Cost of Service? Arizona's solar saga takes on the valuation question

As APS backs a cost-of-service study, solar advocates push regulators to address benefits as well

Arizona's tug-of-war over rooftop solar took a sudden turn last week when the state's major power producer, Arizona Public Service, offered to withdraw its request to increase a grid access fee for rooftop solar users. In exchange, APS asked that state regulators open a cost-of-service proceeding for distributed solar. 

The utility’s filing requests that the Arizona Corporation Commission conclusively define the full cost for electricity delivery, and use that definition to decide if costs are shifted to non-solar owners because of the decreased revenues coming from rooftop solar owners.  

“A cost of service study breaks down all the costs the utility incurs in providing power to the customer,” explained Greg Bernosky, APS's director of state regulation and compliance.

“It is important we get the facts so we are all working from the same foundation. And if you have that discussion in a broad commission forum, the conclusions coming from it could be applied to other Arizona utilities.”

Cost of service assessments for traditional generation are common in regulatory proceedings, but renewables advocates say they are typically too limited to fully capture the value of distributed generation.

The Alliance for Solar Choice (TASC), a solar advocacy group that has long tangled with Arizona's utilities over rooftop solar policy, took issue with the APS proposal. It suggested a study could be the right next step – but only if it includes both the costs and benefits of solar.

“In its latest filing, APS says it wants to look at the costs of solar only and wants to expressly prohibit the investigation from including a discussion of benefits,” said Court Rich, a TASC Attorney. “That is just as absurd as a solar industry proposal to only study the benefits of solar without consideration of the costs.”

Arizona's significance

The high profile of Arizona's utility-solar battles could mean that a technique adopted by regulators or a utility in the state to value solar could spread beyond its boundaries, and some regulatory experts are concerned that a cost-of-service study may be an incomplete approach. 

Karl Rabago, a former Texas utility commissioner and director of Pace Energy and Climate Center, agreed with Rich. 

“It is disappointing to hear APS intends to look only at the costs and not the benefits, which can significantly offset and outweigh those costs,” he said. “The Commission should reject any such application as inadequate, on its face, to support just and reasonable rates.”

Other observers note, however, that a comprehensive cost-of-service study could help regulators throughout the nation understand better how to value rooftop solar. 

“I don’t think any utility has done a real cost of service study on solar so this could be precedent setting,” said Nancy LaPlaca, a former ACC policy advisor. “I hope the Commission opens up the process to allow others to weigh in.”

It's up to the ACC to develop the cost-of-service analysis, Bernosky said. “We will be prepared to provide cost of service information along with supporting testimony. Our hope is the commission will evaluate it along with other input and make determinations that will be foundational for us and all utilities looking at this issue in Arizona.”

The cost of service proceeding would include all parties of record including TASC, Bernosky said. The APS filing asks for a commission finding by March 2016, in time for the utility’s next rate case.  

Why APS withdrew its previous filing

The APS reset motion offered the ACC two ways “to make incremental progress on addressing the cost shift between distributed generation (DG) and non-DG customers,” the utility's filing asserted.

Part of that progress was to raise the grid access charge to $3/kW (about $21 per month for the typical solar user), up from $0.70/kW or $5. 

That move, APS argued, represents about a third of its calculated fair allocation of the cost shift.

Second, it offered the commission the opportunity “to elicit evidence and sworn testimony supporting the parties' various positions”  for the cost-shift evaluation. 

The ACC decided it wanted an evidentiary hearing on the cost shift, the APS filing reports. But the utility’s effort to win an increased charge in a proceeding outside a rate case met heavy resistance from TASC and other stakeholders. 

The ACC voted to have a hearing on whether APS could boost a grid access charge outside a rate case, but despite that, the utility chose to withdraw its request for the higher charge in exchange for the cost-of-service analysis that would force a direct confrontation with TASC in a hearing, the utility said.

Bernosky said that TASC’s “every turn for the last two years has been to delay addressing this issue directly."

The APS filing calls this “political gamesmanship” because TASC avoided “the opportunity to prove their claims [about the cost shift] through sworn testimony.”

TASC’s goal is to “paralyze” the regulators, APS asserted in its filing. 

