changes. The other option would have given new solar customers a credit for the solar energy they produced.
Under both options were two other key provisions:

  • Grandfathering. Existing solar customers – about 20,000 at the time – would stay under the then-existing rules.
  • Incentives. APS also proposed up-front incentives to encourage continued adoption of rooftop solar and enable the state to meet its renewable energy goals.

The Agreement
Two parties integral to establishing Arizona energy policy, the ACC staff and the Residential Utility Consumer Office (RUCO), acknowledged there was unfairness inherent in the current model.
In its response to the APS proposal, the commission staff wrote: “As more customers offset a portion of their monthly bills by using energy produced by their DG (distributed generation) systems, they purchase less energy from the utility. Because residential rates are typically designed to recover much of the utility’s fixed costs through volumetric energy rates, DG customers effectively pay less of these fixed costs. The additional fixed costs then must be picked up by non-DG customers either through higher energy rates or through other mechanisms….” (pp. 4-5)
RUCO also wrote in response that the rules in place were not equitable for all customers and needed to be changed: “If one ignores a fast-moving trend that enables customers to avoid paying their appropriate share of fixed costs, then these remaining fixed costs reallocated to non-adopters would eventually become too great. This is because the benefits, even of a perfect technology, do not reduce fixed costs over night.” (p. 3)
Both recommended a grid access charge for new rooftop solar customers, and both determined $3 per kilowatt of a customer’s solar system, or about $21 per month, would be appropriate.
The Decision
The Arizona Corporation Commission ultimately affirmed the principle that everyone who relies on the grid should pay a fair price for their use.

In a 3 to 2 vote, commissioners instituted a monthly charge of 70 cents per kilowatt on customers who install rooftop solar panels beginning Jan. 1, 2014, which is about $5 for the typical rooftop solar customer. Tellingly, the two dissenting commissioners voted no because they believed the charge needed to be higher.
In the order, commissioners acknowledged the $21 monthly charge included in ACC Staff and RUCO’s comments was reasonable. However, they landed on the smaller charge after advocates for the solar leasing companies argued that even a small fee would destroy their industry and eliminate jobs.
The commission required APS to file quarterly reports including the number of residential rooftop systems installed in APS territory and the amount collected through the monthly access charge. This would allow the APS and the ACC to monitor the effect of the 70-cent charge and determine if changes are warranted to increase the fairness of the APS pricing structure.
While the solution fell short of fully resolving the fairness issue, it was an important step in reforming the state’s pricing requirements. As the leasing companies’ claims have proved to be unfounded, the opportunity now exists to revisit solutions.

Following decisions for solar reform in late 2015 in Hawaii and Nevada, the issue has continued on the front burner in Arizona this year and shows no signs of slowing in 2017. Several utilities have rate reviews before the ACC that are awaiting a decision in the value and cost of distributed generation docket (E-00000J-14-0023). In addition, the ACC started discussions about possible changes to the state's renewable energy standard, which originally went into effect in 2007.