The Republic | azcentral.comTue Oct 29, 2013 10:14 AM
Arizona finds itself as the national hot spot when it comes to solar subsidies, with utility executives and industry officials squaring off in a showdown that could shape the future of residential solar use across the country.
Hundreds of thousands of dollars in advertising have been spent to influence a looming regulatory decision that in essence is quite basic.
It’s about affordability.
Arizona Public Service Co. says credits to solar users are so high that current solar-panel customers, many of them living in more-affluent areas, don’t pay their share for upkeep of the power grid. That, APS officials say, pushes that cost to non-solar households, making their bills less affordable.
But if solar customers’ bills are increased, as APS suggests, can people who get panels installed on their houses still save money with solar? And if not, can the solar-installation companies survive?
An estimated 9,800 people work in the solar industry in the state, and the majority of them install rooftop panels.
The conflict has played out in competing television advertisements and on websites, as well as in two public protests against APS’ proposal. Behind the scenes, a variety of alternatives have been offered for the Nov. 13 meeting when the Arizona Corporation Commission will address the matter.
A decision could set a precedent for Salt River Project and other utilities in Arizona and elsewhere.
Forty-three states have net-metering policies. Several, including California, New Mexico, Idaho and Louisiana, have looked at altering their policies, and several others have requested studies on the net costs and benefits of rooftop solar.
The debate in Arizona has drawn national media attention and interest from the Washington, D.C.-based Solar Energy Industries Association. It prompted a letter-writing campaign by President Barack Obama’s non-profit advocacy group Organizing for Action, which has flooded the regulators with letters, many from out of state.
Observers say Arizona’s reputation as the country’s solar capital is at stake. About 200 APS customers a month are adding solar to their houses now, and the commission decision could determine whether tens of thousands of customers anticipated to use solar in the future continue with those plans.
APS is well-known in the industry for its solar investments, and CEO Don Brandt was named the Solar Electric Power Association’s Utility CEO of the Year in 2009. He was honored for the company’s deal to buy power from the Solana Generating Station near Gila Bend, for its investments in its own solar plants and for a program to put solar panels on Flagstaff houses.
But the new net-metering proposal has made the utility the bane of rooftop-solar installation companies such as SolarCity Corp. and Sunrun Inc., as well as solar advocates.
David Wilson of Goodyear said he doesn’t like the company’s proposal, even if officials say it would not affect existing customers like him.
“I don’t trust them,” he said. “We make this huge investment, and they go and change the rules. We would lose the benefits, and they would continue to get the energy we are providing.”
The Corporation Commission staff, which advises the five-member elected commission, has rejected APS’ proposals and developed its own suggestions on solar credits. Commissioners recognize the importance of the matter.
“The eyes of the country and the energy world at least are on Arizona to see what we can come up with,” Commission Chairman Bob Stump said. “It is a privilege to set a policy that potentially can be a model for other states.”
Stump said he hopes to settle the matter this month, but debate could continue for two more years. APS’ next rate hearing will be in 2015.
APS: Change needed
The battle started last year, when APS signaled it wanted to change its net-metering program, which gives customers with solar panels on their homes credit for the excess power they send to the grid when their houses are not using all the power from their roof.
Brandt, who is also president and CEO of APS’ parent company, Pinnacle West Capital Corp., said that if the net-metering issue was not fixed, it could lead to a much bigger problem down the road as more people use solar and non-solar customers see bigger bill increases.
“Today, costs are being shifted unfairly from solar to non-solar customers in a way that cannot be sustained,” he said.
APS invited industry representatives to discuss the issue at meetings earlier this year, then filed an official proposal with the Arizona Corporation Commission in July that would increase the monthly bill for solar customers by $50 to $100.
The APS proposal has many moving parts. Utility officials said one element of the proposal is to increase the up-front incentives they pay customers who purchase solar.
