Inside the deal that averted a net metering ballot showdown in Arizona
After intervention by the governor, plans for dueling ballot initiatives have given way to mediated negotiations between APS and SolarCity
As clean energy advocates across the nation push power providers to increase investments in renewables and cut greenhouse gas emissions, they've increasingly employed an age-old tactic — ballot initiatives.
Earlier this year, the threat of a proposal on renewables and coal use pushed Oregon utilities to ultimately support a new law that codifies a 50% renewable energy standard and bans coal-fired electricity in the state by 2035.
Now, the use of ballot initiatives has showed its value in a new way — averting another showdown between utilities and solar companies in Arizona.
The three-year struggle between Arizona’s electric utilities and its distributed solar industry was about to enter a new, potentially more contentious chapter. The confrontation began when the solar industry announced a ballot initiative that would have constitutionally protected retail rate net energy metering (NEM) until 2022.
In response, investor-owned utilities in the state backed two rival ballot measures proposed by state legislators that would have protected regulators’ authority to set net metering rates
But the showdown never materialized. Gov. Doug Ducey (R), his Chief of Staff, and legislative leaders were able to convince the two sides, faced with an ugly fight over ballot measures, to negotiate.
“Both sides have agreed to enter into good faith negotiations and will not go back to the legislature or the ballot box on this issue in 2016,” former Arizona Corporation Commission (ACC) Chair Kris Mayes, who led the solar industry’s ballot initiative effort, told Utility Dive.
“The SolarCity ballot measure has been terminated and we will do what is necessary to comply with the termination statute,” Mayes, now a professor at Arizona State University, said.
APS confirmed that it had agreed to "good faith discussions with SolarCity and others and to hold the discussions with a professional mediator," and that the competing ballot measures it supproted had been withdrawn, according to spokesperson Jim McDonald
Settlement averts political drama
The settlement talks headed off what was taking on the shape of a vehement political battle.
“SolarCity’s ballot initiative is a wolf in sheep’s clothing,” APS Spokesperson Anna Haberlein wrote in an email to Utility Dive before the negotiation deal was struck.
“What it should be called is the ‘Subsidy Protection Act for California Billionaires,’” she wrote, referring to the executives of out-of-state solar companies — figures utilities often portray as the main beneficiaries of net metering policies.
The ballot initiative she was describing was the Arizona Solar Energy Freedom Act, filed April 15 with the Secretary of State by Yes on AZ Solar, a political action committee (PAC) supported by SolarCity, the top U.S rooftop solar installer.
APS and other state utilities have been moving forward in regulatory proceedings this year on proposals to reduce or replace the retail rate NEM credit. Because that credit is central to the rooftop solar value proposition in the state, solar advocates decided a constitutional mandate from voters was their best and perhaps only defense.
Arizona utilities’ efforts to reduce the NEM credit “undermine solar and their customers’ access to it," Mayes said. "We decided it was time to let the people of Arizona decide this once and for all.”
The Act would have prevented the ACC, the elected regulators charged by the state’s constitution to set utility rates, from altering the current retail rate NEM credit through 2022.
It also would have prohibited demand charges and increases in fixed charges for residential utility customers and it would have streamlined rules for interconnecting distributed solar.
Supporters of the proposed state constitutional amendment had began pursuing the 225,000 validated voter petition signatures required by July 7 to qualify it for the November ballot.
Some 40,000 had been collected in the two weeks before the settlement was reached, Mayes said. APS was not impressed.
“They’re hoping the popularity of solar will prevent voters from looking too closely at their initiative's details. It would force higher energy costs on Arizona consumers and be detrimental to sustainable solar in Arizona,” Haberlein said before the deal was struck. “We caution voters not to be fooled.”
The utility-backed initiatives took a much different approach to qualifying for the ballot. The two proposals, written by state Sens. Debbie Lesko and Don Shooter, both Republicans, in coordination with the dominant electric utilities, were presented to the state Senate.
They were brought forward as House Continuing Resolutions (HCRs), which are bills already passed by the House but not acted on by the Senate.
