Last July, Tucson Electric Power proposed one of the first utility-owned residential solar programs in the country. The Arizona Corporation Commission approved TEP’s program in December, limiting it to 600 customers and 3.5 megawatts with a $10 million spending cap.

Under the program, participants are charged an initial $250 processing fee, then locked into a set rate for up to 25 years based on their average historic energy usage. Since it was announced, roughly 3,300 people have signed up on the interest list, and about 50 percent of those people are moving forward, according to Carmine Tilghman, senior director of energy supply at UNS Energy, TEP’s parent company.

“I look at this and say, ‘Our customers not only want [our solar program], they want it more than they want a third-party system, because they believe there’s a security in having a program through the utility,’” Tilghman said in an interview last week at Grid Edge Live.

This July, TEP will propose a new utility-owned residential solar program in the form of a 10-year, fixed-rate community solar contract, Tilghman said. The contract would be similar to TEP’s rooftop solar program, except it would be attached to much larger solar project (say, around 5 megawatts, although TEP isn’t proposing a size limit).

The project would be sited on a customer’s piece of property that’s leased to the utility and attached to the low voltage distribution grid. The program is designed so that it meets the distributed generation requirements under Arizona’s state renewable energy standard.

Under that policy, utilities are required to get 15 percent of their electricity from renewable sources by 2025. A portion of the requirement, 4.5 percent of total sales, must be sourced from distributed generation. Half of that amount must come from non-residential, non-utility sources and the other half must come from residential sources, which Tilghman said must be located on a customer’s property.

National installers have strongly opposed investor-owned utilities’ residential solar programs in Arizona to date, viewing them as an attempt by government-backed monopolies to quash third-party competition in the booming solar market. Meanwhile, TEP and fellow utility Arizona Public Service have insisted that the solar programs they offer are purely about increasing customer choice, while working toward meeting their distributed generation requirements under Arizona’s RPS.

“The only reason we’re offering a rooftop program or a residential program on [the customer’s] premise is because the state statute requires it to be counted as distributed generation,” said Tilghman. “That was the reason for physically siting it on the customer’s side. Not to compete with SolarCity or any third party or a cash purchase, but because my RPS requires it.”

The same is true of TEP’s new community solar program, he said.

"Let's let the consumer choose"

If the community solar program is approved, TEP could bring solar to more customers who either don’t want or can’t have panels on their roof, and build that solar capacity for far less money, said Tilghman. TEP is currently installing residential solar panels for $2.60 per watt, whereas it is currently installing utility-scale solar for $1.80 per watt, he said.

The details have yet to be released, but the new community solar program would be slightly more expensive than TEP’s residential solar program, even though the utility’s costs are lower, said Tilghman. For a $100-per-month electricity customer, the total cost plus premium would amount to roughly $106 per month.

TEP is charging a higher rate because the consumer doesn’t have to worry about paying property taxes, buying insurance, covering maintenance or dealing with any of the risks associated with an on-site solar project. The program is also designed to cover its own costs, so that almost no cost is transferred to non-solar customers (TEP’s residential solar program is being partially rate-based), Tilghman said.

While more expensive than TEP’s rooftop solar program, the new community solar program will be slightly cheaper than TEP’s existing community solar program, which adds about 2 cents per kilowatt-hour to the customer’s average rate. If the new community solar plan is approved, the legacy program would continue to remain in place, said Tilghman.

The new community solar option isn’t meant to replace any of the options that already exist -- including third-party ownership model or the direct purchase model, he said.

While the program would offer a low cost of ownership in terms of the costs spread among all ratepayers, it won’t be the cheapest on an individual consumer level, at least in today’s regulatory environment. Customers who are purely interested in reducing their monthly electricity bill probably won’t go for TEP’s program if they can put solar on their roof. On the other hand, customers who want to support solar, but don’t own a roof and want a no-hassle contract (such as millennials) are more likely to be interested in a fixed-rate plan, said Tilghman.

“My consumers will determine whether or not they want the program. If they don’t want it, they don’t have to sign up for it,” he said.

At the same time, TEP’s regulatory body will evaluate the program, rate case to rate case, and determine whether or not it is prudent. The solar industry, which is involved in all of TEP’s rate cases, will also have an opportunity to weigh in on whether or not it’s prudent and cost-effective.

“To allow that not to happen takes away consumer options, and I don’t think that’s fair,” Tilghman added. “So let’s let the consumers choose.”

"Like it or don't like it, we're doing something"

But is TEP’s new community solar program fair? There are plenty of other stakeholders in the energy industry that would argue it is not.

For one thing, third-party solar companies aren’t allowed to offer their own community solar programs in Arizona, so TEP would have no competition. The program will also target many of the same residential customers that third-party solar installers are trying to reach. Plus, TEP’s use of the renewable energy standard to justify building utility-scale solar and count it as distributed generation is likely to face significant pushback.

What’s more, as the utility tries to establish new solar programs, it’s also trying to change the rules of the game.

The community solar program launch is set to come as TEP prepares to file a new rate case that will include proposed changes to net energy metering. TEP originally requested the changes as a separate filing, but was instructed by ACC staff to include it in a rate case.

Under the proposal, TEP will look to reduce net metering to the wholesale rate, or down from roughly 12 cents to 6 cents, said Tilghman. The case, to be submitted this fall, will also propose adding demand charges and raising fixed charges.

TEP’s sister utility, UniSource Energy, recently submitted a rate case with many of the same elements. The two utilities insist the changes are necessary to better match customer charges with the costs of servicing customer needs.

In addition, TEP plans to ask regulators to expand its current $10 million rooftop solar program to $15 million in 2016, a move which is likely to re-ignite debates around the validity of utility-owned rooftop solar.

As the details of TEP’s new community solar program and proposed rate changes emerge, there are bound to be more debates. TEP’s actions, taken together, will be viewed by many as a deliberate attack on today’s leading residential solar providers, whose success is threatening the traditional utility business model.

Tilghman expects to get pushback from the solar industry and tough questions from the ACC. But at least no one can accuse his utility of burying its head in the sand.

“We spend too much time arguing about what we should do, as opposed to just doing something. You can figure out if [a program] was wrong after you’ve done it,” he said. “Now, I’m not saying break the grid, but I am saying you have to do something. Like it or don’t like it, we’re doing something.”