Arizona regulators are considering sweeping changes to the way utilities such as Arizona Public Service Co. comply with the mandate to get 15 percent of their electricity from renewable sources by 2025.
One change could reduce the mandate for APS to 13.35 percent. Other changes could affect the incentives that utilities pay for homeowners and businesses to install solar.
Besides the now-common objections from companies that install solar panels, the U.S. Defense Department, Walmart and other large solar-using customers oppose some of the measures.
Last week, the Arizona Corporation Commission, five elected officials who set utility policies, made minor changes to APS and Tucson Electric Power Co. renewable-energy plans. Even bigger changes are on the table in the months ahead, which could affect the $4 or so APS collects each month from residential customers for renewable energy and how it is spent.
Commissioners said the tariff is expected to increase sharply in the next few years as the renewable-energy requirement rises, and the price could be too high for customers.
“We need a way to relieve the average ratepayer from this steep curve,” Corporation Commissioner Gary Pierce said. “I want to … address these increased costs that are going to occur. We are constantly toying with customers’ electric bills. If we are going to ask them to foot the bill for these ambitious mandates, we must ensure that we are doing so prudently on a micro and macro scale.”
The Corporation Commission requires utilities such as APS to get 15percent of their annual electricity sales from renewable power sources such as solar by 2025. APS is ahead of schedule and will remain so by collecting about $86 million this year from customers and using it to purchase renewable energy and pay incentives to customers who install solar panels.
APS also has entered many agreements to pay large businesses an incentive each year based on how much electricity their rooftop solar panels generate. Those “legacy costs” are a concern to Pierce, because they must be paid as much as 20 years into the future.
“The numbers don’t lie,” Pierce said. “We need to ask whether aggressive mandates and seeing APS end up at over capacity is worth it to ratepayers.”
At Pierce’s suggestion, the commission voted last week to end incentives for large commercial customers’ solar projects in APS and TEP territories.
The solar industry complained that it had expected almost $21 million in APS incentives for those projects in 2013, and without them, the market would dry up.
“That, for us, effectively scuttles a number of very large commercial solar projects that we have spent months working to develop with customers in APS territory,” said Ben Higgins, director of government affairs for REC Solar.
“Individual commissioners seem to think the incentive is not needed for these projects to move forward,” he said. “These projects, absent the incentives, will not move forward.”
Pierce said the industry could survive without the incentives, especially because the regulators allowed the continuation of incentives for residential and small-business solar projects.
“Every year we hear a reduction in incentives would be harmful to the renewable-energy industry, but each subsequent year we have seen the number of installations increase, and Arizona is a national leader in installations,” he said.
He said the commission’s policies have been successful at getting more solar built for lower costs.
Another broad change in policy that will be considered in the months ahead is whether APS can change the way it tracks solar electricity that customers’ panels send to the power grid.
When customers install solar power, APS pays them an incentive. That incentive reflects APS buying the renewable-energy credits from the customer. The credits are associated with electricity and can be bought, sold and traded separately from the electricity itself.
But incentives are not intended to last forever. With wholesale prices for solar panels declining, APS officials predict that by next year the company won’t need to provide incentives to any customers, including the large commercial customers whose incentives were cut last week.
But APS still wants to take credit for the solar electricity that customers install on its system, even if it doesn’t pay for it. The company has proposed tracking and recording all the electricity from customers’ solar panels, even if it doesn’t pay them an incentive, and keeping the credits for itself to meet the state renewable-energy rules.
But some large utility customers, including the Defense Department, track those credits for their own purposes and oppose APS “taking” the credits because doing so would mean they couldn’t claim the credits themselves.
“Energy security is critical to our national security,” C.L. Stathos, the Defense Department environmental coordinator for the region, said in a letter to the commission. “Renewable energy, when combined with smart micro-grid and storage technologies, can significantly enhance the energy security and reduce the energy costs at (Department of Defense) installations.”
The Defense Department has mandates to procure its own renewable energy, including the 2007 Defense Authorization Act, and must track its renewable-energy credits, Stathos wrote. If APS is taking credit for renewable energy produced on military installations in Arizona, the Defense Department can’t count them toward its own mandates.
Walmart, which reports 22 solar installations in Arizona built to meet the company goal of using 100 percent renewable energy at its stores, also opposes the measure.
“When a utility counts the energy from a customer’s self-funded renewable facility toward the utility’s compliance … the customer can no longer make a legitimate claim to the renewable energy,” Walmart lawyer Scott Wakefield said in written comments to the commission.
APS wants credits
APS officials said that the track-and-record measure is needed because businesses are beginning to install solar without the utility’s financial help, and APS wants the energy to count toward the 15 percent by 2025 standard for renewables.
Such customers still benefit from a 30percent federal tax credit for those systems and from the utility’s policy of “net metering,” which credits them for the electricity they generate when it is greater than what they need from the utility.
When a customer puts solar power on a building, the electricity flows first to the home to serve those needs. But when the house is not drawing as much power as the panels produce, the excess electricity flows to the grid to be used by other customers.
If a customer generates more power than is drawn from the utility during a month, the electricity is credited and rolled forward to the next month. At the end of the year, APS pays the customers between 5.9 cents and 6.9 cents per kilowatt-hour for any remaining credits, depending on the customer’s rate plan.
That also could change in months ahead, because APS wants the commission to re-evaluate so-called net metering.
“We want to explore the whole transaction,” APS renewable-energy program manager Greg Bernosky said. “We have fixed costs embedded in our rates born by non (solar) customers. We want to explore how to give the right value to what solar customers allow us to avoid in (power plant) fuel, but not having (all the other expenses) picked up by non-solar customers.”
The commission will take up the issues of track-and-record energy credits soon, and an administrative-law judge will determine how to proceed on the net-metering issue, he said.
Pierce also has suggested reducing the amount of renewable energy that APS needs to procure. The renewable-energy standard states that utilities must get 15 percent of their retail load from renewable sources by 2025, and it increases annually until that time.
If, for example, a utility sells 1 million megawatt hours of electricity in 2025, then 150,000 megawatt hours of that electricity must from renewables.
Pierce suggested eliminating the electricity sold to large commercial customers, such as mines, from the calculation. About 11percent of APS retail sales are to large commercial customers. Thus, the change would reduce the amount of renewable energy APS needs to procure by 11percent.
The effect of that change would be requiring APS to get 13.35 percent of its electricity from renewables by 2025, not 15 percent.
Pierce said an alternative would be to extend the time period beyond 2025 when utilities must get 15percent of their electricity from renewables. Either way, he said a change might be needed to avoid steep renewable tariffs on customers.
The administrative-law judge also will decide how to proceed on this issue, Bernosky said.
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