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A proposal submitted by the Arizona Public Service Corp. (APS) to state regulators asking for significant fees from customers who install residential solar power systems has drawn immediate and widespread fire from installers and others with a stake in the residential solar market.

The utility says that as a public provider it has a mandate to provide electric capacity and distribution resources to all customers in its service area regardless of how much residential solar is installed. Furthermore, it argues that the current net energy metering (NEM) plan, which pays customers for solar power they feed into the grid, benefits those with rooftop PV systems at the expense of those without.

Solar installers, providers of popular homeowner solar leasing plans and other industry advocates see APS' proposal as a threat to the future of residential solar in Arizona. The Arizona Republic reported a coalition of plan opponents rallied at the state capitol July 16 to voice their protests. Opponents say the APS plan, if accepted by the Arizona Corporation Commission, would stop the state's solar sector in its tracks. Some go so far as to say that killing solar is the utility's intent.

Industry analysts look at the sharp differences between the APS and residential solar installers as part of a larger battle over how to incorporate rising distributed solar capacity into existing power structures - in both senses of the term. According to Fitch Ratings, integrating renewable and energy efficiency policies into an equitable customer rate design remains among the largest challenges facing the U.S. utility industry.

APS maintains it is trying to devise an equitable plan for all its ratepayers. Greg Bernosky, manager of renewable energy programs at APS, says the utility's proposal reflects the costs and benefits of rooftop solar and NEM programs.

"We recognize that many customers and companies have made a significant investment in solar," Bernosky says, adding that APS has about 18,000 customers with solar power systems. This capacity, he says, is due in part to NEM's success in essentially jump-starting the solar industry. Costs for solar have come down, and solar customers no longer need preferred status: "Net metering is not meant to be a permanent state."

William Craven, a spokesperson for California-based SolarCity and The Alliance for Solar Choice (TASC), an industry group formed in May to promote NEM programs, says APS' plan is an effort to undermine the adoption of solar power, particularly at the residential level. Other TASC founding members include Sungevity, Sunrun and Verengo.

"What APS has proposed would seriously damage the industry," Craven says. "The charges, which are estimated at $50 to $100 per month, would negate the customer's investment in solar."

Craven says that APS is overlooking the benefits of solar power in reducing and even deferring capital investments in power generation, transmission and distribution. Surplus solar power can be sent to neighbors without having to travel vast distances from remote power stations.

"The power companies have been a monopoly for a hundred years,” he says. "They do not have the incentive to consider the degree to which solar reduces their operating costs. As for solar customers, they ought to be able to bypass infrastructure and be credited for the surplus they provide."

Quantifying that credit, however, is the rub. Many say the NEM transaction problem is industry wide and not unique to the dispute in Arizona.

"The big question is whether the net metering transaction is equitable," says Eran Mahrer, executive vice president of strategy and resources for the Solar Electric Power Association (SEPA), adding that individual net metering models around the country are more or less equitable and have to be examined on a case-by-case basis. However, Mahrer points out that the net metering model was developed before solar power achieved its current levels of market penetration among residential ratepayers and is ripe for reform. "Now we are faced with the issue of solving the transaction problem."

Mahrer, who co-authored a recent SEPA paper, "Ratemaking, Solar Value and Solar Net Energy Metering - A Primer," says utilities are finding themselves in a position similar to the telecom industry in the early years of deregulation after the breakup of AT&T. Up-and-coming telecom companies had to wage legal battles to gain access to the existing infrastructure.

Arizona could well prove to be a bellwether for the future of NEM programs and distributed solar in the U.S.

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