Republican Senator Don Shooter’s Solar Consumer Protection Act (HCR 2041) would have redefined the entities regulated by the ACC to include those “engaged in leasing or otherwise financing, directly or indirectly” any technology that generates or stores electricity for end users. That would include solar and battery vendors like SolarCity.
Republican Senator Debbie Lesko’s Solar For All Act (HCR 2039) would have reaffirmed the authority of the ACC over rates and interconnection rules and instructed it to set rates “based on actual costs” that could include fixed charges.
Both HCRs won final Senate committee approval last Thursday, meaning they were a procedural vote away from going directly to the November ballot without the need to secure any petition signatures.
Solar’s strategy: Straight to the voters
Unlike the utility-backed initiatives, Yes on AZ Solar had inadequate legislative support to work through lawmakers, making the petition signatures its only option for the ballot proposal.
In most states, governor-appointed regulators have the authority of the executive branch and are subject to directives from the legislative branch. In Arizona and a few other states, commissioners are popularly elected and have constitutionally independent authority.
“The commission is not bound by laws and statutes. Only the constitution determines what it can and cannot do,” said Court Rich, a board member of the Arizona Solar Energy Industries Association (AriSEIA). “Because the corporation commission is created and governed by the constitution, an amendment is the only way to influence the process.”
The Arizona Solar Energy Freedom Act asked voters to endorse constitutional language asserting that the full retail rate NEM incentive gives customers “the freedom to choose solar energy without being charged unfairly or discriminated against,” and that it is “only fair” that utilities pay net metering customers the same price for electricity sent to the grid as they are charged for consuming grid electricity.
The initiative also put forward language saying retail rate NEM has made the solar business one of Arizona's "fastest growing industries,” that “anti-solar policies threaten these jobs,” and that solar energy cuts pollution “from outdated fossil fuels such as coal” and “lowers the rates of heart disease, asthma, respiratory disease, and even cancer, especially in children.” Ending retail rate NEM, the proposal said, “would increase electricity costs for all customers.”
The Act's legalistic language guaranteed utility customers “the benefit of full retail net metering by requiring electric utilities regulated by the Arizona Corporation Commission to interconnect with customers that generate electricity with solar power.”
It further codified that “customers that deliver excess solar power back to the electric utility must be credited for that power at the same retail price the electric utility charges those customers.”
It required utilities to interconnect solar installations within 45 days or show why they could not.
The measure prevented “discrimination against solar customers by prohibiting discriminatory rates, excessive fixed charges, new demand charges or other unfair terms of service that undermine the benefits of full retail net metering.”
Finally, the Yes on AZ Solar Act contained several provisions designed to ensure that customers “are treated fairly."
The ACC “shall not permit increases in the amount of any fixed charge to residential customers,” it stated.
To guard against changes made in general rate cases before the November election, any demand charge imposed on customers without their approval after January 1, 2016, would be disallowed by the proposal.
Further, “any new, or increases to existing charges, rates, or billing elements of any kind must only be calculated and billed through a volumetric charge based solely on the number of kilowatt-hours the customer takes from the utility during the billing period.”
The legislature's answer
Sen. Lesko is no newcomer to utility solar issues. Her recently-enacted SB 1417 imposed what backers said were needed consumer protections for solar customers. Solar installers criticized the law as unnecessary regulation.
The senator’s Solar for All Act (HCR 2039) was similarly about regulation. In this case, however, Lesko sought to restore regulatory authority over solar rather than impose it.
The SolarCity initiative would have “totally circumvented our elected utility regulators,” she said.
Her measure would have allowed voters “to say ‘no’ to the SolarCity measure and ensure our elected utility regulators retain their constitutional authority to set utility rates for rooftop solar customers and for all customers,” Lesko said.
By offering this alternative to the “outrageous” and “greedy” Yes on AZ Solar proposal, Lesko said, she had intended to prevent “a small minority of utility customers from getting a good deal at the expense of all the other customers and lining the pockets of SolarCity.”
