What You Should Know About Arizona’s Net Billing Battle

What You Should Know About Arizona’s Net Billing Battle

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Arizona’s Net Billing Battle: What You Need to Know

By homesolarsessions | Oct 12, 2023

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Key takeaways:
– Arizona adopted a net billing program in 2017 to compensate solar owners for their excess production
– In October 2023, the Arizona Corporation Commission (ACC) voted to re-visit two crucial elements of the state net billing program:
1. The 10% cap that limits the annual reduction to export rates
2. A 10-year lock-in period for export rates

The mere act of re-visiting these net billing elements creates uncertainty over the economics of rooftop solar and threatens to hamper Arizona’s residential solar market.

Arizona is officially the latest battleground in an ongoing effort to weaken and remove the net metering and net billing policies that compensate solar owners for pushing excess electricity onto the utility grid to power nearby systems. The value of excess solar power known as export rates is a crucial piece to calculating the cost savings benefits of investing in home solar.

On October 11, the Arizona Corporation Commission (ACC) voted 3-2 in favor of creating a new docket that will examine crucial elements of net billing export rates but left in place the grandfathering rule that allows existing solar owners to remain under their current net billing terms.

We’ll be the first to admit that net billing structures and Commission meetings are pretty dense stuff but the ACC’s decision has wide-ranging impacts on Arizonans (both as ratepayers and taxpayers) and the greater Arizona solar industry. So, in this article, we’ll break down what’s going on with net billing in Arizona piece by piece so you can make informed decisions about your home energy needs.

Jump to a section:
– How net billing works in Arizona
– Updates in the ongoing battle over solar export rates
– What does the net billing battle mean for solar owners in Arizona

Let’s start with a recap of how net billing works in Arizona.

How Does Net Billing Work in Arizona?

Net billing is a utility billing structure that compensates solar owners for the excess electricity they push onto the grid. This structure is similar to net energy metering (NEM) with a key difference in how compensation rates are calculated.

Under net metering, export rates are equal to the retail rate of electricity (i.e., the price homeowners pay for grid electricity)

Under net billing, export rates are based on the electricity’s perceived value to the grid, and are typically lower than the retail rate of electricity

Arizona’s net billing policy applies to privately owned utilities such as Arizona Public Service (APS) and Tucson Electric Power (TEP), and their affiliates, such as UniSource Energy Services (UNSE).

Since 2017, solar export rates under net billing have been based on the Resource Comparison Proxy (RCP). The table below shows the RCP rates for APS customers from 2018-2023 compared to the average utility rate of electricity in the Phoenix metro area.

Year | APS Resource Comparison Proxy (RCP) | Average utility rate*
2018 | 11.6 cents per kWh | 14 cents per kWh
2019 | 10.5 cents per kWh | 13.7 cents per kWh
2020 | 10.5 cents per kWh | 13.5 cents per kWh
2021 | 9.4 cents per kWh | 13.9 cents per kWh
2022 | 8.5 cents per kWh | 14.8 cents per kWh
2023 | 7.6 cents per kWh | 15.1 cents per kWh

*Data via the US Bureau of Labor Statistics.

Solar compensation policies vary from state to state, and Arizona’s net billing policy has a few unique characteristics. For instance:

– The RCP can be lowered over time, but only at a maximum rate of 10% per year
– When a homeowner goes solar, they lock in the current RCP export rate for 10 years
– Homeowners who went solar before net billing took effect are grandfathered into their existing net metering policy for 20 years from their interconnection date

So, if you went solar as an APS customer in 2018, you locked in an export rate of 11.6 cents per kWh for 10 years under the RCP. In 2028, once your ten-year lock-in is up, the RCP rate changes to the rate in effect for that year, and will continue to follow the effective RCP level as it steps down in each proceeding year (the 2029 rate in 2029, 2030 rate in 2030, and so forth).

In 2023, the RCP rate for APS is just 7.6 cents per kWh roughly half the average utility rate in the Phoenix metro area. While export rates under the RCP aren’t as favorable as 1:1 net metering, they are at least predictable thanks to the 10% cap and 10-year lock-in period and allow Arizonans to make informed decisions regarding their energy options.

Unfortunately, those two items are exactly what is at stake in Arizona’s current solar compensation battle.

What’s Going On With Solar Net Billing In Arizona?

The ACC is the governing body with the power to approve and amend Arizona’s net billing policy. In August 2023, commissioner Nick Myers proposed a 37% cut to RCP well over the 10% cap that was voted down 4-1, and the ACC adopted a 10% decrease instead. However, the battle did not end there.

On October 11, 2023, the ACC voted to create a new docket that examines you guessed it the 10% annual cap on the RCP and the 10-year lock-in period. According to the open meeting agenda, the original intent was to reopen the 2017 net billing decisions and address possible changes to the grandfathering rule. Myers withdrew his request to address grandfathering at the beginning of the meeting and the ACC ultimately decided to form a new docket specifically focused on the cap and lock-in period, instead of reopening the entire 2017 decision.

The mere act of re-examining the 10% cap and 10-year lock-in period creates a web of uncertainty for future solar owners and the greater Arizona solar industry. And, given Myers’ recent attempt to lower export rates by 37% in one year, the intent of re-examining the 10% cap is not exactly a mystery.

Autumn Johnson with the Arizona Solar Energy Industries Association (AriSEIA) said re-visiting the 2017 decision opens “a Pandora’s Box of what could possibly happen. The market will be plunged into uncertainty, and no one going to sign up for solar if you have no idea what your export rate is going to be.”

According to AriSEIA, the Arizona solar industry includes around 350 companies that employ around 8,000 people (in addition to independent contractors) and contributed $1.5 billion to the state economy in 2022.

Why re-visit key parts of the 2017 net billing decision?

The 2017 net billing decision (Decision No. 75859) took nearly four years and an unknown amount of taxpayer and ratepayer dollars to study, argue, and ultimately approve. So why expend the time, money, and resources to re-visit its key components?

Well, in his August 2023 proposal to slash the RCP by 37% to 5.3 cents per kWh, Myers pointed to a familiar “cost shift” argument that’s been used in various states to weaken and repeal net metering policies. The cost shift argument purports that by paying very little in utility electricity charges, solar owners make grid electricity more expensive for non-solar owners.

The problem with the cost shift argument is that it has been debunked by dozens of state studies and, in this specific case, by data from Arizona’s largest utility. A 2017 study by the Berkeley Lab found that solar cost shift under 1:1 net metering equates to $0.005 per kilowatt hour in areas of high penetration (10% or more solar generation as a percentage of total retail electricity sales). However, Arizona hasn’t offered 1:1 net metering in over 6 years, and future solar owners will have export rates approximately 50% or lower than the retail rate of electricity. So, the cost shift of solar was already negligible fractions of a penny per kWh in Arizona under net metering, and is even less so under net billing. (What’s less than fractions of a penny?)

Further, filings from APS itself show that it purchased wholesale power in 2022 at an average price of 8.113 cents per kWh. Meanwhile, APS’s current RPC rate is 7.6 cents per kWh. So, future solar owners will be:
– Selling their excess power to APS at a lower price than APS is getting from its wholesale providers
– Buying that same electricity back at nearly double the price

Reducing the…

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