As recently as 2010, APS was paying customers a rebate of $3 a watt when they installed solar. That came out to $18,000 for a 6-kilowatt household system. Those rebates have been brought down as the sticker price for solar has fallen. APS was paying a $600 rebate for the same size system this year, or 10 cents a watt. Next year, the rebate will be zero unless the commissioners make changes as part of the net-metering decision.
APS officials said they want to reach a settlement on net metering that allows the industry to continue to grow.
“Our proposal before the Arizona Corporation Commission includes support for up-front incentives that will ensure that rooftop solar remains an important part of our energy mix in Arizona,” Brandt said.
When APS submitted its proposal, it came under criticism from the rooftop-solar companies.
“We immediately became the target of intense political attack from SolarCity and Sunrun through organizations they have established that twist facts, misdirect conversation from the actual issue and propose ideas that would harm our customers,” Brandt said.
“It is a fight we did not seek and would prefer to avoid. But we must set the record straight. We have an obligation to our customers, our employees and our shareholders.”
APS itself has donated to at least two non-profits, Prosper and 60 Plus, that have countered the negative advertising against the utility with ads critical of the solar industry and net metering.
Prosper is run by former Arizona House Speaker Kirk Adams, who came under scrutiny last week in connection with an unrelated political non-profit that paid part of a $1 million fine levied last week by California’s Fair Political Practices Commission for failing to disclose campaign contributions.
Adams said the fine would not impact Prosper.
Industry backlash
SolarCity and Sunrun of California, two of the biggest national solar-panel installation companies operating in Arizona, formed a high-profile alliance this year, presenting advertising critical of APS through a non-profit called TUSK, Tell Utilities Solar Won’t Be Killed.
The solar companies contend that rather than freeload on the power grid, customers with solar panels save utilities and their customers money by deferring the cost of new power lines and plants. The financial analyses used by APS and the solar industry differ widely on this point.
Solar-industry executives, including SolarCity CEO Lyndon Rive, say that APS is less interested in protecting the non-solar customers than it is in losing revenue.
“If you look at the rate of adoption of customers, over next 20 years, that would roughly equal $2 billion in lost profits,” Rive said. “That is why they are so passionate about this. They just don’t want somebody else to service their customer.”
Ed Fenster, co-CEO of Sunrun, said fees paid by utility customers helped incentivize the solar industry and allowed Sunrun and other companies to grow. He said the utility fears the strength of the solar industry now that those subsidies are not needed.
“Ratepayers made an investment that with greater scale, solar would come at a lower cost,” he said. “That investment paid off. It is that exact fact that is causing APS to halt the industry.”
He said APS is only concerned with profits.
“It is untenable for APS to say they don’t like solar, or don’t want customers to adopt technology that allows them to self-generate,” Fenster said. “They can’t say those things because they would be so unpopular. So, they have relied on less straightforward messages.”
Fenster said the utility is putting up a big fight on the issue because solar is a legitimate threat to its business model.
“They’ve tried to slowly boil the frog that is their ratepayer for years, and now (solar) will place a cap on their prices,” Fenster said. “They will be held to a competitive standard for the first time in their history.”
As far as APS’ plan to increase up-front rebates, solar installers have been wary of giving up one known subsidy for another that is not known and that could be altered by regulators.
A counterproposal
Since the APS proposal was filed, the Corporation Commission staff has rejected the utility’s plans and filed its own suggestions for net metering.
The staff recommends waiting to make changes until they can be incorporated into APS’ next rate case in 2015, with new rates effective in 2016.
If the commissioners want to act, the staff offered one proposal that would add about $3 a month to solar bills and another adding about $16.
The first would be a hit but wouldn’t kill the industry, some solar officials have said. The second is a killer.
“The incremental cost to the average customer would exceed the savings customers can earn even with the lowest-cost installations,” said Fenster of Sunrun, adding that the same is true for APS’ plans.
“It’s like you get shot in the head once or 10 times; the outcome is the same,” he said of the proposals.