HCR 2039 reaffirmed the ACC’s “full power” over public service corporations to set “just and reasonable rates” and to “make reasonable rules, regulations, and orders, by which such corporations shall be governed.”
That authority extended to “classifications, rates, charges, rules, regulations, orders, and forms or systems.”
The first authority the bill specified was the setting of “rules and procedures to maximize the use of solar energy in the public interest without sacrificing the affordability of electricity or the reliability of the electrical system.”
This addressed utility concerns about providing retail rate credits for rooftop solar when wholesale prices available for utility-scale solar are 50% lower.
That Lesko’s bill represented the utility point of view was not an accident. “The Arizona regulated utilities, including Arizona Public Service (APS) and Tucson Electric Power, are supporting my referendum,” she told Utility Dive when her proposal was announced.
“APS concluded, through its cost of service analysis, that the 50% higher price it credits to its 40,000 net metered solar customers would cost its 1.1 million non-solar customers $580 million over the 20-year life of the arrays currently on its system, according to Haberlein, and that number is growing by $800,000 per day.”
The ACC decided APS's cost of service analysis was not a satisfactory valuation and initiated its ongoing value of solar proceeding to also consider the financial benefits of solar, which are less easily quantified.
The concern with the cost shift was nevertheless addressed a second time in Lesko’s bill. If the ACC establishes a credit that utilities must provide for solar exported to the grid, the bill stated, it must be a “rate that minimizes the impact on customers without distributed energy resources.”
After reasserting the ACC’s authority on interconnection rules, HCR 2039 established yet another protection against an “unjust and unreasonable” cost shift.
“Rates established for all customer classes shall be reasonably based on actual costs incurred by the public service corporation that furnishes electricity,” it stated. Rates “may include fixed charges.”
This “actual energy cost avoided by the public service corporation from the purchase of the energy” is likely to be the wholesale price utilities pay for utility-scale solar, according to the bill.
Such a rate is one that SolarCity and other installers have repeatedly said fails to consider distributed solar’s unique benefits to the grid and hampers its value proposition. It is comparable to the rate set by Nevada regulators in January that caused SolarCity and other major national installers to terminate operations in the state.
Unlike in Nevada, however, Senator Lesko’s bill did offer “grandfathering” that allowed all solar owners interconnected before January 1, 2017, to earn retail rate NEM credits for the lives of their systems.
But with the governor's intervention, Lesko's proposal won't be needed, at least for now. Her office informed Utility Dive of the agreement to talks that led to her withdrawal of the legislation. She later confirmed that the agreement was negotiated by the governor’s office and that the agreement meant there would be no ballot initiative efforts in 2016.
“Yesterday was a good day for Arizona because we ended the initiative battle and the argument goes away,” Lesko said after the agreement was struck.
A threat to Arizona solar?
The refusal by Nevada regulators to provide grandfathering to existing solar owners was viewed by some observers as a punitive measure in response to solar lobbyists' aggressiveness during legislative and regulatory proceedings.
Sen. Shooter’s Solar Consumer Protection Act (HCR 2041) — the other ballot proposal proposed in response to the solar initiative — could also be seen as a threat, observed Energy Policy Consultant Nancy LaPlaca, who served as an ACC Policy Advisor from 2009 to 2013.
The one paragraph bill simply enlarged the definition of a public service corporation beyond companies that provide “gas, oil, or electricity for light, fuel, or power.”
Had it been approved by the voters, the bill would have made public service corporations of companies “engaged in leasing or otherwise financing, directly or indirectly, the provision of a device or system that is used for the generation or storage of electricity.”
The business models of national solar installers like SolarCity are based on “leasing or otherwise financing” solar and battery storage. By including such companies in the definition of "public service corporations," the bill would give the ACC regulatory jurisdiction over them.
“It was highly problematic because it would have overturned a decision by a majority Republican commission that deregulated solar,” Mayes said. “It was a bad bill.”
If it was not an intentional threat, La Placa said, it was one nevertheless.
