Why 'a lot has become the new normal' in state solar policy debates

A new report outlines 5 key decisions and 4 trends from the solar sector's busiest policy quarter yet


The skyrocketing growth of distributed solar is keeping policymakers as busy as utilities and rooftop installers.

There were over 100 separate solar policy actions debated by state regulators and legislators across the U.S. in the third quarter of 2016, according to a new report from the North Carolina Clean Energy Technology Center (CETC).

That’s up significantly from just last year, according to Autumn Proudlove, senior policy analyst at the CETC and author of the “50 States of Solar” report.

“When we first started tracking solar policy actions in Q1 2015, we had 70 policy actions, but in Q3 2016 there were 117 policy actions,” she said. “That is a lot of policy debates but a lot has become the new normal.”

There are at least three drivers behind the expansion of policy debates, she said.

First, more utility territories are seeing residential solar growth due to declining installed costs, buoyed by to the extension of 30% federal investment tax credit last year.

As a result, more utilities are beginning to worry that solar owners do not pay their fair share for grid upkeep, transferring the costs to other customers. The potential impact of that perceived cost shift grows as solar’s penetration on the grid grows, leading utilities and some state consumer advocates to call for rate design changes.

“For both those reasons, some states make changes to their policy and then other states see the possibility that there is an issue they need to address, and initiate policy changes, like a chain reaction,” Proudlove said.

Additionally, some states are reaching caps on their net metering programs due as solar continues to proliferate, triggering policy reviews.

“State commissions are then faced with determining how to treat new customer-generators moving forward,” Proudlove said, “whether to increase the aggregate cap, and whether to keep net metering as it is or change it.”

The 117 policy actions in Q3 were spread across 42 states and a range of debate types. The most common were fixed charge increases, with 44 utilities in 25 states either involved in or proposing a fee hike of at least 10%.

Changes to net metering were considered or enacted in 22 states, while value of solar studies or evaluations of net metering’s costs and benefits were taken on in 15 states and D.C. New bill charges specific to solar owners were proposed by nine utilities in seven states.

Policies on community shared solar ownership were considered in nine states, another three states took on policy regulating utility ownership of rooftop solar, and three states acted on laws or regulations governing third-party ownership (TPO) of solar.

Behind the raw numbers, NC CETC identified the most important policy actions and found some emerging trends in some surprising places.



The five biggest Q3 policy developments

Of all regulatory decisions made last quarter, the Arizona Corporation Commission (ACC) ruling in the Unisource Energy Services (UES)/Tucson Electric Power (TEP) rate case tops Proudlove’s list as most noteworthy.

The ACC allowed the utility’s request for an increase to residential customers’ fixed charge. But the commission delayed ruling on UES’s requested residential demand charges and a reduction in net metering rates until a separate, stakeholder-driven docket on the broader value of solar (VOS) question is decided.

A recent draft order in that docket from an administrative law judge will be taken up by the commissioners in December, and the rate cases for UES and APS will follow in 2017.

The next important Q3 regulatory decision, CETC reports, was the Public Utilities Commission of Nevada (PUCN) reversal of its January decision to terminate NEM for existing solar customers as part of NV Energy’s last rate case.

In August, the PUCN approved new rates set by a utility-solar settlement. A New Energy Industry Task Force of utility and solar interests convened by Gov. Brian Sandoval also recommended that the legislature restore retail rate net metering, with a $25 minimum bill, until the PUCN can implement a compensation mechanism based on a value of solar.

“The wide range of voices brought into the discussion that led to the new decision was very encouraging,” said former Nevada Commissioner Rose McKinney James, now managing principal of solar consultant Energy Works.

Through Sandoval’s task force and his three new commissioner appointments, he used his authority to clear the slate and establish a new trajectory for solar in Nevada, she added.

Creating the task force was the catalyst, the former regulator said. It created the momentum and led to the utility filing that gave the commission the opportunity to reconsider its decision.

“We still have work to do, but this was a critical pivot."

Q3’s third important policy action was the Arkansas Public Service Commission (APSC) decision to form a stakeholder working group to study NEM policy, according to the CETC.

Acting on instructions from the state legislature, the APSC opened two dockets on solar policy, one of which was on the question of compensation for distributed solar. The commission found the state’s solar advocates and its utilities – Entergy Arkansas, Oklahoma Gas & Electric, AEP-SWEPCO, and the Arkansas Electric Cooperative Corporation – to hold widely divergent views.

“There was the familiar debate about whether net metering should be left in place as rough justice until penetrations of net metered customers, now at no more than 500, become more significant,” said Arkansas Advanced Energy Association Policy Director Kenneth Smith.

“The utilities and the other stakeholders could not even agree on the PSC Staff-recommended grandfathering proposal,” Smith added. “So the commission authorized a stakeholder working group to develop a successor tariff proposal by September 2017.”

“Given the contentious and polarized fights we’ve seen around net metering nationally, this type of collaborative stakeholder approach in Arkansas is encouraging,” said Vote Solar Director for New Markets Scott Thomasson.

“There are many in the solar community who want this type of data-driven, stakeholder-led approach that gives the spectrum of participants seats at the table to help decide rate design on the merits instead of in a litigated proceeding,” Thomasson added.   

