Net metering battle takes center stage

Statewide political warfare is usually reserved for even-numbered years, targets millions of Arizona voters and follows well-defined partisan boundaries. But the fight over solar energy in Arizona has broken all those maxims this year.

A face-off between Arizona’s largest utility provider and a burgeoning solar industry over rooftop solar panel incentives has intensified in recent months. Each side aims to sway a majority of the five Republican state utility commissioners. Full-blown TV advertising campaigns have emerged from both sides, revealing uncommon partisan fractures and alliances.

So far, the commissioners have kept any final inclinations to themselves.  Both sides have disputed the other’s research methods and the debate has escalated to include accusations of dishonesty and smear tactics.

Everyone agrees on one thing: The stakes are high.

The net metering system

It’s no wonder more and more Arizonans install solar panels on their homes each year.

A batch of incentives designed to encourage solar panel adoption has made it a smart financial choice, providing upfront cash incentives and saving customers money on their electricity bill each month.

Through a system called net metering, homeowners’ rooftop electricity production means a reduction in the amount of energy purchased from the utility provider. And when a solar panel is producing more energy than a customer needs, the excess electricity is purchased back by the utility.

The chance for consumers to save 30 percent to 70 percent on electricity bills created a ripe new customer base for a solar industry that’s boomed since those incentives took effect in 2009.

Some upfront incentives have ended, as planned. And the utility regulators — the Arizona Corporation Commission — reduced another upfront incentive earlier this year.

Now, the state’s largest utility provider, Arizona Public Service, wants to see another, more drastic reduction in the net metering system.  That has sparked an all-out political war over the issue.

APS says the net metering system is flawed, unfairly pushing some maintenance costs onto non-solar customers. To remedy that, the energy provider wants to slash the net metering incentive roughly in half.

Solar industry advocates say doing so would practically squash their nascent industry.

APS says it wants to reduce the incentive to make sure non-solar panel users don’t have to pick up costs avoided by solar customers.  But the solar industry’s campaign says the utility giant just wants to maximize profit margins for its parent organization, Pinnacle West Capital Corporation, a publicly held capital equity firm.

Removing the training wheels

In June 2012, APS began to signal its intention to seek reductions to the state’s solar incentives.  The utility outlined altered incentive scenarios in its 2013-2017 Renewable Energy Standard Implantation Plan.

The state-mandated standards require utilities like APS to steadily integrate increasing amounts of renewable energy, like rooftop solar energy, into their overall energy portfolio, until reaching 15 percent in 2025.

By November 2012, filings for the plan overtly challenged the net metering system’s accepted valuation. They also laid out the reasoning behind the coming push for incentive reductions — an unfair infrastructure cost avoidance by net metering customers.  The filings requested a technical conference to study the issue.

Over the next several months, APS and advocates for the solar industry produced conflicting reports that evaluated the costs and benefits of net metering. Studies produced on behalf of APS backed its claims that net metering pushed infrastructure costs to non-solar customers.

Studies produced on behalf of the solar industry argued that long-term and ancillary benefits of net metering were ignored by APS’ reports.  The studies concluded that during the 20-year to 30-year lifespan of a solar panel, the cumulative benefits actually exceed the current valuation in the net metering scheme. Their evaluation included reduced future fuel purchases and environmental benefits.

In January, the Corporation Commission eliminated an up-front component of the solar panel incentive. While the net metering system remained intact, the action removed one of the ways solar panel installation companies lured new customers.

Mark Bissegger, a research analyst with ClearSky Advisors, a renewable energy market research firm, described the change as having “taken the training wheels off the solar industry” in Arizona. Solar panel installation will level off, Bissegger said. But his analysis warned that additional incentive reductions from the “anti-renewable movement” would create additional risks.

On Jan. 24, Carrie Cullen Hitt, a senior vice president at the Solar Energy Industry Association, said the organization was “disappointed” and called the decision “a surprise.”

Michael Neary, who served as executive director of the Arizona Solar Energy Industries Association at the time, said that’s when “everything hit the fan.” From the perspective of solar industry advocates, it became clear that preserving the incentives that aided their business boom would require an outright political campaign.

Seven weeks later, Tell Utilities Solar Won’t Be Killed (T.U.S.K.) emerged with Republican former Congressman Barry Goldwater Jr. as its political figurehead and veteran political consultant Jason Rose crafting the group’s message and strategy. Another group, The Alliance for Solar Choice (TASC), headed by the same people, also formed and joined the fight. Both registered as independent expenditure committees with the Arizona Secretary of State’s Office on July 19. Representatives of the two groups have said their funding comes from the solar industry.

T.U.S.K. and TASC have painted APS as a corporate monopoly looking for ways to pad profits through regulatory manipulation. They’ve likened existing solar net metering to the ability of parents to choose charter schools for their children, rather than being forced to use the public school system. Since becoming politically active, the groups have attacked APS on their websites, in video advertisements, press releases and at rallies.

