Not long ago, major electric utilities in much of the Southwest seemed bent on chasing rooftop solar companies out of the region. They saw the booming industry as a threat to their profits and sought rate changes that would make solar panels less financially attractive to homeowners. The electric companies advocated slashing the compensation those customers get for sending their excess power to the grid and adding new fees to their electric bills.
Because the electric companies are monopolies, state regulators have to approve such changes. In late 2015, the Public Utility Commission of Nevada set new rates that were so unfavorable to solar customers that they nearly snuffed out the residential solar business in the state. The number of households applying to connect solar panels to the grid dropped from a peak of nearly 3,000 in August 2015 to just 14 in July the next year. The biggest solar installation companies left the state, laying off thousands of workers.
But that’s not the end of the story. The public was outraged, and its objections resulted in a surprising shift: gradual rollback of the commission’s anti-solar decision. In November, voters overwhelmingly approved a constitutional amendment to do away with utility monopolies. The public utility commission restored higher compensation rates for existing solar customers statewide and future customers in northern Nevada. It’s considering doing the same in the southern part of the state.
Now, the biggest electric utility in Arizona seems to have taken a cue from Nevada. The Arizona Public Service last week reached a settlement with solar installation companies, homeowner groups, local governments and other stakeholders. That will, by all accounts, keep the residential solar panel industry in business for years to come. The settlement doesn’t resolve a lawsuit, but instead aims to avoid a protracted fight like what has gone on in Nevada. If approved by regulators, the Arizona Corporation Commission, that settlement will set the terms for rooftop solar for decades.
Apparently big electric companies are learning that given the broad popularity of solar in the sunny desert region, they will have to accommodate rooftop solar instead of trying to kill it. This reflects the growing political might of the solar industry as it’s seen as a key job creator in much of the Southwest.
“We’re seeing that utilities recognize that they can’t go too far, and if they do, there’s going to be this backlash from customers,” says Alex McDonough, vice president for policy at Sunrun, a large solar panel leasing company based in San Francisco. “And so they have to work with us to provide access to solar. It doesn’t matter if it’s a red state or a blue state, there’s enormous customer demand.”
The deal for solar customers under the Arizona settlement is much more favorable than an earlier proposal from the company, which would have sharply reduced the compensation customers get for sending power to the grid. Instead, under the settlement, customers that already have solar panels would keep their existing deal, under which they get compensated at the full retail rate. For customers who get solar panels in the future, the compensation rate would start slightly lower than current retail rates and gradually decrease. That compromise reflects that Arizona Public Service got the message: the public wouldn’t stand for such a crackdown on rooftop solar. “We understand solar is a wildly popular resource,” Greg Bernosky, director of state regulation at the utility, told High Country News.
Arizona Public Service hopes the settlement (expected to be approved by the Arizona Corporation Commission in July) will put to rest the intense political battle over solar that has raged in the state since the rooftop solar businesses took off several years ago. The plummeting prices of photovoltaic panels spurred the growth of companies like SolarCity and Sunrun, which lease panels to residents and charge them less than their monthly electric bills. About 1,500 of the Arizona Public Service’s million residential customers sign up for solar every month, and by the end of January, a total of 55,000 Arizona Public Service customers had solar panels on their homes, according to the utility. That growth triggered a major press from the utility to increase the amount that residential solar customers pay. The utility argued that these customers were not paying their fair share of the costs of the grid, which shifted costs to customers without solar.
The compromise serves both interests. “There’s a sense that people want to just focus on doing business, offering customers products and services, and not always being tangled up in deep policy debates,” Bernosky said.
Still, solar companies complain that the new deal undervalues solar. They cite studies showing that rooftop solar has negligible impacts on electricity costs, even when solar customers are compensated at a one-to-one rate, getting as much for every unit of electricity they add to the grid as they pay for the electricity they take off the grid.
For companies like Sunrun that rent solar panels to residents, the solar compensation rate directly impacts their bottom line. But installers agreed to take less for power fed to the grid rather than face an extended fight that they might not have won in the end. The uncertainty over Arizona Public Service’s new deal with solar customers already had been cutting into business, the installers said. “It was in everyone’s interest to get to the table,” Sunrun’s McDonough said.
The recent developments in Arizona and Nevada show there’s a major shift underway in the relationship between large electric utilities and customers who generate power and share it with the grid. Utilities are coming to terms with a future where rooftop solar will provide a growing share of the electricity.
“We haven’t seen the end of utilities trying to clamp down on or really slow down the solar market. But there’s a growing awareness that a business has to give a customers what they want,” said Sean Gallagher, the Solar Energy Industry Association’s vice president for states.
Correspondent Elizabeth Shogren writes HCN’s DC Dispatches from Washington. Follow @shogrene