Solar Rate Issues and Potential Solutions

Presented to RUCO Workshop May 2013

Chuck MiessnerPricing Manager APS

1

Utility Costs vs. Charge TypesResidential Inclining block, TOU-Energy Rates

2

Cost Charge DE Bill Utility Cost Billing Elements Type Type Savings Savings

Base Rates:Metering and Billing Capital MonthlyDistribution Capital kWh XTransmission Capital kWh XPublic Benefits Programs Fixed Budget kWh XPower Plants Capital kWh X PartialFuel, O&M Operating kWh X X

Adjustments:Renewables Fixed Budget kWh, CappedFuel Operating kWh X XDSM Fixed Budget kWh XEnvironmental Improvement Surcharge

Capital kWhX

Transmission Capital kWh XLFCR (Public Benefits Programs) Capital % X

Taxes and Government Fees:Regulatory Assessment Fee Pass through % X NAFranchise Fee Pass through % X NASales Taxes Pass through % X NA

Self Supply versus Net Metering

3

The potential for solar to shift costs to other customers is predominantly a rate design issue.Net Metering contributes by extending the issue to the nighttime load as well as the daytime load and seasonally to other months.

Consumption

Solar Generation

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 -

0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Residential TOU-E CustomerJuly 9

Self Supply

"Export " Net-Metering

Potential Billing Gap - Summary

4

Total DE PotentialClass Customers GWh Customers Billing Gap

ResidentialIB 479,264 29% 5,047 HigherTOU-E 423,193 51% 8,680 HigherTOU-D 102,066 20% 643 Lower

Class Total 1,004,522 13,247 14,370

BusinessXS 101,321 10% 153 HigherS 17,113 18% 229 MediumM 4,281 23% 163 MediumL 980 25% 84 LowerXS,S,M,L TOU 446 3% 7 LowerXL 31 6% 0 LowerXL-TOU 39 14% 1 Lower

Class Total 124,211 14,087 637

Utility Services $/kWh

5

-

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

0.040

0.028

0.011

0.027

0.011

0.009

0.012

Taxes and Gov't fees

Public Programs

Metering

Distribution

Transmission

Power Plants

Fuel, O&M

Avg. residential costs and rates are 12.5 cents per kWh before taxes, 13.8 cents with taxes.

Larger homes pay higher amounts due to inclining block rates – 15 to 16 cents per kWh.

Rooftop Solar provides only a portion of utility services – fuel and a portion of power plant costs.

However, current policies allow a customer to avoid paying for all of the services, except metering.

These other costs are paid by other customers through higher rates.

Avg. Residential Med and Large Homes

Services Provided by Solar

Other Perspectives

6

-

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

0.040

0.028

0.011

0.027

0.011

0.009

0.012

Taxes and Gov't fees

Public Programs

Metering

Distribution

Transmission

Power Plants

Fuel, O&M

Some solar advocates believe that solar customers should get bill savings today, based on the projected growth in fuel and power plant costs over the next 20 years, not based on current rates.

Some also believe that solar power creates other value which should also be credited against today’s bills.

This total value is estimated to be 22 to 24 cents per kWh average over the next 20 years – double the current cost of all utility services.

Avg. Residential Med and Large Homes

Services Provided by Solar

APS’s Perspective• This issue is not about APS retaining market share or revenues; it’s about fairness

between customers.• Solar customers should receive bill savings based on the services they are no

longer taking from APS (fuel and a portion of power plant costs), based on today’s rates.

• These bill savings will grow over time to the extent that costs (and thus rates) increase.

• It is not appropriate to base bill savings today on projected (marginal) costs in the future, because the projected cost are uncertain and APS’s rates are based on actual historic costs.

• APS believe that solar advocates projections are high. Also, their claim of other benefits to utility are hypothetical and difficult to quantify.

• APS could purchase solar power for the same 20 year time period for a significantly lower cost than the value of rooftop solar estimated by some solar advocates.

• If regulators believe that rooftop solar should receive additional incentives beyond current rates, the incentives should be set in a transparent manner, outside of the utility rate structure.

7

DE Rate Equity IssuesPotential Solution ConceptsRate Design Concept

DE generation serves a portion of the customer’s load; the utility serves the remaining load at a retail rate that is designed to appropriately recover the cost of service, considering DE’s impact on the utility’s costs. Excess generation is exported to the grid and may be compensated through net metering or net billing.

Total DE Export ConceptTotal DE generation is exported to the grid and purchased by the utility at a purchase price, which considers DE’s impact on the utility’s costs. Customer’s total electrical load is served by the utility at the retail rate.

Net MeteringCurrently APS offers net metering to all customers for up to 125% of their connected load, in accordance with Arizona regulation. Net metering may need to be revised as part of the solution.

IncentivesIncentives could be considered along with the proposed solution.

8