If Arizona's regulators listen to recommendations from their staff, they may approve one utility plan to own distributed solar and reject another.
In August, two power companies in the state, Arizona Public Service (APS) and Tucson Electric Power (TEP), filed plans to own and rate-base rooftop solar PV projects in their service territories in order to compete with third-party installers.
The two leasing programs were similar in design: the utility would identify residential rooftops suitable for solar, bid out work to local installers, and then offer monthly credits or a fixed bill to the homeowner hosting the system. In theory, the models would expand solar to homeowners who couldn't otherwise afford it, while also helping utilities cover their fixed grid costs.
This week, staff at the Arizona Corporation Commission (ACC) released their evaluation of the two plans. They show skepticism about their benefits to ratepayers, particularly for the program developed by APS, the state's largest investor-owned utility.
"There may be questions as to whether APS has in fact established an absolute need for at least 20 MW of new solar in order to meet APS’ 2009 Settlement agreement requirements," wrote Arizona Corporation Commission staff in their report.
APS' plan was to install 20 megawatts of solar on 3,000 rooftops through the end of next year, giving customers hosting the systems a $30 credit on their bill for twenty years. In its original filing, the utility said the total deployment would cost between $55 million and $75 million, while saving $1.3 million in fuel costs.
However, the ACC analysis showed that the total cost could come in at $94.5 million to $114 million.
The report also raised questions about the need for the utility-owned systems. Even with no state incentives -- only net metering and the federal tax credit -- third-party installers in the state continue to do new business. In the second quarter of 2014, Arizona's residential installers deployed 19.1 megawatts of systems, with 66 percent of those projects getting no rebates or state incentives, according to GTM Research.
That would easily eclipse APS' 20-megawatt target, potentially at a lower cost. "APS may be able to satisfy its 2009 Settlement Agreement obligations without...the APS-owned [distributed generation] alternative," wrote the staff, referring to the utility's obligations under the state's renewable energy targets.
In response to a letter from Commissioner Susan Bitter Smith about the necessity of the program to meet renewable energy mandates, APS said it was uncertain whether the market could deliver its needed generation: “APS might reach this requirement based on third-party installation activity. But it might not. An additional 20 MW of AZ Sun is a reasonable amount that would ensure APS achieves compliance, but not exceed the target by too much.”
Instead of the monthly credit scheme proposed by APS, staff recommended simply paying an upfront incentive of $0.10 per watt to homeowners and allowing them to own their systems. That plan, they said, would cost $20 million less than the original one. However, the utility would still need to credit homeowners under net metering, which APS argues shifts burdensome costs onto other ratepayers.
The staff recommendation did not deal with the total cost of net metering. The scope of the report only dealt with the cost of APS' plan to meet its renewable energy mandates, which was the original purpose of the proposal.
Staff at the ACC also evaluated a similar plan from Tucson Electric Power (TEP), the second-largest investor-owned utility in Arizona behind APS.
Shortly after APS filed its plan to own rooftop solar projects in August, TEP did the same. At 3.5 megawatts, TEP's plan was much smaller.
The utility proposed bidding out work to local installers who would put systems on roofs it specifically targeted. Rather than providing a monthly bill credit, TEP would lock participating homeowners into a set rate for 25 years, unless their usage spiked dramatically.
Although there were questions about cost, ACC staff recommended approving the project because of its more limited scope. TEP is behind on its renewable energy requirements, so the utility has a greater need to build out the program, said staff.
"There are many uncertainties regarding how the program would fare in the renewable energy marketplace in comparison to other existing methods of rooftop DG deployment," wrote staff, which views the program as a pilot that should cost no more than $10 million.
In a separate filing, the Arizona Residential Utility Consumer Office (RUCO), the state's ratepayer advocate, said that the TEP program could reduce cost-shifting among non-participating ratepayers by up to 30 percent compared to traditional net metering. "For a utility with a 10-cent/kWh retail rate, this is impressive," wrote RUCO staff. The organization has not yet publicly released its cost analysis of APS' solar ownership plan compared to net metering.
Without giving specific numbers, the ACC analysis was in line with RUCO: "Staff does not believe that the program will fully pay for itself, but rather, it appears that it would significantly lessen the cost shift to non-participating ratepayers in comparison with a customer who currently purchases or leases a rooftop system."
Staff recommendations do not necessarily reflect how utility commissioners will vote.
Although these reports do not fully address the cost of utility-owned distributed solar compared to net metering and third-party solar, they do offer a glimpse into how regulated utilities stack up against their competitors in the market.