Arizona approves cut to solar compensation rates

The Arizona Corporation Commission (ACC) voted on August 24, 2023 to cut the Resource Comparison Proxy (RCP) in the state, a metric that is used to determine the market value of exporting rooftop solar production to the grid. The Commission voted to step down the RCP by 10%, adhering to a 2017 rule that capped value reductions at that level.

While the 10% reduction in exported solar harms rooftop solar customers, things may have ended up much worse. Arizona Corporation Commissioner Nick Myers filed an amendment that would cut net energy metering (NEM) rates to $0.053 per kWh, a reduction of 37%, which would have taken effect suddenly in September.

“The stability provided by the RCP is the fundamental reason solar has continued to thrive in Arizona. Stable, predictable rates give solar companies and consumers certainty about the future and the confidence to invest in their homes and businesses,” said Kate Bowman, interior west regulatory director, Vote Solar.

Vote Solar, a nonprofit advocating for equitable access to solar energy, filed comments on the RCP, emphasizing a need for a gradual approach to changes to let the market adapt. It commented that utilities have not filed transparent, publicly available data to support their RCP ratemaking calculations. The use of non-transparent internal utility data as the guideline for ratemaking is a problem that has been highlighted nationwide in similar such rulemaking battles. Investor-owned utilities appear to be digging moats around their business by squeezing out rooftop solar.

Vote Solar said Arizona’s RCP values put forth by utilities for 2023 have not undergone transparent scrutiny, potentially leading to unfavorable customer outcomes.

“Arizona families and businesses are facing rising energy prices, inflation, and high electricity bills following a summer of record-breaking heat. Rooftop solar is a solution that can help consumers take control of their energy costs, and any reductions to the RCP undermine the affordability of solar energy and hinder the expansion of solar adoption in the state,” said Bowman.

The proposed cuts to solar compensation rates are justified based on “cost-shift issues,” a utility-backed argument that non-solar customers were cross-subsidizing rooftop solar customers by increasing utility system costs. Utility Arizona Public Service (APS) provided data to the Corporation Commission claiming, “the magnitude of cost shift within the residential ratepayer class is within the range of $800 to $1000 per year.” This would amount to an $18 million cross-subsidization.

However, numerous studies by national labs and state groups have debunked utility claims of such a significant cost-shift. Lawrence Berkeley National Laboratory found that at current levels of rooftop solar adoption, the cost shift is negligible. At solar adoption rates of 10% of electricity generation mix or more, the cost shift was found to be a miniscule $0.005 per kWh.

While rooftop solar comes with many system-level benefits to efficiency and resource use, environmental footprint benefits, and social gain, the ACC has shown that these metrics are unimportant when evaluating the value of a good or service.

The ACC wrote it did not support “inclusion of societal and environmental factors and other externalities in valuing solar DG exports, which are speculative and inappropriate for ratemaking purposes.”

The adherence to a 10% reduction was a temporary win for rooftop solar, but the ACC stated it has interest in revisiting the foundations of Arizona’s solar compensation structures entirely. It is taking public input on the RCP prior to its October 11 meeting.

“Consumers and businesses rely on Commission decisions to make important decisions about their budgets and future investments, and dismantling the measured transition approach that the Commission initially championed creates destabilizing uncertainty,” concluded Vote Solar.