Fighting for Solar Friendly Utility Rates in Arizona

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Vote Solar helped score a victory for solar customers in Arizona. The Arizona Corporation Commission (ACC), which is the entity that oversees the state’s utilities, recently approved a rate case for the state’s 2nd largest investor owned utility – Tucson Electric Power (TEP).

Most people only hear about rate cases when they learn of rate hikes in their local news. In this case, TEP came in asking for $128 million in new revenue, representing about a 15.3% average rate increase to customers, and walked out with approval for roughly $76 million revenue increase. But there is much more to a rate case than that.

A rate case is the formal regulatory process by which electric utilities set the prices (known in our wonky world as “rates”) they will charge consumers. The way rates are structured have immediate implications for how economically attractive it is for consumers to go solar. In short: rate design matters a LOT.

This rate case (docket #E-01933A-12-0291), first filed in July 2012, took a year to settle, and could have been a bad deal for solar customers. TEP proposed making a number of rate design and structural changes that were designed to weaken the ability of solar customers to save money on their energy bills. We intervened in the TEP rate case to make sure that wasn’t allowed to happen.

We took issue with three of TEP’s proposals. Below we present a simplified version of their proposals, and show the outcome. If you have further questions just let us know (email rick@votesolar.org).

1) Increasing Customer Base Charges

TEP proposed a significant increase (71% or 88% depending on type of residential customer) in the monthly customer charge. The base customer charge is the monthly amount you pay to the utility regardless of how much energy you use.

It turned out that TEP had no justification for specific costs it desired to recover through the customer charge, but simply wanted to guarantee recovery of a portion of its “fixed costs” through this flat monthly charge. Fixed costs refers to costs the utility incurs to serve customers (i.e poles and wires of the grid). Indeed, it described this as a step in the move towards a rate design in which all fixed costs are recovered through a flat charge – a move that if implemented today would increase the customer charge to $55/month. This type of rate design structure reduces the benefits of a customer that installs energy efficient appliances or on-site solar because no matter how much she decreases the amount of energy she’s buying from the utility, she can’t impact that part of her utility bill.

Outcome: The settlement raised the customer base charge from $7 to $10 for standard residential customers, rather than $12 as originally proposed; and from $8 to $12 for residential customers on time of use rates, rather than $15. While this is a limited victory, we need to remain vigilant in opposing any utility’s movement towards full fixed cost recovery through a base customer charge.

2) Increasing Demand Charges

TEP proposed to dramatically increase the minimum demand charge (known as a demand ratchet) for certain commercial customers. Demand charges are a monthly charge that business owners pay depending on the most amount of energy their commercial operation (grocery store, bank, etc.) ‘could’ use at any given point in the month.

In general, demand ratchets take away the economic benefit customers might receive by reducing their energy consumption – similar to the base customer charge issue above, but primarily impacting commercial and industrial customers. TEP’s proposal was to increase the existing 50% ratchet to 100%, meaning that the demand charge portion of a commercial customers bill would not be tied to the maximum demand in the current month, but to that customer’s maximum demand over the last 12 months. In practice this would mean that a solar business customer’s demand charge would be as high as possible all year long, even in a summer month when their peak demand requirements were low because their solar system was producing at maximum capacity.

Outcome: The ratchet proposal was reduced from 100% to 75% in the settlement. While this is an improvement, we should continue to work towards elimination of the demand ratchet altogether.

3) Decoupling Mechanism

TEP also wanted to impose a limited decoupling program (“LFCR”) for sales reductions due solely to customers adopting energy efficiency and distributed generation (DG) technologies like rooftop solar.

While the proposed LFCR mechanism was limited to the sales effects of efficiency programs and customer-sited solar, we felt it should be broader and include other elements that could impact sales, including weather related sales changes. In addition, the structure of the proposed LFCR incorporated some improper assumptions in regards to distributed solar. We proposed language modifications in our testimony.

Outcome: While the settlement kept the application of the LFCR narrowly applied to efficiency and distributed solar, Vote Solar’s language for how to determine the solar impacts was adopted as part of the tariff language thus increasing the accuracy of any revenue lost by commercial solar installations.

Vote Solar will continue to advocate for rate design principles that encourage the adoption of solar energy. If want to know more, contact our Research Director Rick Gilliam at rick@votesolar.org.

Vote Solar is a non-profit grassroots organization working to fight climate change and foster economic opportunity by bringing solar energy into the mainstream.

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Vote Solar is a non-profit grassroots organization working to fight climate change and foster economic opportunity by bringing solar energy into the mainstream.