From the December 22, 2016 issue of Public Power Daily
Originally published December 21, 2016
By Ethan Howland 
Contributing Writer
After a long-running debate, Arizona utility regulators have decided to end net metering for distributed generation and replace it with “export credits” that will provide reduced payments for excess generation. The decision comes as numerous states are considering changes to their net metering policies, which typically allow customers to be paid for excess generation from their rooftop or other distributed systems, often at their retail rate, over a set time such as a billing period. Arizona utilities had argued that state policy was shifting costs from net metering customers to customers without rooftop solar. In response, the Arizona Corporation Commission in 2013 voted to increase fees somewhat for net metering customers. 
The ACC’s 4-1 decision, made Dec. 20, largely follows a recommended order from an administrative law judge on the value and cost of distributed generation. The decision applies to investor-owned utilities and cooperatives in the state. Under the decision, the owners of distributed resources will be paid for their excess generation at a rate pegged to a rolling five-year average cost of utility-scale solar using a “resource comparison proxy” methodology. They will no longer be able to bank excess generation to offset their electric use later. Once the new rate is approved in a rate case, new distributed generation customers will have their rate locked in for ten years. Existing net metering customers will be able to keep their current rates for 20 years from their interconnection date.
ACC staff will also develop an alternative five-year avoided cost methodology that the commission could use in future rates instead of the resource comparison proxy. The avoided cost methodology would consider various costs and benefits including avoided energy and capacity costs as well as avoided transmission and distribution costs. In an amendment to the decision, ACC Chairman Doug Little said the resource comparison methodology will produce an export rate that more closely mirrors the current residential retail rate while giving the commission time to develop the parameters of the alternative five-year avoided cost methodology. Under the new framework, customers will be paid a rate closer to the wholesale rate for electricity and there will be uncertainty about future rates after the ten-year rate guarantee period ends, according to Barclays North American Power & Utilities.
“Overall these changes erode the economics of a leased or owned rooftop solar installation and we expect the pace of new installations in [Arizona] to slow dramatically following the ruling,” Daniel Ford, a Barclays analyst, said in a research note. Investor-owned utility Arizona Public Service supported the decision. “It makes solar fairer because all customers will begin to share more appropriately in the cost of the electrical grid,” the utility said in a statement.  “It also enables solar to flourish and grow in Arizona, partly because it balances the economic benefits of grid-scale solar – which provides clean power to all of our customers at far less cost – with the desire of some customers to install solar on their rooftops,” the utility said.
With 2,453 megawatts of solar capacity, Arizona ranks number two among U.S. states behind California, according to the Solar Energy Industries Association. Almost 260 MW was installed last year, the fifth most among all states, according to the trade group. In a sign of the focus on net metering, 22 states considered or enacted changes to net metering policies in the third quarter, according to a late October report from the N.C. Clean Energy Technology Center. The 50 States of Solar report found that 15 states plus the District of Columbia formally examined or agreed to examine some element of the value of distributed generation or the costs and benefits of net metering.