The Arizona Public Service ruling on solar: Here's why it's win-win

John Finnigan

By John Finnigan
John Finnigan, based in Ohio, is a senior regulatory attorney with EDF's U.S. Climate and Energy program.
Published November 25, 2013 in Energy

Rooftop solar owners in Arizona will pay higher costs for utility service under a new decision by state regulators, but the increase was much lower than the amount sought by Arizona Public Service, the state’s largest utility company. Both sides claimed victory. The case is part of a growing trend of more states reviewing these charges.

What is net metering?

The case involves a practice known as “net metering” where the utility pays rooftop solar owners for the excess energy the rooftop solar panels send back to the grid. Most states allow net metering.  In many states, the utility company pays rooftop solar owners the full price the utility charges for power it delivers to customers. Utility companies claim this price is higher than their actual cost to produce electricity. The rooftop solar industry claims that raising costs would crush a new industry that provides cheap, clean energy and fails to recognize the benefits provided by rooftop solar. 

Regulators must find the right balance between utilities and the rooftop solar industry by allowing utilities the opportunity to recover all their costs while ensuring that rooftop solar owners receive full credit for the benefits they provide to the electric distribution system.

The Arizona Public Service case

The case was widely followed because rooftop solar has grown rapidly in Arizona in recent years. Arizona Public Service started the dispute earlier this year by requesting approval to raise its monthly charge to rooftop solar owners by an average charge of $50 per month. The regulators approved an average charge of roughly $5 per month. 

Arizona Public Service claimed victory because the regulators acknowledged the utility’s higher cost for serving rooftop solar customers. The rooftop solar industry claimed victory because the new charge will be much lower than the amount the utility company had requested.

The ruling is only a temporary fix because regulators will re-examine the issue in a few years, when Arizona Public Service files its next case to raise overall rates. Many other states are reviewing their net metering charges. 

What the ruling means for everyone else

State regulators will need to examine the full range of benefits provided by rooftop solar. These benefits include cleaner air emissions, lower delivery costs and providing power during hot afternoons, when electricity from other power plants can entail more harmful air emissions and be more costly. As more states study this issue, states will recognize and measure these new types of benefits provided by rooftop solar and utility companies will reflect these benefits in their payments to rooftop solar owners. At the same time, utilities will be permitted to re-design their rates such that rooftop solar owners pay the full cost the utility incurs for serving them.

This strikes the right balance for ensuring a vibrant future for the rooftop solar industry while ensuring that utility companies are not required to serve rooftop solar customers below the utilities’ cost. This is exactly the type of market-based solution for clean energy policies that EDF supports.