WSJ: Arizona’s Solar Flare-Up
The Wall Street Journal had a great article earlier this week re-capping the 3-2 decision from the Arizona Corporation Commission last week to reform net metering policy in our state. This was a contentious, often colorful debate, but in the end a significant decision by the commission: Arizona is the first state in the country to roll-back net-metering policy. Arizona is also the first state in the country where a utility commission has concluded – and in the solar industry’s case admitted – that a cost shift is in fact taking place and non solar customers are paying for the solar of net metering customers. And while we disagree with the Journal’s ultimate conclusion (that this was a win for the solar industry), their analysis of the perils of net-metering policy are spot on.
Trying to cut corporate welfare can sometimes blow the same political fuses as trimming food stamps. Consider the recent flap in Arizona over scaling back the solar industry’s state subsidy scheme.
Last week the Arizona Corporation Commission agreed to maintain with minor adjustment the state’s net-metering program, which compensates customers with solar panels for the excess electricity they generate and export to the transmission grid. The case represents a big political victory for the solar kingpins and could deter changes in 42 other states with similar programs.
Net metering may be publicly popular, but it is bad policy. Start with the fact that solar customers are compensated for their unused power at the retail rate, which is two to three times the wholesale price that utilities pay other generators. Arizona residents with net metering can shave their electric bills by two-thirds, or roughly $120 per month. This is a backdoor subsidy for solar power but not for you and your neighbors.
Most customers who can’t afford the up-front solar system costs contract with companies like SolarCity and SunRun, which install photovoltaic panels for free and then charge customers for their electric generation. These “solar-leasing” companies pocket all of the government subsidies including the 30% federal tax credit as well as most net-metering savings, so their customers reduce their monthly bills by only about $10.
Thanks to these modest savings and sundry government incentives, rooftop installations in Arizona have increased by over 2,000% since January 2009—about 80% of which are leased—and are already surpassing the state’s 2016 target.
And there’s the rub. Solar’s explosive growth is driving up rates for other power users. According to Arizona Public Service, the state’s largest utility, each solar customer dodges about $1,000 annually in fixed costs for operating the grid, which residents with net metering use to buy and export power.
As more solar systems are installed, the utility’s fixed costs are spread across fewer users. This will ultimately cause power rates to spike, primarily harming poor and middle-class residents who spend a larger share of their income on energy. Net metering is already costing the average power user a $16.80 premium per year.
Earlier this year, Arizona Public Service asked the state utility commission to address the cost shift by modifying net metering for future solar adopters. The utility proposed compensating solar customers for their power at the wholesale rather than retail rate, or alternatively, adding a flat charge to their bills to account for the fixed costs they’re avoiding.
The political obstacle is that these proposals would increase future solar adopters’ bills by about $50 to $100 per month, wiping out the modest savings advertised by the leasing companies. To attract new customers, the companies would have to rework their business models, which are built from top to bottom on subsidies.
And you guessed it, the solar companies enlisted President Obama’s political arm Organizing for Action to ratchet up public pressure on the five Republican utility commissioners. Many of the industry’s community organizers are former Obama campaign advisers and consultants. They also conscripted former Republican Congressman Barry Goldwater Jr. to chair an ostensibly conservative front group, which slammed the utility’s proposals as a “tax” and likened net metering to school choice.
After some commissioners evinced skepticism at these tendentious claims, the companies lobbed a “compromise” that would tack a roughly $5 monthly fee ($0.70 per kW of installed capacity) onto solar customers’ bills. While this surcharge would do little to mitigate the cost shift, it gave commissioners a political out.
A three-member majority on the commission last week voted to implement the industry’s proposal pending the utility’s next rate review in 2015. Solar companies are publicly lamenting the outcome but are privately celebrating their political win. They know that it will become more difficult for the commission to change course as more time passes since the rate hike needed to offset the cost shift will grow, and time is money for them.
Meantime, the solar subsidy kings will use this same “Rules for Robber Barons” playbook to rebuff changes in Georgia, California, Colorado and other states that are scrutinizing their net-metering programs. John D. Rockefeller and Cornelius Vanderbilt didn’t get rich by looting the poor.