Arizona Utilities Take Aim at Net Metering, Fail to Land a Decisive Blow


In part I of a 2-part series on net metering in Arizona, PV Solar Report’s Arizona correspondent Carl Haessler looks at recent developments in the state.


In the wake of a mid-November ruling that allows Arizona utility companies to charge residential solar customers a monthly fee, proponents of rooftop solar remain optimistic that consumer demand will stay strong. Disagreements over what constitues fair pricing for surplus energy continue despite the verdict, while the popularity of rooftop solar among consumers continues to increase.

In mid-November 2013, the Arizona Corporation Commission (ACC) voted to approve a fee on future residential solar installation. Effective January 1, 2014, this $0.70/kW charge is the result of a push by the Arizona Public Service Co. (APS) to offset the decrease in revenue from customers who use rooftop solar to supplement their energy supply. Under the existing Arizona net metering policy, utility customers who produce more energy than they consume can effectively sell this surplus power back to the utility grid at retail cost. This revenue is distributed to customers in the form of a Net Excess Generation credit at the end of every monthly billing cycle


As Arizona’s largest utility provider, APS has been at odds with PV installers and solar consumers in a statewide policy debate that seeks to define how the costs of maintaining a large-scale traditional power grid can be reconciled with the increasing popularity of residential solar power generation. 


While the outcome of the decision can be seen as a blow to the rapidly growing residential solar industry in Arizona, the actual cost of the fee (under $5.00 a month for an average customer) is not high enough to represent a significant financial victory for APS, nor is it expensive enough to dissuade the continued growth of local energy production


Disagreements over cost


In the past year, defining the market value of residential solar surplus has been a subject of keen disagreement around the country among traditional utility providers, analysts, and solar lobbyists. Opponents vilify the practice of net metering as an unfair subsidy for residential customers, while proponents view it as a powerful incentive program that strengthens the domestic renewable energy industry while benefitting the end-user. Semantics, perhaps, but this disagreement over the effect of net metering on the true cost of energy production is at the heart of the debate in Arizona and other states.  


APS argues that crediting customers for surplus energy at retail value artificially subsidizes solar energy, the costs of which must be borne by non-solar customers in the form of increased rates. Over half of a typical user’s monthly energy bill covers non-energy costs such as grid maintenance, upkeep, and repair, according to a report published the Edison Foundation in 2013. Surplus producers benefit from the stability and continuity provided by the grid during off-peak solar hours, yet their decreased consumption and Net Excess Generation credits reduce the amount of revenue the utility can collect. Utility companies cringe at the potential loss of income resulting from both decreased residential demand in solar homes, and from payouts of surplus energy credits. The fixed costs inherent in maintaining grid infrastructure will have to be recouped somehow, whether it be through fees assesed to net-surplus users who sell back their extra energy, or by defraying those costs to non-solar users. 


The intermittent nature of solar energy production means that typical solar users still depend on the grid for consistency and reliability, making the supplementary production of solar energy a nice-to-have, not a must-have. Opponents of rooftop solar suggest that on-grid solar customers become recipients of de facto subsidies that unfairly compensate them for surplus energy at the expense of traditional, non-solar customers. 


Considering that APS proposed a fee of $50-100 per month for customers who install PV solar on their homes, the actual ACC decision comes as somewhat of a Pyrrhic victory for utility companies that still must address the increasing consumer demand for renewable energy generation. For all the fears that the ACC verdict would spell the end of residential solar, the actual damage done by so small a fee seems unlikely to provide a significant deterrent to continued growth.  


Implications for Arizona solar


Arizona contains two ingredients essential for the growth of the solar industry: a favorable climate and increasing consumer demand. This growing demand is fueled by customers of every political stripe, from green environmentalists looking for reduced carbon footprints, to the hardline conservative T.U.S.K. group that sees solar as an essential anti-monopoly influence in the state’s energy market. Despite explosive growth in popularity and availability, residential solar still represents a small fraction of Arizona’s annual energy market.  


A costly and well-organized PR campaign by opponents of rooftop solar failed to result in anything but a symbolic victory in November; such an outcome speaks to the momentum developing in the rooftop solar market. Utility companies are experiencing growing pains as their industry evolves from a one-way producer/consumer relationship to a two-way grid with energy flowing both to and from individual end-users. Renewable on-site generation appeals to a broad spectrum of consumers, the majority of whom will hardly be deterred from installing PV panels in their homes by a token monthly charge from APS. The ACC’s decision to assess a fee to rooftop solar may feel like an inconvenience and a policy hangup, but given the growing market demand for residential PV generation, it is unlikely to halt the spread of independent solar.  


Read more about the Arizona decision in part II of this series, coming soon.