The CPS Energy Board of Trustees approved a proposal Monday to start phasing in a grid fee to solar customers in order to "recover cost of service" that customers avoid by installing solar panels. The proposal will be sent to City Council for analysis and a June vote.
"By no means is this a done deal," said Mayor Julián Castro, an ex officio CPS Energy board member. "I'm willing to be supportive of at least forwarding this to (City Council) where we'll have more of an opportunity to dig into this in an open session."
CPS Energy Executive Vice President Cris Eugster outlined the plan – which proposes both a fee per installed kW and a one-time $450 "commissioning" or installation fee that would be subtracted from customer rebate checks – during the regularly scheduled meeting through a presentation you can download by clicking here.
"We're trying to transition (from rebates) to a market based model," Eugster said to the board. "We have a proven track record" in terms of aggressive, effective solar energy management and CPS Energy believes this new fee to be a reasonable, necessary one to continue on a course to "expand the rooftop solar program."
The issue of cost recovery and integration of more rooftop solar is a national one, Eugster said. "If we could figure this out, we could be a leader in the nation."
San Antonio ranks sixth in the nation for solar as of 2014, according to The Environment Texas Research and Policy Center report, Shining Cities: At the Forefront of America’s Solar Energy Revolution, largely due to its comparatively generous rebate program, Eugster said.
Castro was critical of how a fee and rebate decrease would encourage growth.
"If the goal is to increase the amount of rooftop solar, what element of this plan do you see as (achieving that)?" Castro asked.
CPS Energy President and CEO Doyle Beneby clarified that the grid fee would stabilize the local solar price so that "we have a reliable funding mechanism – so we're not at this point every four years ... then (CPS Energy) can be in a position where we can incentivize more because we have a sustainable model that demonstrates cost recovery. By the time this is done, we're going to find a way to have longer funding and stronger funding."
Solar industry advocates and installers were present during the meeting, Citizen comment was invited in prior meetings but not at the board session.
"They're saying that if (CPS Energy) can get money from solar adapters for fixed costs recovery, then they'll feel better, so it will be more likely to support solar," Solar San Antonio Executive Director Lanny Sinkin said in reaction to Beneby's explanation.
If approved by City Council, the grid fee would be phased in starting with a monthly charge of $1 per AC kilowatt (kW) of installed capacity and increase to $3.50 in coming years. At $1, this fee translates to $5 per month, or $60 per year for the average residential solar installation producing five kW per month, the equivalent of an $800 per year savings in energy costs.
At $3.50, the average total yearly cost would be about $210, or about 26 percent of solar customer savings.
CPS Energy calculations in Monday's proposed fee schedule projects the expected pay-back period for the average rooftop solar array to increase from nine years to 10 years during the grid and commissioning fee program's initial year. This initial year calculation assumes no increase of the price of installed capacity.
Fully phased in at $3.50 per for an average 5 kW system, the payback period jumps to 12 years. That estimate assumes a continued price decrease of installed capacity of about 10 percent per year (a "middle of the road" market forecast, according to CPS Energy), totaling a $4,010 assumed cost decrease over three years.
Local solar companies worry that this 10 percent decrease in the cost of solar may be too ambitious due to pending tariff cases (read more below).
"Ten years is the sweet spot for getting people to invest in solar," Sinkin has said in previous interviews. "Beyond that, people have a hard time imagining the return (on investment)."
After Monday's meeting, Sinkin said that once rebates are lowered and calculations are made in the future, the payback rate could be closer to 12-15 years.
"If (solar) prices don't come down as fast as expected, then we'll adjust" the phasing of rebate decrease and grid fee increase accordingly, Eugster said.
The city has nearly 1,600 total distributed solar installations, as of February 2014, adding 16.5 megawatts to the CPS Energy portfolio which aims to have 771 megawatts (MW) of installed solar power capacity by 2020.
The Board of Trustees is chaired by Homer Guevara Jr., an economics professor at Northwest Vista College. Nora W. Chávez, managing director of Texas Public Finance group for Stifel Nicolaus & Company, serves as vice chair. Other trustees include Derrick Howard, executive director of Freeman Coliseum, and Edward Kelly, retired president and CEO of USAA Real Estate. Mayor Castro is the board's ex-officio member, representing the City of San Antonio.
"This is related to 2,234 customers," Kelly said, suggesting City Council consider all ratepayers when weighing the proposed fee changes. "Solar is great ... but think in terms of the entire customer base."
Originally published on May 15, 2014:
CPS Energy unveiled a plan at its monthly solar stakeholder meeting Tuesday, to present to City Council a "grid fee" and "commissioning fee" for residential and commercial customers that have installed solar panels connected to the local grid.
The public utility also announced a $20 million-plus addition to its solar installation rebate program through the Save For Tomorrow Energy Plan (STEP) for 25 megawatt (MW) more of rooftop solar systems in San Antonio.
A team of CPSE representatives explained the preliminary plan to charge $1 per AC kilowatt (kW) of installed capacity, starting in July (assuming City Council approval) and increase to $3.50 in coming years. At $1, this fee translates to $5 per month, or $60 per year for the average solar customer that produces five kW per month and saves $800 per year on their electricity bill.
At $3.50, the average total yearly cost would be about $210 on average, about 26 percent of solar customer savings.
