An Update on the War on Solar at the Arizona Corporation Commission

by Russell Lowes and Keith Bagwell

            Two utilities, Tucson Electric Power and its sister subsidiary UNS Electric, are applying for rate hikes with the Arizona Corporation Commission. Included in these rate cases is a troubling and unprecedented restructuring of how rates are applied. These proposed rate reshufflings are bad for the families and businesses in these monopoly areas. Additionally, these proposals are assaults on family and business-owned rooftop solar energy installations.

            TEP and UNS have engaged in a public relations campaign to promote the inaccurate idea that rooftop solar energy is costing non-solar customers more than if there was no additional rooftop solar installed.

            Tucson Electric Power has recently made a number of erroneous statements about rooftop solar costs. However, we will focus here on the most glaring blunder, in what has NOT been said. The utility company does not consider the “opportunity lost cost” for not going with rooftop solar. TEP again made this error of omission in a recent exchange with our County Board of Supervisors, who are opposing the proposed rate shuffle. That is, what happens if families and business owners, schools and local governments in the TEP service area do not install solar panels? TEP is installing centralized utility-owned solar energy plants, and this solar is costing non-solar customers much more than the customer-owned rooftop solar. See the table below, which further explains this.

Examples of Typical Un-Subsidized Energy Costs for New Power Capacity in Southern Arizona, in Cost Per Kilowatt-Hour

Energy Production & Efficiency Options

Initial Un-Subsidized Cost

Trans-mission & Distribution Component

Total Cost

Cost Covered by  Rooftop Solar Families & Business-Owners

Maximum Cost Borne by Ratepayers

           

Homeowner Rooftop Solar Financed with Homeowners Equity Line of Credit, 5%

$0.115(a)

$0.005

$0.120

$0.115

$0.005

Homeowner Rooftop Solar Financed with Lease

$0.120(b)

$0.005

$0.125

$0.120

$0.005

Medium-Size Business Rooftop Solar Financed with Commercial Loan, 6%

$0.095(c)

$0.005

$0.100

$0.095

$0.005

Utility-Owned Rooftop Solar, Financed with Blend of 50/50 Rate of Return and Corporate Bonds, 9% (per IRP)*

$0.110(d)

$0.005

$0.115

$0.110

$0.115

Utility-Owned Centralized Solar, Financed with Blend of 50/50 Rate of Return and Corporate Bonds, 9%

$0.090(e)

$0.060

$0.150

$0.000

$0.150

Utility Solar via Power Purchase Agreement (Subsidized Fixed Contract)

$0.062(f)

$0.060

$0.122

$0.000

$0.122

Utility-Owned Centralized Gas Plant Financed with Same Finance Mix

$0.084(g)

$0.060

$0.144

$0.000

$0.144

Energy Efficiency**

$0.050(h)

$0.000

$0.050

$0.000

            **

           

 * The vast majority of this cost will be borne by the ratepayer directly benefitting from this installation.

**Energy efficiency comes in many forms and at many different costs and benefits. The ratepayer-

   borne portion of this, on average is likely under 1¢ per kilowatt-hour saved.

 

            Recently TEP just secured more fossil fuel power capacity. This will cost much more for non-solar customers in total dollars, and in cents per kilowatt-hour.

            TEP claims that family-owned solar energy increases costs for its non-solar ratepayers. In this claim TEP is probably really talking about what the utility company losses will be. The company financial losses to customer energy efficiency and solar investments are real, if you do not count the gains to the company in terms of grid diversification, performance fees TEP earns on customer energy efficiency investments, etc. However, these gross costs (before these other offsetting benefits) are very minor, at this point of grid penetration, well under 5 percent.   

            What TEP and UNS Electric ignore, in this “solar costs non-solar customers argument,” is that all the other options of electricity generation expansion are more expensive than customer-installed rooftop solar. Centralized solar built by the utilities costs non-solar customers far more than rooftop solar. Fossil-fuel generation is even more expensive, as well as polluting and climate-changing. In addition, the 0.5¢/kilowatt-hour cost that is purported to be shifted to non-solar customers, is actually returned to customers numerous times, by diversification of the grid, reduction in peak gas-generated electricity, and by many other benefits that solar provides to all families and businesses.

            Consequently, it is in the best interest of our families and business-owners that customer-owned rooftop solar continues to be installed, under the current net-metering system. This is not best for the utilities only under the current business models that are now outdated. These models need to change. The Commission needs to require that TEP and UNS update their business models to mesh with the new technologies, the new ways in which people are living, and the improving costs of options customers did not have until recently. Additionally, the business models need to be changed to reflect the far lower impact the newer technologies have on the environment and on human health.

            When a rooftop-solar customer invests in solar, that family or business pays all of the construction cost, all of the interest and all of the maintenance costs. These costs add up to about 11¢ per kilowatt-hour if financed through a home equity loan, or a business loan. When a utility builds solar, it pays for these three categories and more (land acquisition, transmission lines, etc.), but then passes it on to the ratepayers. Similarly, when TEP acquires more natural & fracked gas capacity, it pays for these components of overall cost and passes them on to the ratepayers.

            TEP and UNS should not be allowed to ignore the fact that if solar rooftop is not invested in by families and businesses, the utilities will have to invest in other more expensive power-generation options and pass those costs on to their customers. To ignore this is deceitful and only works to further undermine the trust of ratepayers in the TEP and UNS Electric monopolies.

>>>      Action to take! For anyone wanting to comment before these cases close, you could address your comment as follows. Nobody knows when these two rate cases will close, but it will probably be open through July or August of 2016.

Re: Rate Cases E-04204A-15, E01933A-15-0322 and E-00000J-14-0023

Dear Commissioners Little, Burns, Stump, Forese and Tobin,

——————-

Methodology and References  

  1. a) This is calculated based on typical sale price of $3000/kilowatt of D/C electrical capacity, .8431 conversion rate to A/C electricity, a lifetime average degradation rate of 13.2% over the 30 year minimum life span, with a capacity factor (average output, compared to A/C rating) of 20.85% with 5% APR financing for a home equity line of credit (HELOC).
  2. b) Based on reviews of leases for solar homes in Tucson, Arizona, by one of the authors, Russell Lowes.
  3. c) Based on lower cost per kilowatt installed but higher loan rate, 6% APR.
  4. d) Based on $2800/kW D/C, 0.8431 conversion rate to A/C, a 13.2% average degradation rate for a 30 years, with a capacity factor of 20.85%, with 9% average financing, per Tucson Electric Power Integrated Resource Plan, which lists 8% as the average corporate bond rate, 10% as the average rate of return on equity and a typical 50/50% blend of the two financing options.
  5. e) Based on $2200/kW D/C, 0.86 conversion rate to A/C, a lower 9.5% average degradation rate for a 30 years, with a lower capacity factor of 18.3%, with X% average financing, based on the Tucson Electric Power Integrated Resource Plan, which lists X% as the average corporate bond rate, X% as the average rate of return on equity and a typical 50/50% blend of the two financing options.
  6. f) Based on what TEP is typically getting for Power Purchase Agreements and what it uses as the basis for its proposal to reimburse solar rooftop owners.
  7. g) Gas-produced power from Lazard’s Levelized Cost of Energy Analysis—Version 9.0, at: https://www.lazard.com/perspective/levelized-cost-of-energy-analysis-90/, p. 2 (click on “View the Study”). This is at the lower end of the two combined Gas Peaking and IGCC (more toward baseload) options. The average of these two is 16.6¢/kWhe. Additionally, see table below for similar approach to gas-generated electricity costs. This has to take into consideration more peaking energy costs for electricity that rooftop solar would displace. These costs can be as high as 21.8¢/kWh, according to Lazard, p. 2.
  8. h) , p. 2, energy efficiency is taken from the top of the range from Lazard’s (see g).

Cost for Conventional Combustion Turbine Gas Electrical Generating Plant

Using O&M & Fuel Costs from Table 8.4*, 2012 Dollars

   

1

kWe capacity scenario

$973

cost per kWe**

12%

Capitalization Rate (including principal, interest, taxes and fees)

$117

Cost Per kWe Per Year

   

50%

Cost Per kWhe for Capital

8760

Hours Per Year

4380

kWhe/Yr Generated

   

$0.02666

Cost Per kWhe for Capital

$0.00263

  Operation

$0.00290

  Maintenance

$0.03706

  Fuel

$0.04259

Subtotal O&M & Fuel

$0.06925

Total Cost Per kWhe

$0.06000

Non-Generation Utility Costs (incl. transmission, distribution, etc.)

$0.12925

Total Cost Per kWhe Delivered

   

*

www.eia.gov/electricity/annual/html/epa_08_04.html

**

http://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf

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