Net Metering ‘Cost Shift’ Continues to Plague Arizona

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.

Solar Panel

Read PACE’s White Paper on Arizona Here

“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.


Brown to Serve on TVA Regional Energy Resource Council

Officials at the Tennessee Valley Authority (TVA) confirmed this past Friday that PACE Executive Director Lance Brown will serve as Alabama Governor Robert Bentley’s appointee to the Regional Energy Resource Council, a body of up to twenty members created by TVA to obtain advice and views from public and private energy stakeholders. Another Alabamian, Goodrich “Dus” Rogers of Scottsboro, serves as Chairman of the Council.


“PACE has worked for years with TVA officials to provide input on important energy issues that affect customers and other members in the utility’s service territory,” says Brown. “Our organization is grateful to Governor Bentley for our nomination to the Council and to TVA for allowing us this new channel for our advocacy.”

TVA formed the Regional Energy Resource Council in Fall of 2013. According to the utility’s website devoted to the Council, “A key challenge faced by TVA is managing energy resource priorities among competing objectives and values. These include building and operating diversely fueled power plants and balancing those needs with reducing energy consumption, using energy efficiency measures, and tackling transmission, integration and growth issues. As the operator of the nation’s largest public power system, providing reliable and affordable electricity to more than 9 million people in parts of seven southeastern states, gaining routine input from stakeholders contributes to the sustained vitality of the region.”

Members of the Regional Energy Resource Council serve without compensation, with meetings being open to the public. The next scheduled meeting will be held in Nashville at the Loew’s Hotel on April 20th and 21st.


PACE Supports Oil & Gas Leases in Gulf of Mexico

In a letter sent yesterday to officials at the Bureau of Ocean Energy Management, PACE expressed its strong support for the expansion of federal oil and gas leases in the Gulf of Mexico region. The letter comes in response to the creation of a draft proposed program that would provide for ten new oil and gas lease sales in the Gulf of Mexico between 2017 and 2022. Four other lease sales would take place in the Atlantic and Alaska.

“As an organization consisting of those who use and pay for energy, the  Partnership for Affordable Clean Energy believes that the continued supply of oil and gas from the Gulf region helps to place downward pressure on prices, benefitting consumers and strengthening America’s energy security,” PACE wrote in its letter. “Furthermore, offshore energy development in the Gulf has significant economic development implications for coastal states and communities, including generating tens of billion of dollars in economic impact and supporting nearly 400,000 jobs. Last year alone, royalties from Gulf production provided $7 billion in revenues to the federal government, making the industry one of the largest sources of non-tax revenue to the federal government.”

See the Full Letter Here

“Continued and expanded access to all areas of the Gulf of Mexico will bolster the economic future of the region and help to ensure a stable supply of domestic crude oil, petroleum products, and natural gas for Americans. Doing so will also create jobs,” the letter continues. “In fact, Quest Offshore Resources has estimated that an increase in Gulf of Mexico offshore oil and gas activity could support 180,000 jobs across Mississippi, Alabama, and Louisiana, and Wood Mackenzie estimates that oil and gas development in the Eastern Planning Area could create 100,000 new jobs in Florida alone.”

Those wishing to join PACE in filing their own comments can do so quickly and easily through a federal website. At the time of this update, less than 150 comments has been filed on this important topic. Submit your own comment by clicking here.

In addition to written comments, the Bureau is also accepting public comments at upcoming meetings. These include a meeting in New Orleans on February 25th, to be held from 3:00 – 7:00 PM at the Lindy Boggs International Conference Center at University of New Orleans, as well as a meeting in Mobile, Alabama, on February 26th from 3:00 – 7:00 PM at the Mobile Marriott Hotel on Airport Boulevard.