Arizona’s public power giant, the Salt River Project, is the latest sunny-state utility to propose a solar tax.

SRP staff has proposed a set of changes to rates that would raise fixed charges and lower per kilowatt-hour charges for all customers, adding extra fees for solar customers. SRP has 12,000 solar customers, with applications for new hookups running at a rate of about 500 per month. The utility serves just under 1 million meters.

In addition to an extra monthly fee, residential solar customers would face a mandatory demand charge. Demand charges, which are leveraged based on a customer's highest momentary use of electricity during the month, are common for commercial and industrial customers, but are rarely imposed on residential customers.

While the rate plan hasn’t been released yet, the Arizona Republic reports that customers with a peak demand of 4 kilowatts would pay a fee of $32, while those who had a peak demand of 10 kilowatts would pay $82.

Solar customers would see energy charges drop from about 10 cents to about 4 cents per kilowatt-hour, and would also be hit with a service fee of $12.50 a month. Net metering would apply only to the energy charge, and the lower rates would greatly reduce the value of net metering.

Altogether, the changes would increase monthly bills for solar customers by $50 on average, with higher fees for bigger customers.

Reaction from the solar industry was swift. “SRP might as well simply outlaw solar within its service territory if it is going to hit people with a $50 to $100 charge for their right to use the sun,” said Court Rich, an attorney for the Alliance for Solar Choice, told the Republic.

Will Craven of SolarCity was especially miffed that the rate changes would affect all new solar customers as of the day they were proposed by the staff, rather than when they might be approved by the elected board of directors. 

“It’s disappointing that they would sabotage the investments of their customers and the livelihoods of solar employees without a stakeholder process or peer-reviewed data,” he told Greentech Media.

Robert Taylor, senior director of regulatory policy for SRP, pointed out to the Republic that grid edge solutions may be the best response for customers. He recommended that customers use “load-controller” devices to prevent their largest appliances from running at the same time, limiting their peak demand. West-facing solar panels would coordinate solar output with late afternoon peak demand, limiting potential demand charges.

“The area of opportunity is the demand charge,” he told the paper. “It reflects the value that solar can bring to SRP and SRP customers.”

Scott Harelson of SRP elaborated on that via email. 

“To the extent solar systems are oriented in a manner that reduces demand during on-peak periods, customers receive value through a reduced demand charge which is commensurate with SRP’s cost savings,” he wrote. “Customers can also reduce demand by installing load controllers, using battery technologies and by shifting higher demand load to the off-peak periods.”

Lon Huber of the Residential Utility Consumer Office (RUCO) thinks that residential rate design, if done in a smart way, could lead to opportunities for new technologies. 

“You want to set up a pricing structure to compensate for dispatchable on-peak technology,” he said. “For example, you could structure the demand charge based on an hourly average rather than a strict single interval, in case your kid accidentally turns on the dryer and washing machine at the same time.” 

RUCO does not intervene in public power rate cases, and Huber had not yet seen SRP’s detailed tariff plans.

Harelson echoed the idea, saying that the proposed rate change “creates a market opportunity for additional innovative technologies that could be used along with solar to reduce costs for both the utility and the customer.”

Demand response would be one way to reduce demand charges, though it has been primarily used by commercial and industrial customers to date. A few companies are innovating in residential demand response, using smart thermostats and software to help increase customer participation.

Another tactic could be behind-the-meter energy storage systems. There are early signs of a market for storage in Arizona. RUCO recently reached a settlement with Arizona Public Service (APS) to start comparing grid-scale storage as an alternative to gas peakers in solicitations and to seek competitive bids for storage projects totaling 10 megawatt-hours by the end of 2018. The ACC has deferred judgment on the settlement until the utilities submit integrated resource plans next year.

Regardless of the IRP outcome, APS and Tucson Electric Power are expected to solicit bids for storage next year, according to Huber. Katherine Hamilton of the Energy Storage Association thinks opening the market for grid-scale storage will create opportunities for behind-the-meter storage as well. 

Though SRP has not released details of its rate plan yet, it sounds similar to what APS proposed last year, according to Huber. APS has a voluntary tariff (called ECT-2) that has a demand charge of $13 per on-peak kilowatt-hour in the summer, falling to $9 for winter months, with kilowatt-hour rates varying by time and season between 8.8 cents and 4 cents. APS had proposed to make the ECT-2 tariff mandatory for solar customers, along with a $50 per month fixed charge.

The proposal sparked a major public fight, featuring millions of dollars of television ads. In the end, the commission approved a monthly charge of $5 for solar customers, and the ECT-2 tariff remained voluntary.

As of 2012, only 357 solar customers were using the ECT-2 tariff, out of more than 14,000 solar customers on the APS system, according to RUCO data. About 8,600 customers were on time-of-use rates, with the rest on a flat rate.

“SRP is on the leading edge of this issue,” said Huber. “They have an opportunity to craft a rate that makes sense for everybody involved. I’m hoping they seize the opportunity that shields non-solar customers from cost shifts but compensates solar customers fairly -- and also drives innovation by getting the cost right.”

Because SRP is not regulated, the Arizona Commerce Commission will not need to approve the changes. SRP will formally propose the rate changes to its board on December 12, kicking off a 60-day window of public meetings, leading to a vote by the board on February 26.