Number crunching utility rates in the Arizona solar war


Last week, after months of rhetoric and hype, the first shots were fired in what has been billed as Arizona’s solar war, when Arizona Public Service, the state’s biggest utility, proposed a new rate structure that is far less favorable than the current one for homeowners with rooftop or backyard solar.

Arizona’s Corporation Commission, the state’s public utilities overseer, requires investor-owned utilities to allow customers to use power generated by their solar panels or wind turbines to offset their power bills, a policy known as net metering. Arizona’s net metering policy is considered among the best in the nation by solar advocates, and is credited with making Arizona one of the leading residential solar states in the nation.

Source: APS.

But APS says that the current policy’s pricing structure gives rooftop solar folks a free ride on the grid, which they rely on when the sun’s not shining, leaving other ratepayers to pick up the tab. So, soon after not-so-sympathetic-to-solar Republicans swept the ACC elections last November, APS started making noise about asking for the policy to be rescinded or altered. Solar industry advocates and a group of Republican free marketeers, led by Barry Goldwater, Jr., accused APS of trying to kill the industry and fortify their monopoly status. On July 12, APS submitted their proposal, [pdf] which will be considered in coming months.

APS’s proposal, if ultimately accepted by the ACC, would diminish the incentive for folks to generate their own solar power in the sunniest state. APS says it would also be more fair by shifting the burden of paying for infrastructure from non-solar ratepayers, to those with solar panels on their roofs. The proposed changes would not affect current residential solar generators: Everyone currently in the system, and applying to be on net metering by October of this year, would remain under the current net metering system until 2034 (meaning the proposal alone may spur a rush on rooftop solar applications in the next few months).

APS ended up asking the ACC to choose one of two options:

• keep the net metering program in place, but require new residential solar customers to be on a time-of-use rate plan -- with a “demand charge” based on a home’s maximum electricity demand -- for the electricity they get from the grid; or,
• go with the so-called bill credit, in which APS would pay the rooftop solar customer a market-based rate for the power they generate.

In order to better understand what this would mean to the various pocketbooks involved, I used sample utility bills provided by APS for a customer -- we’ll call him Solar Sam -- who uses 1,600 kilowatt hours (kWh) per month in the summer, and 900 kWh in the winter. His monthly bill in the summer, if he had no solar, would be $275, and $115 in the winter.* Solar Sam’s rooftop photovoltaic array generates 1,000 kWh of solar during summer months, and 750 kWh during winter, which is fairly typical.

Under the current net metering system, the 1,000 kWh of rooftop solar power generated by Sam's array directly offsets 1,000 kWh of power he pulls off the grid, regardless of the time. So Sam gets billed for just 600 kWh during the summer months, bringing that $275 bill down to just $92. Throw in the winter usage and average it out over the year, and Solar Sam can slash his electric bill by some $1,600 per year.

APS’s proposed net metering option would be a significant tweak. Sam’s electricity rates would vary during the course of the day, depending on overall demand on the grid. So if he generated 10 kWh during non-peak hours, it might only offset 5 kWh used during peak demand times. Plus, he would pay a “demand charge” based on the maximum amount of power he uses during a single month. “Basically, it’s how much you are leaning on the grid,” says Chuck Miessner, Pricing Manager for APS, and is usually proportional to the size of a house (and its air conditioning system and the number of electronics). Solar Sam’s monthly summertime bill under this regime, depending on how careful he is about when he cranks the AC, would be $157. His yearly savings would be just $900.

The bill credit option would be an even bigger bummer for Solar Sam. He’d be billed regular rates for all of the electricity he pulls from the grid -- that same $275. Then, APS would give him a market-based credit for that 1,000 kWh of solar he generated. The unknown here is the market rate, which would change each year. APS is aiming for 4 cents, based on forward prices at the Palo Verde trading hub. That’s less than one-third of what current net metering folks get, and half of what the utility pays for utility scale solar. It brings Solar Sam’s final summer bill to $235 (or $184 if he were to switch to a time-of-use rate plan). Total yearly savings are just $414.

Will either option stop Arizona’s budding rooftop revolution in its tracks? It’s tough to say. If Solar Sam’s hankering to get energy from the sun is motivated purely by finances, then either of the proposed systems are likely to dampen his mood. After all, it would take anywhere from two to four times longer than under the current system to pay for the upfront cost of the solar array. If Sam’s more interested in a bit of energy security, or doing his part to clean up the air, then the changes may be irrelevant.

And how about all of those non-solar ratepayers? If you assume that all of Solar Sam’s savings**, along with those of everyone else with rooftop solar, are being added to non-solar ratepayers’ bills, then those other ratepayers are forking out an extra $29 million*** per year. That sounds pretty hefty until you consider that it’s spread out between more than 1 million non-solar customers****. If another 18,000 Sams go solar in Arizona, the new proposals would save those non-solar ratepayers between $13 and $22 per year.

The choice is now in the ACC’s lap: Should they slash solar customers’ savings by up to $1,200 per year, and risk slowing the state’s solar standing? Or add an extra $18 or so to non-solar ratepayers’ bills, and continue to offer strong incentives for plastering parking lots and rooftops with PV arrays? Or will they go with something in between? We'll keep you posted.

* This is well-above what the average Arizonan uses or pays per month because, says Chuck Miessner, APS Pricing Manager, people with rooftop solar in Arizona tend to live in larger homes and gobble more electricity than average.
** I’m making this assumption only for computation’s sake. In fact, it’s much more complicated than that, and Solar Sam’s rooftop panels are also saving the utility and its ratepayers some costs.
*** This number is based on multiplying Solar Sam’s annual savings by the 18,000 APS residential customers with rooftop solar. The costs are shared by just over 1 million non-solar customers. Keep in mind that this cost transfer won’t change for the next 20 years, since current rooftop solar folks will be grandfathered in under either APS proposal.
**** Even if there were 50,000 residential solar arrays under the current system, the non-solar ratepayers would only be saddled with about $80 extra per year, or less than $8 per month.

Jonathan Thompson is a senior editor at High Country News. His Twitter handle is @jonnypeace.