To back their claims of corporate greed, the groups researched, then eagerly provided several documents in which APS’ parent organization, Pinnacle West Capital Corporation, explicitly describe net metering systems as a potential threat to the publicly held equity firm’s profits and future business model. The groups urged Arizonans, or anyone interested in seeing solar thrive, to contact the Corporation Commission to demand APS doesn’t get its way.

Organizing For Action, a political action arm of Barack Obama’s presidential campaign, also jumped into the fight on behalf of the solar industry, urging its supporters to similarly voice their support of the solar industry to the commissioners.

Pinnacle West Capital Corporation’s 2012 Annual Report

Launching a counter-attack

On Jan. 30, around the same time as the solar industry decided to launch its campaign, former Arizona House Speaker Kirk Adams filed incorporation paperwork for Prosper, Inc., a 501(c)4 nonprofit advocacy group that’s allowed to spend unlimited amounts of money in political campaigns with anonymous contributors.

In ensuing months, Adams’ group launched a counter-attack. Prosper was quickly joined by the 60-Plus Association, a national political advocacy group that claims to represent the interests of senior citizens from a conservative stance. The 60-Plus Association is headed by local political consultant Sean Noble.  He may be best known for having handled millions of dollars put up by the billionaire business partner Koch brothers during the 2012 campaign cycle to defeat Democratic congressional candidates and President Obama. Noble also ran Adams’ failed 2012 congressional campaign.

APS has denied responsibility for the groups’ campaigns, but acknowledges it contracted Noble as a political consultant. Neither Adams nor Noble has spoken about their groups or their funding sources.

The groups have cast the net metering system as akin to the government subsidy provided to the failed energy company Solyndra, which had political ties to Obama’s presidential campaigns. They say solar panel companies want regulators to provide cozy business conditions for them, even though other energy sources are cheaper and already integrated into the existing system.

Both groups claim the others’ position negatively affects senior citizens.

When things haven’t gone their way, both groups have lobbed ad hominem attacks, too.

After the Phoenix New Times published a story that T.U.S.K.’s mouthpiece Jason Rose didn’t approve of, Rose accused the story’s author, veteran local reporter Ray Stern, of showing deference to family connections to APS and favoring the utility in the article.

In August, Global Strategy Group, a D.C.-based crisis management public relations firm working on behalf of Edison Electric Institute, APS’ trade association, tried to secretly shop stories to local media outlets aimed at smearing a local solar panel company’s employee, who lashed out at APS in an email to his customers. The email, which included accusations against APS, was later deemed inaccurate.

Hearings to begin

On Oct. 1, the Arizona Corporation Commission’s staff released its analysis of APS’ proposals, and concluded that no changes should be made to the existing net metering system. Instead, the report recommended putting off the issue until the next large rate-setting case for APS, where multi-year pricing structures are approved. The report also said some smaller incentive reductions might be possible to implement now, but nothing near what APS wants.

A commission spokesperson stressed that commissioners could choose to adopt or reject the conclusions. It’s all up to them.

A week after being published, the first formal hearing on the issue was removed from the commission’s Oct. 16 agenda.

Commissioner Bob Burns said he wanted his policy advisers to have more time to review the staff report. Commission Chairman Bob Stump said he also wanted to wait while Gov. Jan Brewer’s Residential Consumer Utility Office finishes its analysis of the issue.

Stump said the commission will definitely begin formal hearings in November. From there, evidentiary hearings may be in order, he said, but it’s possible the commission could act quickly and decisively after just the first hearing.

Stump said he understands the commission’s choice could be a bellwether for other states’ solar energy policies, guiding how regulators and utilities navigate solar subsidies in the future.

“I take everyone at their word when they say the eyes of the country and potentially the world are on Arizona,” Stump said. “We have, of course, tremendous resources here, and we need to resolve this issue in the public interest and make sure fairness is achieved all around.”

Stump, along with the other commissioners, said he hasn’t made up his mind yet on the issue.

No. 1: Arizona

In July, Renewable Energy World ranked Arizona as the nation’s most solar-energy friendly state.   Here is what the publication had to say about the state:

Arizona’s 167 watts of solar electricity capacity per resident is nearly seven times the national average, demonstrating the state’s early and solid commitment to solar energy. The state also ranks second behind California in utility-scale solar energy projects, with 633 megawatts in capacity and another 495 megawatts under construction. And the vast majority — 86 percent — of residential photovoltaic installations in Arizona is third-party owned.

Being at the forefront of solar energy deployment has also put Arizona at the head of several key debates about the future of solar energy. The Arizona Corporation Commission (ACC) has voted to eliminate incentives for both residents and businesses, and is one of a number of states to consider challenges to its renewable portfolio standard. And Arizona is ground-zero in one of the most contentious debates in all of energy: net metering. The fight against net metering — and to what extent the ACC is orchestrating it — has even drawn comparisons to the John Kerry/Swift Boat controversy.

Edison Electric Institute’s Disruptive Challenges study: