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Who's Winning the Net Metering Debate Now?

After Arizona's decision to keep net metering but add a small fixed charge, we asked around the industry: who won, who lost, and what precedent does this set for battles in other states?

Late last Thursday the latest battle over net metering came to a head in Arizona, and we're still hashing out who won and who lost, and what strategies will live to be tested in battle another day. Here's a sampling of opinions we've gleaned from some industry leaders -- who don't all agree on what it all means or what's next.

Is This a Win, a Loss, or a Draw for Solar Energy?

Yes, A Win for Solar:

"In the short run it's a victory for solar," with the ACC setting the fixed charges far below what APS had positioned, acknowledged SEIA president/CEO Rhone Resch. "It keeps the solar industry growing in Arizona, so it's considered a victory there."

"We see this as a resounding victory for customer choice and solar rights," Annie Lappé, solar policy director from the Vote Solar Initiative. That said, "we always have to think of what alternatives were on the table," she advised -- one of which was Commissioner Pierce's proposal for charges exceeding $7/kW. "That type of charge would have killed the solar industry and stopped savings for almost all customers," she said. "That's what we were up against."

It would be "unthinkable" for Arizona, the U.S.' sunniest state, "to be the first state to eliminate its own solar industry," offered Bryan Miller, president of The Alliance for Solar Choice (TASC) and VP at SunRun. The ACC's decision is essentially a rejection of APS' much harsher proposals which would have done just that, he said. Lappé pointed out that the utility's two earlier proposed options weren't even put on the table at these meetings. Moreover, she said, APS' public image likely has taken "a serious battering," citing "dozens" out of 110 public comments during the hearings that cited disappointment in the utility's conduct.

No, A Win for Utilities:

Is APS, and by extension other utilities fighting net metering rules, really the loser here? "I don't buy that they're disappointed," Johnson replied. APS can now amortize the millions of dollars spent fighting net metering over new fees, likely making that back after a couple of years and then pulling some revenue out of the solar industry. "They're popping champagne corks over there."

Keyes also points out that the ACC's ruling essentially suspends a provision in its own net-metering rules, stating that any charges need to be "fully supported with cost of service studies and benefit/cost analyses" and with the utility having the burden of proof (R.14-2-2305). Technically the door is open for a challenge to the ACC's ruling that the $0.70/kW wasn't fully supported, though that's unlikely given the compromise that was reached.

No Clear Outcome:

"Politics is a give-and-take process," said TASC's Miller. "Nobody gets what they want." For SunRun this will result in "real fees and real impact," he said, without offering specifics. Lappé similarly acknowledged that the $0.70/kW charge "will be felt" by customers with smaller rooftop systems, and "could be significant enough to preclude new solar customers on that side of the scale."

"The result shouldn't be considered a victory," counters Jason Keyes, partner at Keyes, Fox & Wiedman LLP, and co-author of a recent IREC paper about valuing distributed solar generation (DSG). While the compromise of $0.70/kW "allows the industry to survive, and it could have been much worse" given other plans put forth, that number was "purely based on what the solar industry can accept" with no cost/benefit analysis or value of solar study to support that conclusion, he said.

If the utility's argument (in Arizona and elsewhere) is truly about the costs of operating the grid, "then the utility should look at a fixed charge for everyone," Resch said. "Don't penalize or disincentive customers for using the domestic solar resource, that's where the conversation needs to evolve into. If this is truly about the financial integrity of the grid, then involve all ratepayers."

Does this set a precedent for other states mulling their own policies on net metering, and solar DG costs vs. benefits?

Yes: A Bad One

SEIA's Resch called the ACC's ruling "a bit of a wakeup-call" and "a bad precedent" insofar that any type of fixed charge solely applied to net metering customers is viewed as a penalty for solar distributed generation -- as opposed to applying for all customers as a cost for maintaining the grid. Having conversations that fully analyze the costs and benefits of solar DG in particular, is critical before establishing any type of new rate design or structure around net metering, he said. "That was left out of the process in Arizona," and the SEIA "will work hard to make sure that conversation is heard in the states that will be reviewing their net metering process going forward," from Colorado to Massachusetts to California and eventually Arizona again.

"The precedent was going to be set, period. No question they were going to set a fee," chimed in Ken Johnson, SEIA's VP of communications. The real decision for solar advocates, he said, was to "live to fight another day, or go down fighting and end up having a fee that's so outrageous that it would kill the solar industry in Arizona." The only real choice was to compromise and agree on a charge "that's not so prohibitive."

Yes: A Good One:

Lappé agrees that a precedent is being set by the ACC decision -- but in a good way. "The commissioners were very clear that more analysis needs to be done to address the true cost and benefits of solar," she said, and the most fair and appropriate way to do that is not through a utility-sponsored process but through a general rate case -- and there was near-consensus among the commissioners agreed that a rate-case is the appropriate forum for this net metering discussion, she pointed out.

Miller summed up the nationwide net metering tenor thusly: in several challenges states have declined to change their net metering policies, telling utilities to address their concerns in the context of rate design: "if you don't like it, then fix your own rate, stop picking on net metering," he explained. "The clear pattern now emerging is that for utilities across the country, challenges to net metering are failing."

Arguably the two most influential U.S. solar markets, Arizona and California, have both arrived at an answer of small fixed fees (less than $10/month). "It is likely that other states will eventually revisit their net metering policies as solar penetration grows," acknowledged Credit Suisse analyst Patrick Jobin, "but this hotly contested debate will likely serve as a warning to other utilities eager to impose hefty fees on customers in the near term."

What Do We Need to Know Next?

Karl Rábago, co-author of that IREC study, wonders if this decision is a stepping-stone to higher charges, or if there will be future proceeding to determine fair "valuation." VoteSolar's Lappé similarly views the $0.70/kW charge as "just a proxy number right now" ahead of those ACC-proposed workshops. Credit Suisse's Jobin is similarly "unaware of any escalators built into the rate," but he notes that the ACC's 3-2 split decision "clearly highlights that the commission believes costs need to be adjusted to be equitable," whether that happens during a general rate case in 2015 -- or perhaps earlier.

Both Lappé and Keyes note that the ACC does have the authority to adjust its locked fix cost recovery (LFCR) mechanism, in which this new fixed rate applies, in its annual proceedings during 2014. Any proposal to adjust the rate through that LFCR could resurrect those calls challenging the ACC's methodology for choosing a fixed rate, Keyes points out.

Rábago also raises an interesting point: if a new customer must become "revenue-neutral," and generate an additional 7 kWh per kW of installed capacity, that might bump some customers over the 125-percent consumption limit -- and thus "have the perverse impact of encouraging customers to raise their consumption as a result in order to pay the tax," he muses.

And what about other utilities who've been watching this ruling? "As many in the industry, we share this situation to some degree," said Scott Harelson, spokesperson for Salt River Project (SRP), a utility also operating in Arizona's regulated market (and involved in Apple's forthcoming new plant there, a former First Solar plant). He indicated SRP is looking at the issue as "not net metering per se, but rather the underlying structure of energy prices, which were designed to recover other costs in addition to just energy."

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