Arizona’s draft value of solar order leaves much to be desired

While the new policy would grandfather existing users and apply only to exports, re-assessments of the value would be made every five years, and advocates have questions about the valuation methodology.

October 11, 2016 Christian Roselund

Wing-Chi Poon - Own work, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=437172

Some of the most significant regulatory victories for solar in Arizona over the last six months have been the deferring of utility attacks on net metering until a methodology can be worked out for valuing the contribution of electricity from distributed solar to the grid.

Last Friday the first concrete public manifestation of what that valuation will look like came forward. And while it is an improvement over what utilities have suggested, it does not contain everything that solar advocates were looking for.

Arizona Corporation Commission (ACC) Chief Administrative Law Judge (ALJ) Teena Jibilian authored the draft proposal, which will be considered during an ACC open meeting on October 27-28. The proposal calls for a calculation of the value of distributed solar that is based on the price of utility-scale solar generation. It can also include unique benefits of distributed generation such as deferred investments in transmission infrastructure, and environmental attributes, but only as calculated on a five-year basis. Grid security, societal and economic benefits such as fuel hedging are excluded.

“Use of utility-scale solar obligations represents the most reliable and objective avoided cost proxy for rooftop solar and diminishes concerns for the inclusion of societal and environmental factors and other externalities in valuing DG solar exports,” states the draft order.

Importantly, this value will only apply to surplus generation, not the entire output of PV systems. However, it leaves these calculations up to each utility to determine in rate cases, and to re-calculate every five years, a far shorter time period than both solar advocates and the state’s ratepayer advocate had asked for.

ALJ Jibilian’s draft order states that examining these values after such a brief interval will help to “ensure a gradual transition” away from net metering. What is not clear is if the valuation will change for systems which are already connected to the grid every five years.

Vote Solar expressed concerns over the approach.

“(The draft order) does not allow for a full consideration of the costs and benefits that customers’ solar energy systems provide because it restricts the analysis to a 5-year planning window or limits the compensation based on the price paid for other resources,” notes Vote Solar Program Director Briana Kobor. “The ACC requires utilities to plan the rest of their energy system over a 15 year horizon, and there’s no reason that customer-driven solar should not be planned for in the same way.”

An issue here is a lack of clarity. The draft order proposes two different methodologies, and it is uncertain which will be used. The proxy methodology provided in the order results in a valuation of 10-11 cents per kilowatt hour, however this is based on a different time period than the 5 years specified in the determinations section.

The order also avoids rate design, which leaves solar customers open to discriminatory and unfavorable electric rate structures. “the issue of whether rooftop solar DG customers should be included in a separate class is a rate design issue that should be determined in each utility’s rate proceedings,” explains the draft order.

If there is a silver lining to ACC’s proposal for valuation of distributed solar, it is that solar customers under existing net metering arrangements will be grandfathered if they sign up for interconnection before the finalization of their utility’s rate case in which the value of solar is set.

However, for customers who sign up afterwards, the new methodology does not look so good. “The order leaves a big open question around whether or not new solar customers will receive their due credit for the valuable energy they send to the grid,” states Vote Solar’s Kobor.

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