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Corporation Commission dooms net metering, adopts new rates for solar

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The Arizona Corporation Commission decided today that net metering for new solar users will eventually go away, but existing rooftop solar customers can keep their rates for 20 years.

Under net metering, utilities are required to purchase excess energy from rooftop solar panels, a key incentive that has allowed the solar industry to flourish in Arizona.

The commission voted to gradually adjust rates for net metering. New customers will be locked into set rates for 10 years, starting on the date they adopt solar energy. The solar industry asked for 20 years, arguing that fewer years would not provide the certainty that have drawn people to solar energy.

The commission praised its work as a step forward, but a major solar organization said it is “deeply disappointed” in the decision.

The decision will shape how utilities assess solar energy in rate cases in the coming years, ultimately affecting the viability of the rooftop solar industry in Arizona.

“I think we’ve accomplished something pretty historic today. We have been able to take an important step,” Commission Chairman Doug Little said. “Perhaps the decision we’ve come to today is not the perfect decision, but it is definitely a step in the right direction.”

Only Commissioner Bob Burns voted against the decision. He wanted to include more benefits in the solar rate calculation, and sought a 20-year grandfathering timeframe for all solar customers, both existing and new.

The meeting was the last for Commissioner Bob Stump, whose term ends this year. He said he was proud to end his career on this note, and added that the decision will help the solar industry grow and become self-reliant.

“To have maintained the status quo would have made the industry, long term, less competitive and less self-reliant,” Stump said.

The state’s largest utilities, including Arizona Public Service and Tucson Electric Power, as well as several smaller utilities and cooperatives have rate cases pending at the commission. The commission held off making major changes to rooftop solar pending the outcome of this week’s hearing.

Utilities and solar groups nationally and locally closely monitored this week’s hearing, as the decision is the culmination of years of intense debate over net metering and the future of rooftop solar in Arizona.

The Alliance for Solar Choice said the commission’s decision “disregarded the full, long-term value that rooftop solar brings to Arizona and the long-term certainty that Arizonans need when contemplating a solar investment.”

The group vowed to continue fighting for policies that “fairly compensate solar customers.”

Currently, utilities pay rooftop customers the full retail rate, usually around 12 cents per kilowatt, for excess power that their solar panels send back to the grid.

Under the new regime, that number will change, although the exact rate will differ for each utility, and the commission will use a complex methodology to assess the costs and benefits provided by rooftop solar.

On Monday, the first day of hearing, solar customers and proponents turned out in droves to provide public comment, most of which focused on the benefits of rooftop solar and how the commission should value them. The Alliance for Solar Choice estimated that about 250 people attended the hearing yesterday.

As the hearing entered its second day, solar advocates recognized net metering would likely end, and said they wanted to work collaboratively with utilities and other stakeholders to find a compromise that will preserve consumers’ ability to adopt solar energy. In previous proceedings, The Alliance for Solar Choice, which includes SolarCity and Sunrun, advocated for full a retail rate in net metering, making Tuesday’s concession a major shift.

Administrative Law Judge Teena Jibilian, who made a formal recommendation to the commission, called for an eventual end to net metering, as well as a short-term view of benefits when setting a new net metering rate. Jibilian argued that longer views of benefits are “inherently speculative” and could be “easily manipulated.”

Her order laid out two methodologies to be used in future utility rate cases when considering the costs and value of rooftop solar. The first, called the avoided-cost methodology, looks at five years of utility expenses (like new transmission lines) that may be avoided as a result of using rooftop solar. The second looks at the five-year average cost of large-scale solar plants used by utilities.

The commissioners largely stuck to Jibilian’s order, adopting the two methodologies she suggested. They voted to adjust the new rates annually, capped at a 10 percent reduction each year.

For rate cases already underway, the commission will use a methodology called the resource comparison proxy, which looks at power purchase agreements with large-scale solar projects to set the new rate.

Over the next few years, the commission will iron out details of the avoided-cost methodology. Utilities will then decide which methodology to use or potentially blend the two in future rate cases.

The commission also decided that rates for excess solar energy will be updated each year in an effort to avoid causing dramatic changes, which could happen if the issue is instead revisited every five years or so.

Advocacy group Vote Solar believes the commission’s methodology will “systematically undervalue distributed generation,” its program director for DG policy, Briana Kobor, said in a statement.

“This decision casts doubts about the future economics of clean, home-grown solar energy,” Kobor said.

The decision to grandfather in consumers to some degree was more or less a done deal, as state regulators have repeatedly said they wanted to avoid a crisis like what happened in Nevada.

Last year, the Nevada Public Utilities Commission ended net metering and did not grandfather in existing solar customers. In response, major rooftop solar companies pulled out of the state. The Nevada commission eventually agreed to adopt grandfathering for existing solar customers.

But the Arizona Corporation Commission adopted 10 years of grandfathering for new customers, a move the Arizona Solar Energy Industries Association said would hurt the local solar economy.

Having a 20-year locked-in rate “is important to build the industry in the state,” AriSEIA’s executive director, Lucy Mason, said during the hearing.

The 10-year period does not provide enough certainty for solar customers, industry representatives argued.

Today’s decision doesn’t end the net metering debate. Solar companies and utilities will continue to clash as each rate case will re-assess the exact value of excess solar power.

Arizona Public Service called today’s decision “good for solar” for a number of reasons, among them that solar consumers will now start paying their fair share of the cost of using the electric grid.

“(The decision) also enables solar to flourish and grow in Arizona, partly because it balances the economic benefits of grid-scale solar, which provides clean power to all of our customers at far less cost, with the desire of some customers to install solar on their rooftops,” the utility said in a news release.

But APS maintained that subsides and cost shifts that favor solar customers still exist, and it will keep working to find ways to “bring the benefits of solar to Arizona customers.”

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