Arizona Corporation Commission Takes a Step Closer to Determining the Value of Distributed Generation for Arizona

On October 7, 2016, the Arizona Corporation Commission’s Hearing Division issued a Recommended Opinion and Order (“ROO”) in the Commission’s Investigation of the Value and Cost of Distributed Generation docket (Docket No. E-00000J-14-0023). The ROO follows an extended evidentiary hearing and post-hearing briefing that took place earlier this year.

The ROO proposes to effectively eliminate retail net metering in favor of compensating energy exported from distributed generation (“DG”) at an export rate.  The ROO also adopts the methodologies proposed by Commission Staff for determining the DG export value, which include: (i) an avoided cost approach and (ii) a “Resource Comparison Proxy” approach based on a five year rolling weighted average of a utility’s solar purchased power agreements (”PPAs”) and utility-owned solar generating resources.

Under the avoided cost methodology adopted by the ROO, long-term forecasts would not be used to establish the value of DG under the methodology proposed by the ROO “due to the risk of inclusion of speculative benefits and costs.”  Rather, under the ROO, a five year forecast of the benefits and costs of DG for purposes of valuation of DG exports would be used if the valuation is re-assessed in each utility’s rate case.  The methodology also should consider environmental benefits and costs of DG in the forecast, but only to the extent they are not already considered in Integrated Resources Plan process or in operating costs.  The avoided cost forecast would not include societal or economic benefits of DG because they are “speculative and inappropriate for ratemaking purposes.”

Under the Resource Comparison Proxy methodology, the proxy value would be determined in a rate case and would reflect the most recent five year period, including the test year.  If projects of recent vintage are not available for a utility, then pricing data from available industry sources for grid-scale solar PV projects, preferably from Arizona, would be used.

The ROO also includes several other findings of note, including a finding that rooftop solar DG customers are partial requirements customers who export power to the grid.  It also sets forth a grandfathering proposal for treatment of DG customers.  It further proposes that the Commission commence a rulemaking to review the Commission’s Net Metering Rules (likely in the second half of 2017).

The Commission will consider the ROO at its November 29-30, 2016 Open Meeting.  The Commission is not bound by the recommendations of the Hearing Division and may adopt, amend or reject the ROO at that time.  The final order approved by the Commission is intended to instruct distributed generation issues in the pending Arizona Public Service rate case (Docket No. E-01345-16-0036) and the second phases of the Tucson Electric Power and UNS Electric rate cases (Docket Nos. E-01933A-15-0322 and E-04204A-15-0142).  Those proceedings will likely have evidentiary hearings on the DG issues in the first half of 2017.