Investor-owned utilities have been increasingly receptive to the stakeholder process because it avoids public debates, he said. “This seems to be an opportunity that should not be wasted.”

The fourth major Q3 policy action was the landmark solar settlement between Colorado’s solar advocates and Xcel Energy, NC CETC reports. The agreement was approved by regulators this week.

As part of its rate case, the utility proposed a grid access charge, which would have been a new fixed charge, for residential customers. But, in a multi-issue grand bargain, Xcel agreed to replace the fixed charge with a voluntary time-of-use rate trial for residential customers and a voluntary time differentiated rate demand charge pilot program for residential and commercial customers.

“It was rough early on because there was a lot of distrust and rhetoric from parties who don’t always play well together and sometimes attribute bad intentions where there may not be bad intentions,” said Erin Overturf, a senior staff attorney for Western Resource Advocates (WRA) who helped shape the settlement.

“But I think they had seen that none of the Nevada stakeholders came out looking very good and they decided to find a path forward,” she added. “There wasn’t one moment when the clouds parted and the sun shined down. It was methodical detail work on very specific policy solutions.”

It was necessary to work through some emotions to achieve this collaboration, Xcel Vice President Alice Jackson said, but "through the settlement, we are finding what we each need to move forward and be successful.”

Q3’s fifth important policy development, according to NC CETC, was the release of the draft Manual on Distributed Energy Resources Compensation, commissioned by the National Association of Regulatory Utility Commissioners (NARUC).

The manual does not make recommendations for DER rate design, but rather offers regulators a menu of options and issues to consider,” NC CETC reports.

NARUC President Travis Kavulla called on the Staff Rate Design Subcommittee to develop the manual to provide a consistent framework for evaluating rate design decisions for DER. “We need clear and economic price signals that do not overcompensate or undercompensate customer-side actions,” Kavulla said in proposing the effort.

The final version of the NARUC DER manual will be released in mid-November.



Four trends to watch

Of four trends to watch, the CETC’s report first notes that regulators across the country appeared more receptive to utility fixed charge increases than in past quarters.

Requests to increase residential fixed charges are showing no sign of slowdown,” the review notes. “On average, utilities were granted 53% (median of 37%) of their requested increase in Q3 2016.”

That’s up significantly from previous months, Proudlove said. For the two years that CETC has followed solar policy, fixed charge decisions were split almost evenly between allowing no increases and approving small, partial increases to utility requests.

But in Q3, all the decisions allowed at least a partial increase, two granted a full increase, and one granted more than the full increase.

“It is too soon to call these numbers a complete shift in regulatory attitudes to fixed charges,” Proudlove said, “but it is something to continue watching.
A second trend is a familiar one — the proliferation of more NEM credit rate debates like the one in Arkansas.

“The big topic in NEM is still the successor tariff discussion and how to establish a credit to solar owners for the energy they export to the grid,” Proudlove said.

There is a range of activity on VOS studies called for in those successor tariff discussions, she added. “They vary from very specific valuation proceedings like the one in Arizona to the one in Arkansas that is simply part of a larger docket.”

There are few outcomes from the discussions, but we are seeing more gradual changes proposed in the longer, more involved stakeholder proceedings, Proudlove said. "That is a change from the abrupt changes that have been proposed in rate cases.”

Examples are an pilot tariff proposed by Iowa utilities and a Maine commission staff proposal for a gradual change to the NEM policy, she said.

A third trend is in more specific and granular community solar credit rates to subscribers.  

“Most community solar programs are structured such that subscribers receive retail rate per-kWh credits on their bills,” the CETC reports. Recently, though, states have begun looking at more detailed rate design concepts, including a time-of-use rate proposal in Hawaii and a value of solar rate in Minnesota.

Two policy proposals don’t necessarily indicate a trend but there are community solar policies in only 15 states and DC so those two changes are a bigger portion than they seem, Proudlove said. “And, on the horizon, Maine could apply its new NEM rate to community solar and Massachusetts may offer a higher credit for community solar in its incentive redesign.”

The increasingly specific rate designs for community solar are also consistent with a similar push toward more granular concepts like time differentiated rates in the net metering debates, she added.

California’s new community solar policy confirms the NC CETC observation. Because of a utility-backed reduction to the NEM credit and a special added charge, it “delivers a pretty poor rate for the subscribers,” according to Tom Hunt, policy director at Clean Energy Collective(CEC), the leading U.S. community solar developer.

Finally, the CETC foresees “more action on demand charges for all residential customers.” It is especially noteworthy, the review adds, that the two most recent proposals would apply to all residential customers.

“It could indicate that utilities and regulators have concluded it is more appropriate to apply demand charges to the whole customer class rather than the narrow class of solar and DG owners,” Proudlove said.

Three of the eight proposals to add or increase demand charges are in Arizona but only one of the eight, from Arizona Public Service, limits the demand charge to the highest usage during peak hours, she added.

“Much of the rationale behind a demand charge is to more closely align a customer’s rates with their contribution toward the utility’s capacity costs,” Proudlove said. “If the demand charge is not aligned with the system’s peak, it may not be related to the costs the customer’s usage imposes on the utility’s capacity costs.”

There again, a decision by the ACC could have far-reaching, national trend-setting implications.

Filed Under: Solar & Renewables Distributed Energy Regulation & Policy