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EUC rejects bid to join battle over reduced value of solar rate

Thursday, December 19, 2013 by Bill McCann

While solar advocates continue to be upset over Austin Energy’s decision to reduce a rate used to compensate residential customers for the value of electricity generated by their solar units, the Electric Utility Commission has decided against joining the fight.


The advisory commission this week rejected a resolution urging the City Council to keep Austin Energy from putting the new solar rate into effect, pending a legal opinion on whether the utility could unilaterally change the methodology used to calculate the rate, and until there has been public input and a Council hearing on the issue.  Austin Energy officials said the city Law Department is scheduled to issue an opinion this week. 


Solar advocates say the new “value of solar” rate, which is 17 percent lower than the existing one, will cost residential solar owners money and will dampen public enthusiasm for installing new solar systems. Austin Energy officials, on the other hand, say the rate reduction is justified, mainly because the market value of energy has dropped due to a drop in guaranteed future natural gas prices. They say interest in solar continues to be high.   


Austin Energy announced this fall that starting in January the value of solar rate used to calculate credits that residential customers get on their electric bills for generating solar electricity will drop from 12.8 cents per kilowatt-hour generated to 10.7 cents. The new rate will affect roughly 2,700 residential customers with solar electric installations and hundreds more in the planning stages.


The resolution, introduced by Commissioner Clay Butler, failed to garner a majority vote. The vote was 3-1, with three members abstaining. Joining Butler in voting for the resolution were Karen Hadden and Dr. Varun Rai, while Brent Heidebrecht voted against it. Linda Shaw, Shudde Fath and Commission Chair Bernie Bernfeld abstained.


The resolution was similar to concerns raised by Tom “Smitty” Smith, director of the Texas Office of Public Citizen in a recent letter to City Council offices. The issue was on the agenda of a Council meeting earlier this month, but the Council did not pursue it after Austin Energy officials said the utility’s billing system had already been changed to reflect the new rate. 


Butler, an energy attorney who represents solar and other clean-energy businesses, argued, sometimes forcefully, that the initial value of solar rate set in 2012 was developed as part of a rate case and that only action by the City Council could change it. He insisted that substantial changes were made in the methodology, including using levelized costs of wholesale power prices on the Electric Reliability Council of Texas (ERCOT) market from 2011 and 2012, and a price quote on a natural gas futures contract from an undisclosed source. He also questioned changing the assumed life of a solar installation from 30 years to 25 years.


These changes in how the value of solar is calculated will cause some solar owners to see a 15 to 40 percent increase in their electric bills in 2014 because they will get less credit for the energy they generate, Butler added.


At one point Butler said Austin Energy had an inherent conflict of interest in setting the solar rate because customers who generate electricity from solar energy can be competitors of the utility.


Debbie Kimberly, Austin Energy vice president of Customer Energy Solutions, held her ground, insisting the basic methodology used to calculate the solar rate did not change, but was refined using updated information.  


“The value of solar calculation credits customers with the full avoided costs of energy and the largest component of that value is based on future avoided fuel costs,” Kimberly said during an interview. “Since the VoS was last set, gas futures prices, as measured by published indices over an extended period, have dropped significantly, which is why the VoS is lower. If those forecasts, as well as other components of the calculation increase, so too will the credit.”  


She added: “We remain committed to achieving our solar goals, and plan to issue an RFP (Request for Proposals) in January to develop a community solar project to enable those who would otherwise not be able to invest in this resource to do so.”

The value of solar rate concept, the first of its kind in the nation, was adopted by the Council as an alternative to net metering, which utility officials determined did not reflect the true cost of serving solar customers. Austin Energy is responsible for reviewing and updating the value of solar rate annually.


Residents with solar electric systems have two meters, one measures electricity used in the house, and the other measures electricity generated by the solar unit. The power produced by each solar unit gets plugged into the city’s electric system. The value of solar rate is used to calculate credits that the owners of solar installations get for producing their power each month. The credit is figured by multiplying the rate by the number of kilowatt-hours produced by the solar unit. If the monthly bill for electricity used exceeds the credit amount, the homeowner pays the difference. If the credit amount exceeds the electric bill, the difference carries forward to the next month.


Some solar owners are upset not only because of the reduced solar rate but because any credit left at the end of the year will be erased at the beginning of next year. Solar owners believe they should be allowed to carry the credit forward to the next year. However, the value of solar concept approved by the Council in 2012 included a provision that any carry-over credit would be set to zero in the first billing month of each calendar year.


Kimberly said that the utility was open to discussing a change that would allow a rollover of the credits in the future. She said one reason why the credit is not currently carried forward is because it removes the potential for the credits to be considered income, which could have federal tax implications for customers who got federal tax credits for their systems.

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