Staff experts for Arizona’s utility regulators have come out against a proposal by Arizona Public Service, the state’s biggest electricity provider, to alter solar’s net metering incentive.

“Staff recommends that the Commission not approve either of the [net energy metering] cost-shift solutions proffered by APS,” reads a September 30 memo from the Arizona Corporation Commission staff to the commissioners who will decide on the utility’s proposal. The memo also recommends the issue not be evaluated until APS’ 2014 rate evaluation process.

Making the decision in the context of the next rate case “is precisely what the solar industry proposed,” said Bryan Miller, Alliance for Solar Choice President and Sunrun VP, “and precisely the opposite of what APS proposed.”

“The Staff report makes it clear that the current net metering structure is not fair for all customers and must be changed,” an APS press release commented. “Staff’s recommended alternatives are a starting point, but don’t go far enough,” it added. “We stand by our initial proposal and we look forward to working with the commissioners. We need to act now. This issue will get worse for customers and harder to solve the longer we wait.”

This is an issue that is important far beyond Arizona, as well, because the fight over net metering (also referred to as "NEM," for net energy metering) at the ACC is one of the first in a series of coming confrontations involving regulators, utilities, and the rooftop solar industry, according to SolarCity (SCTY) Policy/Electricity Markets Director Meghan Nutting. Similar decisions on the fate of net metering will follow in Colorado, Hawaii, California, and many other of the 43 states where the practice supports distributed generation.

This staff recommendation demonstrates to other utilities that if they pursue an APS-style campaign to change net metering policies, their approval from customers will fall and regulators will take note of it, Miller added in pointing out that APS’ favorable ratings in polls have fallen 27 percent.

Also likely to get the attention of other state regulators and potentially to set a precedent is the memo’s conclusion that “the development of a common set of assumptions and inputs will be fundamental in any future analysis of NEM costs and benefits as in APS’ next rate case.”

There are, the staff memo says, “two forms of value inherent in DG systems.” This points to an interpretation of DG’s value that diverges from that used by APS and most other utilities. The less controversial “Objective Value” includes “measurable benefits” such as avoided fuel costs. The “Subjective Value” includes “monetary values” for “future benefits that are not easily measurable,” such as better grid security or air quality.

The equitable allocation of costs and benefits of DG among customers "is a matter of rate design,” the memo says, and “can best be determined in the context of a general rate case.”

Commissioner Gary Pierce requested the staff analysis after APS filed its solutions for what it has described as a cost shift that was unfair to its non-solar-owning customers. Multiple solar advocates, including The Alliance for Solar Choice, filed objections. An ACC decision on the APS proposal could come at the commission's mid-October meeting.

The memo notes that APS had approximately 900 rooftop solar systems in June 2009 and over 18,000 in June 2013. “APS data confirms DG installations have increased at approximately 500 per month [in 2013],” the memo says, “and the cost shift within the residential ratepayer class is within the range of $800 to $1,000 per year per DG customer.”

The utility’s filling proposed two possible solutions. New APS residential DG customers could either take APS’ existing rate and use net metering, or take an altered rate and get “a bill credit for 100 percent of the DG system’s production at a market-based price.”

“The recent rapid increase in NEM installations, despite declining upfront incentives, validates the success of the NEM incentive,” the staff memo notes, and “staff recommends that the Commission not approve either of APS’ proposed NEM cost-shift solutions.”

The first APS option contains an unnecessary cost-shift surcharge, the memo says, because the Lost Fixed Cost Recovery (LFCR) mechanism agreed to by APS in May 2012 already added a surcharge to all APS customers’ bills to make up for revenues lost to energy efficiency and DG. The bill credit in APS’ second option is not the same as NEM and is not revenue-neutral, the staff’s memo concludes.

Proposals from DG advocates, the memo says, “present legal challenges that would be avoided if the Commission were to adopt one of Staff's recommended options.”

The staff memo offers two “bridge solutions” if the ACC decides it must act on net metering before the next rate case. “Both involve adjustments to APS’ LFCR adjustor mechanism” and “lend themselves to implementation outside of a rate case.” Neither alters the LFCR provisions that APS agreed were adequate.

The staff’s first alternative to the APS proposals provides an LFCR flat charge for new DG customers. The second creates an LFCR DG premium for new DG customers “based on the difference between APS’ cost for purchasing a DG customer’s excess generation and its cost to purchase an equivalent amount of energy [produced by a utility-scale solar farm] from a wholesale PPA.”