“The rooftop solar leasing companies do not want to have a substantive discussion, especially not in a hearing where their representatives will be on the record and subject to cross examination,” an APS statement said. “Take away their ability to engage in innuendo, personal attacks and bumper-sticker sloganeering and they have nothing left to offer.”

TASC responded in kind. Rich noted several episodes of what he called the utility’s “relevant nonsense, half-truths, lies, and bait and switches," including the 2013 public claim by APS  that it had nothing to do with a media attack on TASC. APS subsequently acknowledged funding the media campaign.

Furthermore, Rich said TASC has entered evidence that claims the so-called cost-shift would not surpass $10,000 through the conclusion of the utility's next rate case, in spite of APS's ascertain that the cost-shift amounts to about $3 million per year

“It is APS that has consistently wanted to either avoid a hearing or have an expedited or limited hearing where it could ram through the massive increase in the solar surcharge,” Rich added.

The utility “only wants a hearing where it picks the rules, the forum, the evidence and the timing,” Rich said. “Arizonans deserve a third-party unbiased study of the costs and benefits of solar. TASC is ready for a fair look, why isn’t APS?”   

In its filing, APS says it is ready for a confrontation, eager to confront TASC on its claims of a smaller cost shift. “Delay only deepens the magnitude of the problem, and meaningful progress should be made promptly,” Bernosky said. “This will require TASC to be on the record."

The cost of service debate

The ACC “has ordered that the parties submit real data and sworn testimony to support the claims…[and] ordered that APS file Cost of Service information as part of the hearing process,” the utility’s filing reports. “APS is prepared to submit this information and the results will show that customers will experience real consequences if the cost shift is not fairly and sustainably addressed.”

The cost shift is “an inequity that virtually everyone agrees needs to be fixed,” Bernosky said. This proposal to open a cost of service proceeding will allow the ACC “to move forward with a much-needed discussion about how to update electricity pricing to reflect energy innovations like rooftop solar, battery storage, and home energy management systems.”

The calculation of solar costs and benefits, however, belongs in an integrated resource planning process in which different types of generation resources are compared and prioritized, he explained.

“In that process, the value of solar and how that folds into a utility energy mix is a reasonable and appropriate discussion,” Bernosky said.

“A cost of service study can be done without first determining a value of solar because you are determining the cost to serve customers that remains after you account for the solar production they are using onsite,” the APS official added. “We support the solar valuation concept but it should be done in a broader resource proceeding, not in this matter.”

Rabago, who helped devise the nation's first value of solar tariff as an Austin Energy executive, thinks that analyzing only the costs of solar without its benefits would produce a "distorted picture."

"It makes no sense to put off the rest of the analysis to another proceeding and there is no way the Commission can assess a just and reasonable rate without considering the total picture,” he said.

Value of solar calculations have been done in jurisdictions across the country to create the kind of informed foundation of facts APS is seeking, Rabago added.

“As a matter of regulatory efficiency and of fairness, consider all the issues in one proceeding,” Rabago said. “The Commission should abate such piece-meal proceedings in favor of a comprehensive examination of the benefits and costs.” 

Times have changed

The APS refusal to include both solar’s costs and benefits suits "the old, one-way, dumb electron delivery model when customers had no control,” Rabago asserted. “But those times have changed.”

Susan Wise Glick, a TASC spokesperson, agreed. “The Commission has previously stated a desire to make decisions based on analysis of the full costs and benefits, and we continue to advocate for a process inclusive of these.”

APS maintains that its approach to valuing solar is the proper one, and has urged the commission to move ahead addressing the cost-shift without delaying too much. 

“Arizona's solar leadership is not sustainable without addressing the unfair cost shift, and waiting only increases the burden on average electricity customers,” the APS statement argues. “It is urgent we move forward now.”

“A cost-of-service study is the foundation for this discussion and for rate design issues,” Bernosky added. “Working from the same set of facts is important for making progress on this issue.”

Correction: An earlier version of this post stated that APS proposed to raise the grid access fee to $3/kWh from $0.70/kWh. That is incorrect. The grid access fee is in fact measured in dollars per kilowatt (kW), and not dollars per kilowatt hour (kWh).


Filed Under: Solar & Renewables Distributed Energy Regulation & Policy
Top image credit: Arizona Public Service