Arizona regulators on Tuesday voted to scrap so-called net metering for customers with rooftop solar systems in favor of a lower “export rate,” despite the objections of solar advocates.

After nearly two years of proceedings including a two-day meeting ended late Tuesday, the Arizona Corporation Commission voted 4-1 to end so-called net metering, a process by which solar customers Tucson Electric Power Co. and other state-regulated utilities are credited for excess power production at full retail rates.

“I think we’ve accomplished something pretty historic today,” Commission Chairman Doug Little said. “It’s not perfect but it’s a step in the right direction.”

Commissioner Bob Burns voted against the proposal.

Arizona utilities including TEP and Arizona Public Service Co. had sought to eliminate net-metering, under which customers with rooftop solar are reimbursed their excess power generation, contending that solar customers aren't paying their fair share of fixed grid costs.

Solar companies and advocacy groups counter that solar is worth far more than the utilities say in terms of reduced costs and pollution, and that any cuts to net-metering rates would devastate the industry.

Two other states, Nevada and Hawaii, have ended net metering, and at least 25 other states are considering that and other solar rate-design issues.

Under a policy decision expected to guide pending and future rate cases, the Corporation Commission voted to end net metering and replace it with reimbursement through an “export rate” much lower than retail rates.

The export rates will be determined in each utility rate case and will initially be based on a “resource comparison proxy” based on a weighted, five-year average cost of power from utility-scale solar farms.

The new export rates will vary by utility and be stepped down annually, in increments limited to 10 percent each year.

TEP had proposed basing the solar expert rate on its most recent costs for utility-scale renewable energy projects — about 6 cents per kilowatt-hour instead of the retail rate of about 11.5 cents per KWh.

Solar-industry experts say dropping the export rate significantly will essentially make solar uneconomical for many customers and devastate the industry, citing a huge dropoff in demand in Nevada after that state cut net metering.

Over the longer term, the utilities are required to develop solar valuation methodologies based on a five-year forecast of “avoided cost” of conventional generation, including such things as fuel costs, to be updated with each rate case.

APS has advocated using its own proprietary cost studies to set an "avoided cost" rate for solar credits, at about 3 cents per KWh.

Solar advocates wanted the value of solar to be considered over a longer time period, 20 years or more, to fully capture environmental and other long-term benefits.

Going forward, the utilities with commission approval could use either the resource proxy or the avoided-cost models to set an export rate, which would be updated in subsequent general rate cases.

The new solar compensation scheme will apply to customers whose solar systems are connected to the grid prior to the decisions on each utilities rate case.

Customers whose rooftop solar panels are installed before the rate decisions will be “grandfathered” to continue to receive the benefits of existing net metering, but the decision limits those benefits to 20 years from the data of interconnection.

Solar advocates contended that anything other than full grandfathering of net-metering rates would be unfair and lead to litigation, noting that Nevada appears to be backing off its retroactive elimination of net metering in the face of public outcry and lawsuits.

But new solar customers will not be allowed to “bank” unsued excess energy credits, which under net metering are carried over and credited monthly until the end of the billing year.

Instead, any excess energy production will be credited “instantaneously” during each day, with no carryover credits.

Rooftop solar customers under the new rules will have their eventual energy export rate locked in for 10 years.

That upset some solar-industry advocates who said prospective customers should get a locked-in export rate for at lest 20 years, reflecting the useful 20 to 30-year life of solar panels.

“You’re going to have people who are going to sign up for solar with no idea what happens after 10 years,” said Court Rich, representing the solar-industry group The Alliance for Solar Choice.

Anne Hoskins, a former Maryland utility regulator now representing rooftop solar provider Sunrun, said the shorter lock-in rate is unfair and will jeopardize financing for solar adoption particularly for financed systems.

“The state is getting the benefit of private residents putting capital out there (to install solar), they need that 20-year certainty,” she said.

Utility representatives countered that the 10-year export rate lock-in is roughly equal to the payback period for the typical home rooftop solar system.

Commissioner Burns had advocated for a 20-year lock-in period, citing that as a typical length of solar power-purchase agreements. 

Commissioner Bob Stump, who has been sharply critical of the solar industry, said the net metering rules had to be updated for consumers and the long-term future of the solar industry.

“To maintain the status quo would have made the indsutry less sustainable and less self-reliant,” said Stump, adding that he was proud to make his last vote as he is stepping down from the commission at the end of the year.

Chairman Little said much work remains to be done.

Export rates will be set in pending rate cases filed by TEP, Arizona Public Service Co. and other utilities.

Regulators also likely will have to consider requests by the utilities to impose new fixed charges or special “demand rates” based on peak usage.

“I think this will become more of an evolutionary process,” Little said. “We’ll be revisited some of these issues but its a good step.”