According to a recent report by SNL Financial, Arizona’s controversial net metering policy continues to raise concerns about ‘cost shifting.’ With the number of distributed generation systems – mostly solar rooftops – in the Arizona Public Service Company (APS) service territory rising by 10% last year, more costs are being shifted from solar customers to non-solar customers. This is a concern PACE expressed in August 2013 in the midst of intense debate in Arizona about policy governing solar customers and their utilities.
“Today, APS maintains a policy of net metering that pays solar customers a retail rate for electricity, similar to the policy in California. For a number of reasons, particularly those having to do with cost shifting, PACE believes that this kind of net metering design is unsustainable and must be altered,” PACE explained in its white paper. “As more customers adopt rooftop solar, the portion of fixed costs borne by the remaining non-solar customers will continue to grow. This is an issue of basic economic fairness.”
Arizona’s net metering policy is at the heart of the problem. By paying solar rooftop owners the retail rate (i.e. the same rate APS charges other customers) for excess electricity they return to the grid, many solar customers don’t pay an amount sufficient to cover their share of maintaining the grid. Other customers, those without solar systems, pick up that cost.
“In Arizona and elsewhere, you have a significant group of customers now who are essentially using the grid as a battery backup when they can’t rely on their solar rooftop systems,” explains PACE Executive Director Lance Brown. “There’s nothing wrong with using solar, but the grid has a value and a cost that has to be born by someone. Right now, those costs are being shifted to non-solar customers and we believe that is fundamentally unfair.”
The problem is only growing worse. At the time of PACE’s white paper publication, there were about 18,000 solar rooftop systems in the APS service territory. Today, according to SNL Financial, there are about 30,000. Even with a new 70¢-per-kilowatt surcharge on solar approved by the state’s Public Service Commission and in effect last year, Arizona still saw nearly 8,000 solar systems installed in 2014. Under the new rule, APS collected $78,623 from the 4,700 customers affected by the surcharge, but that doesn’t seem to be sufficient to avoid cost shifting.
“While each utility may have a different rate structure, it is clear from the national discussion and here in Arizona that appropriately addressing the unfair cost shift and aligning the fixed and variable discrepancy are a top priority,” states Donald Brandt, President and CEO of APS.
The politics of the issue may be cloudy, but the realities seem to be clear. Paying customers a retail power rate for solar generation that utilities can’t call on when they want it makes little sense. In fact, contracts for this kind of power, referred to as non-dispatchable power, are normally far lower than the retail rate. In fact, a New York Times article from November reported that utility-scale solar was as low as 5.6¢ per kilowatt-hour and wind power was as low as a shocking 1.4¢ per kilowatt-hour.
If wind and utility-scale solar power providers are paid below the retail rate for their non-dispatchable power, why should a customer with a solar rooftop be paid far more for their excess electricity? That is a question that begs investigation by state regulators, and some are already answering.
Late last year, New Mexico’s largest utility proposed a monthly fee of up to $30 for solar customers, as a way of assessing the cost of the grid. Farther west, Hawaiian Electric Company chose to abandon its high payments to solar customers and, instead, pay the much lower “avoided cost” of power generation. Both states are excellent markets for solar power and have long histories dealing with rooftop solar owners. Clearly, their experience led them to realize that, left unchecked, generous net metering policies are not only unsustainable, but unfair to most customers. We believe those are lessons worth heeding.