The Alliance for Solar Choice filed a lawsuit on Wednesday challenging the Hawaii Public Utility Commission’s recent decision to end the state’s net metering program.

On October 12, the PUC ruled to close the program to new participants and approved two new tariff options in its place. The plan mirrors a proposal filed by Hawaiian Electric Companies in January.

Regulators said the change was necessary to ensure a smooth transition to a sustainable “market-based structure” for distributed generation in Hawaii. According to The Alliance for Solar Choice (TASC), the change jeopardizes Hawaii’ssolarindustry and negatively impacts middle- and low-income consumers.

The lawsuit alleges the PUC “exceeded its statutory authority, violated state and federal law, and violated constitutional due process requirements,” according to a TASC statement.

TASC asserts that the PUC acted illegally by failing to hold public hearings and give stakeholders a chance to challenge the assertions the PUC relied upon.

"The PUC's decision is neither fair nor justified," said TASC's Bryan Miller. "Contrary to a law passed by the Hawaii Legislature two years ago, the PUC failed to conduct a cost-benefit analysis to determine the value of solar on the grid. Instead, the PUC relied upon speculation by the utility and ended net metering without notice to consumers."

Under the new tariff regime, TASC contends that Hawaii’s solar industry could shrink by 90 percent.

"Welcome to the world of capitalism"

Marco Mangelsdorf, president of ProVision Technologies and founder of the Hawaii PV Coalition, said he finds TASC’s rhetoric “gratuitously harsh and incendiary.”

“Attacking HI PUC and Hawaiian Electric Companies the way they do defies explanation. In TASC’s lawsuit, it’s noted that TASC members will lose business due to this decision to end [net metering], as if that’s justification for the PUC to reverse their well-considered and deliberative decision,” he wrote in an e-mail to GTM. “Business fortunes go up and down all the time. Welcome to the world of capitalism.”

Mangelsdorf added that TASC likely felt compelled to sue, regardless of is chances for success, in order not to be seen as condoning a rollback of net metering. Although Hawaii is a unique case, “This could be the first domino to fall, with more states conceivably ending their NEM programs,” he said.

Hermina Morita, a former chairwoman of the Hawaii PUC, argued in a recent blog post that Hawaii’s middle- and low-income consumers were worse off under net metering then they will be under the new tariff scheme. 

“It has been the continued reliance on NEM and tax subsidies that have hurt the low-income and middle-class customers the most, as more of the fixed cost of the electric system has been pushed on those without rooftop systems, and tens of millions of dollars in tax credits have been exported out of state from Hawaii’s general fund, taking funding away for programs like public education, Hawaii’s state hospital system and social services to pay the likes of Sunrun-type investors,” she wrote. “It has also bolstered a dysfunctional and uncompetitive solar market.”

The decision "will withstand scrutiny"

Net metering has led to record-breaking adoption of rooftop solar in Hawaii. On Oahu, 16 percent of residents have rooftop solar -- the highest level in the nation.

Hawaiian Electric Co., which serves most of the state, has repeatedly warned of technical issues stemming from high levels of solar penetration. Not all claims have been found to be true, but the confluence of high solar penetration, grid issues, changing customer demands and a backlog of solar applications prompted the PUC to open several new dockets on Hawaii's distributed energy policy.

Randy Iwase, chairman of the PUC, said that regulators could have ended the program last September, but decided to hold off. “The fair way is when the order came out,” he told Pacific Business News.

Iwase said that TASC was one of more than a dozen intervenors in the “Distributed Energy Resources” case, and that all parties were aware the net-metering program needed to evolve.

The commission wrote in its decision that by accepting TASC’s Motion to Intervene, “the commission concludes that TASC is precluded from now asserting the inconsistent position of a ‘right to a hearing to cross-examine witnesses, put on evidence, and respond to evidence submitted by other parties.’”

“The decision we rendered is a good one, and will withstand scrutiny, and we will meld a defense,” said Iwase.

How customers could still save under the new tariffs

The commission’s approved plan includes two new tariffs to replace net metering: a "grid-supply" option and a "self-supply" option. These options apply only to new solar customers in Hawaii and are only in place for two years.

The grid-supply option compensates customers for energy exported from their PV systems, like the existing net metering program, but at a reduced rate of $0.15 to $0.28 per kilowatt-hour, versus Hawaii’s average retail rate of $0.38 per kilowatt-hour in 2014.

The “self-supply” option does not allow customers to export energy back to the grid, save for small amounts. But customers with energy storage do qualify for expedited review and approval of their systems in areas of high PV penetration.

Under the new tariff, grid-connected solar will be less valuable. A typical household exports roughly half of the solar produced on site, and those exports are now being compensated at a lower rate. As TASC states, this is a blow for residential leasing companies like SolarCity and Sunrun, and the companies that work under Sunrun’s umbrella.

According to Cory Honeyman, senior solar analyst at GTM Research, Oahu, Hawaii’s largest island, is most at risk of solar economics being lost. The new tariff will credit rooftop solar at roughly half -- $15 cents per kilowatt-hour -- of the net-metered rate.

But continued solar growth in Hawaii really hinges on the PUC approving a longer-term plan, Honeyman said. “The fact that the new NEM rules are only in place for two years, and then will be up in the air, means that it will be extremely challenging for customers to install solar when they only know NEM rules for the two of the 30 years or so their system is producing power."

If the new tariffs are approved long-term, researchers at the Rocky Mountain Institute argue that solar is still a smart investment in almost all of Hawaii, simply because electricity rates there are so high. Adopting new technologies to increase the amount of solar consumed on-site would dramatically increase the value of solar.

According to a recent RMI report on Hawaii, energy storage and technologies that enable demand flexibility can raise the amount of rooftop PV energy consumed at a residence from 50 percent to nearly 90 percent. This would allow customers to save 33 percent on their electricity bill, which is roughly 80 percent of the savings under the old net-metering policy.

The "demand flexibility" technologies RMI references include smart thermostats, electric dryers with timers, home batteries and smart electric-vehicle chargers (RMI did not factor in the cost of buying an EV, but did consider the costs of smart EV-charging technology).

These technologies come at a cost, but when coupled with solar, the savings are high enough in Hawaii -- even under the new tariff regime -- to incentivize the investment. In addition, these technologies give customers comfort and flexibility.

“A customer considering installing solar in HECO’s territory has an economic incentive to install these behind-the-meter resources for demand flexibility and storage that can make their home take better advantage of their solar investment, and turn their home into a resource for the grid,” said Mark Dyson, senior associate at RMI.

“With net metering, the grid was a free battery,” he added. “Now, without net metering, the customer has an incentive to start managing their own load in response to both local and grid signals.”

By establishing time-of-use rates, HECO could create an even stronger market signal for customers to turn their buildings into dispatchable grid assets. HECO recently proposed a time-of-use rate plan, but the PUC determined it was inadequate. HECO must now propose a revised time-of-use rate plan for solar customers before the end of the month.

Meanwhile, TASC says the court is expected to schedule a hearing on the group’s request for a preliminary injunction to stop the PUC from implementing its net-metering decision.