"Solar allows customers to drastically reduce their energy bills," stated CPSE Executive Vice President Cris Eugster in a statement posted on the CPSE Energized blog. "But the way utility rates are currently structured, CPS Energy doesn’t recover its cost of service from those customers. That cost includes maintaining the electrical grid, which solar customers still rely on to power their homes when the sun is not shining and to take any excess power their panels may generate."
The commissioning fee is a one-time, $450 fee for installation and inspection of solar meters and connection to the grid.
At a time when the solar industry is faced with dwindling local and federal subsidies, local solar advocates and companies worry that another fee will further cut into the energy bill savings that solar customers have enjoyed for years. Additional costs to the solar customer also increases the length of return on investment/pay-back period for systems which cost on average $21,000 without any rebates and about $9,000 with local and federal rebates.
“When we first started this (rebate program), we didn’t really have anything to base costs on,” said CPSE Vice President of Communications Lisa Lewis during an interview Wednesday. "Now we have a much more true sense of the cost ... The (grid fee) is associated with the (fixed) costs of maintaining the poles and wires that we all use."
Solar advocacy nonprofit Solar San Antonio Executive Director Lanny Sinkin said he was surprised during the meeting yesterday to hear the proposal. During a phone call on Wednesday, Sinkin said the Solar Working Group, established 11 months ago, was not notified during April's session nor was the proposal brought up during a May 8 solar roundtable discussion. According to Sinkin, these kinds of fees were merely an option up for consideration until Tuesday's announcement.
"It has us all shaking our heads," he said. "This lack of communication was what we were trying to avoid (by establishing) the Working Group – we were narrowing down the field to models that might work ... and then, bam, they go to the (CPSE solar stakeholder) meeting with this proposal."
Next, the proposal goes before a staff-briefed CPSE Board of Trustees for consideration at 1:30 p.m. on Monday. If approved by the board, the fees will go before City Council for a vote in June. The new fee program would only affect new solar customers that install after July 1.
Lewis said CPSE had been reviewing different pricing and fee options with many different groups during many meetings, found the grid and commissioning fee to be the most balanced, and presented their findings during Tuesday's meeting, which includes a broader base of industry stakeholders.
The Solar Working Group was established right after the SunCredit program was rejected by local stakeholders around this time last year. The SunCredit, proposed to replace the current net metering system, would have reduced customer credit by half and lengthened pay-back periods. After objections from the local solar industry, CPS put the SunCredit program on hold for one year, pending review by the public-private Solar Working Group to work out a mutually acceptable plan.
Welcome to a year later. CPSE is keeping its net metering system, but may be in for the same kind of industry push-back against the grid fee, Sinkin said.
"Each time someone reduces their consumption of electricity, their contribution to fixed costs is reduced ... So if I get a STEP rebate to make an energy efficient improvement on my home, I'm going to lower my (electricity) usage and therefore lower my contribution to fixed cost recovery," Sinkin said. But the fee only applies to those utilizing the solar rebate.
In addition to this possible new fee, the solar industry as a whole is facing the possibility of price increases this summer as international tariff cases make their way through the U.S. Commerce Department, which is "scheduled to make a preliminary determination on anti-dumping duties for China and Taiwan." These duties, which are imposed on foreign imports that the department believes are priced below fair market value, may mean a 25-45 percent increase of the cost of imported solar panels.
The 30 percent federal tax credit for commercial solar installation expires in 2016, dropping to 10 percent. The 10 percent credit drops to zero for residential systems.
"That's a cliff out in the future," Sinkin said, adding that the growing national campaign against solar energy gaining strength from fossil fuel industry stakeholders is another cause for concern.
For CPSE, however, the issue remains that of cost recovery.
"CPS Energy is doing more than just maintaining the grid. We’ve just begun a $290 million upgrade that will give it 21st century communication capabilities, increasing reliability, boosting efficiency and better able to integrate ever larger amounts of solar power into the system," stated Eugster.
"Transmission costs $1 million in a year total, if (solar customers) don't pay a portion of that, then it has to get paid by other customers," Lewis said. “Bills will never go down, the best we can do is slow how fast they grow” and make sure customers are treated fairly.
The additional 25 MW addition to the STEP rooftop solar rebate program will be spread out over several years in decreasing amounts of rebate per kilowatt hour (kwh), Lewis explained.
The expected "$20 million in rebates will be reallocated from other STEP programs," stated Eugster.
The first 10MW of projects will receive the current rebate, $1.60 per kwh. The next 10MW will receive $1.15 per kwh rebate.* The remaining 5MW of projects will receive a $0.70 per kwh rebate.
The grid fee increase will directly correlate with the rebate decrease, Lewis said. "The idea is to create certainty around what (customers) can expect for return on investment ... We can’t control whether or not the (solar) system is going to perform – you can’t calculate what the return on investment is if the fee is flexible.”
The CPSE board meeting on Monday is open to the public, but there is no citizens to be heard session.
Full disclosure: The Arsenal Group LLC, which publishes the Rivard Report provided consulting services to CPS Energy in 2012. Monika Maeckle, who co-founded the Rivard Report, now works for CPS Energy as director of integrated communications.
Featured/top image: Ralph Talbott stands with his rooftop solar panel array in San Antonio. Photo by Iris Dimmick.
*Correction: An earlier version of this article stated the second 10MW rebate at $1.50, it has been corrected to $1.15.