In the committee debate on HCR 2039, Senator Lesko told fellow lawmakers she would vote against both bills if solar advocates would drop their effort. That, LaPlaca said, was essentially asking the solar industry if the possibility of being regulated by the ACC was worth the fight for a retail rate NEM credit.
Multiple calls to Sen. Shooter's office requesting comment for this piece were not returned. But Lesko agreed the legislative actions were pivotal.
"The reason SolarCity came to the table was that we had our legislation," she told Utility Dive. "It is important to have leverage. If we hadn't done our bills, they wouldn't have dropped their initiative."
The agreement and the talks
While the Senate debated the HCRs, Gov. Ducey was talking to utility and solar leaders.
Before the deciding vote, “both sides agreed to withdraw their ballot initiatives and attempt to settle the debate in ten days of talks that will begin as soon as next week,” Mayes said.
There have been no negotiations on substance yet. SolarCity and APS have only agreed on talks moderated by a mutually agreed-on professional negotiator who will be paid by both parties, Mayes said. “Gov. Ducey will be the host and the goal is a framework that preserves solar energy in Arizona and is fair to all parties.”
Other utilities and solar representatives are likely to eventually be involved in the talks but they will initially be between SolarCity and APS, she added.
Everything will be on the table in the settlement talks, including the questions of fixed and demand charges and interconnection rules, Mayes said.
The talks will have to overcome a history of enmity between the national solar installers and Arizona’s utilities and regulators, LaPlaca said.
Examples include APS’s acknowledged funding of outside groups supporting its solar policy proposals in 2013 and its $3 milllion-plus funding to outside groups supporting the 2014 election of ACC Commissioners Tom Forese and Doug Little, she said.
Another example, she added, is SolarCity’s funding, until recently, of the Checks and Balances Project, a clean energy watchdog group that pursued aggressive investigations of commission members and utility executives.
Despite that history of contentious relations, the former ACC head says she thinks there’s still room for compromise.
“Agreement has been reached before,” Mayes said. New York stakeholders completed a “reasonable compromise” between utilities and solar companies that included an extension of retail rate NEM. “We are hoping for a similar Arizona version of that settlement.”
What has transpired has not impacted her willingness to negotiate, Mayes said. “We were always willing to come to the table to settle this issue. We are happy we are there now.”
The ballot initiative as weapon
The use of ballot initiatives to leverage public support is a new strategy being employed by renewables advocates. It was successful in Oregon. Utilities threatened with a political battle over an increased renewables mandate chose to negotiate a landmark 50% by 2040 standard.
In Oregon it was clear the advocates were going to get their measure on the ballot, clear the public would enact it, and the utilities did not want to take on the costly work of replying with their own measure.
The ballot measure strategy went awry in Florida. A solar initiative floundered because of inadequate finances while a utility-funded measure that offered less new solar policy but had rich backing qualified to go before voters.
In Arizona, the use of the ballot initiative took a slightly different turn when the utilities used their support in the legislature.
The initiative process is "democracy at its best,” AriSEIA's Rich said. But the Lesko and Shooter bills are “not democracy at its best because the utility is teaming up with lawmakers to short-circuit the process instead of petitioning the people.”
APS acknowledged to Utility Dive that it contributed to the drafting of both the Lesko and Shooter bills and was planning to provide “policy expertise and financial resources,” according to Haberlein.
The utility was “in full support” of the Lesko and Shooter bills and endorsed “designating rooftop solar leasing companies as public service corporations” Haberlein wrote.
In the end, however, the opposing threats to go to the people were a catalyst, although Lesko didn't foresee that outcome, she said.
“I would not have written my bill if SolarCity had not filed its initiative,” she said. “But the measures got APS and the solar company to the table so it was a win for both sides.”
The solar initiative "didn’t start as leverage,” Mayes said. "It started as a true attempt to preserve solar energy in Arizona. But we view the settlement talks as a terrific development and we anticipate they will lead to a compromise that will be good for the state.”