The net metering dispute between utilities and solar installers will burn hotter after this response from Arizona Public Service to Sunrun Co-CEO Edward Fenster's remarks on net metering last week. APS is Arizona’s dominant electricity supplier.

The 44 net metering policies in place across the U.S. support solar by requiring regulated utilities to reimburse customers at retail rates for the solar-generated electricity they send to the grid. But net metering is increasingly controversial -- while solar owners’ utility bills roll back to zero they escape most of the infrastructure surcharges that are part of other electricity users’ bills.

“To the extent we don’t recover transmission and distribution fixed costs,” said APS Customers/Regulations Sr. VP Jeff Guldner, “we create a surcharge that assesses those costs to all customers. And the way metering works, that means non-solar customers.”

Net metering is vital to the value proposition of the third-party ownership (TPO) business model that has driven solar growth in the last three years. TPO employs a lease or lease-like arrangement to provide homeowners and businesses with rooftop installations without burdensome upfront investments or ownership responsibilities. TPO was started by Sunrun and is championed by SolarCity (SCTY), Vivint , Clean Power Finance, NRG, Sungevity, SunEdison (SUNE), and SunPower (SPWR).

“These solar leasing companies know their systems don’t work without being connected to the grid,” Guldner said. ”They have as much at stake as we do. But it sure doesn’t feel like that.”

APS (NYSE:PNW) Communications VP John Hatfield recently said net metering is a cost-shift issue, Sunrun co-founder/co-CEO Edward Fenster told GTM. But recent studies from Crossborder Energy on net metering in California and Arizona show that the practice provides more benefits than costs to the utilities and their ratepayers.

Hatfield was right, Guldner responded. If net metering remains unchanged and solar growth continues, “You’re going to collect the costs to the system that everybody uses, including net metering customers, from a smaller and smaller group of customers who don’t have solar.”

Policies like California’s decoupling and Arizona’s “partial decoupling,” Guldner said, protect utilities by shifting the cost. But ratepayers and regulators are likely to see that shift as an unjustifiable burden on non-solar owners.

“Cost-shifting is just math,” Guldner said. “If there are 100 customers paying for a $1,000 system, they each pay $10 per month. If half of them install solar and stop paying, there are 50 customers and they pay $20.”

“Right now, APS has 16,000 or 18,000 customers with rooftop solar. We can talk about things like grandfathering them in to protect their investments, but it is going to be much harder to protect 60,000 or 100,000 customers and to institutionalize tens of millions of dollars of cost shifting.”

The APS upfront incentive (UFI) for residential solar was stepped down with the state’s increasing installation volume and is now at $0.10 per watt, Guldner said. That leaves net metering as the most important financial incentive after the federal tax credit.

“If you assess the net metering subsidy, you may have to go back up on the cash incentive if the policymakers want to continue to deploy customer-side generation,” Guldner said. “APS wants to get all this on the table and make decisions based on what the costs are. But the solar leasing companies and TUSK, the Arizona activist organization led by Barry Goldwater, Jr., are trying to shut down that discussion.”

A value of solar tariff is “on the table,” and “non-generation values” could be assigned to solar, Guldner said. Another option would be “to consider what customers pay for the infrastructure that serves them.”

Net metering advocates, Guldner said, “present rooftop solar, which only provides generation, as a fully bundled utility service. But the utilities provide the transmission, the distribution, the backup service, the integration. They are providing only a portion of what we provide.”

When a home with a solar system turns on its air conditioning, Guldner said, “it pulls additional power from the grid to keep the lights on. If it wasn’t on the grid, it would go out of balance and trip offline. You still need the same poles and wires and transformers and system, whether the house has solar or not.”

Of Fenster’s studies showing net metering is not a subsidy because solar provides more benefits to utilities and ratepayers than costs, Guldner referenced a May 2013 SAIC study, and said, “We fundamentally disagree.”

Studies attempt to value future benefits, Guldner said, “like avoiding the future construction of a power plant or avoiding carbon taxes. We operate the biggest nuclear generating station in the U.S. and it has no carbon emissions. There is no value in our rates from future carbon avoidance at Palo Verde.”

Guldner also offered alternate takes on three more of the assertions Fenster made to GTM about APS, contending that:

  • The APS bond rating is investment quality
  • Though it tried an alternative method, APS now finances new lines the same way as 99 percent of U.S. utilities
  • Like most utilities, its returns are regulated for stability “because of the importance of the service we provide and the critical nature of the infrastructure of the electric utility system.”

Watch the exchange between Sunrun's Edward Fenster and APS's Gregory Bernosky at Solar Summit 2013:

Video streaming by Ustream