How Do I Cash-in My Renewable Energy Credits?

As a kid growing up in the Motor City, my parents did most of the family grocery shopping on Saturdays.  As the oldest child, it was my job to watch my three younger siblings until mom and dad got back from the store.  When the car pulled into the driveway and as paper bags filled with food were transported from car to kitchen, the four of us quickly inspected the haul for any evidence of pies, cakes or pop.  

The other thing we did on grocery day was to find the S & H Green Stamps distributed by the store for our parents’ patronage, and paste the strips of stamps into the redemption book.  We each had our own ideas about which toy, transistor radio or sports equipment we’d get once we filled out a sufficient number of books with the stamps.  I don’t ever recall getting any of the stuff we eyed in the gift catalog – it seemed like all the stuff we wanted took too many stamp-filled books and too many shopping Saturdays to actually come true.  And, if we shopped at the local A & P we got their Plaid Stamps rather than Green Stamps.  But, to us, the stamps, green or plaid, seemed as good as money.

So, last week RUCO, hosted a workshop and invited organizations and individuals to speak about renewable energy credits (REC), a kind of S & H Green Stamps program for rooftop solar installations.  

The way RECs work is that if you have installed a rooftop solar array on your house the amount of energy it generates also produces a paper credit, called a renewable energy credit.  The credits are based on the number of kilowatt hours of electricity the solar panels produce.  However, if the homeowner received a monetary incentive from the power company to help cover the costs of the rooftop system, the utility would claim the RECs as part of the deal and count them toward meeting the ACC-imposed renewable energy standard.  Once the utility company counts a REC toward its renewable requirements, the REC is “retired”, i.e. can’t be used again.

But, as rebates paid by APS and other utility companies for solar installations are phased-down to zero due to the rapidly declining cost of solar panels, there is no inducement to hand over the RECs to the utility company.  A homeowner could claim ownership of the REC for his or her own use – either to sell in a market for RECs (Arizona does not have such a market) or to convey to another party for use or sale.  A question arises then as to whether and how the utility company can demonstrate compliance in meeting the renewable energy standard imposed by the ACC.  Compliance under the ACC’s rules is based on RECs the utility claims and retires from these rooftop installations.

If this all seems rather confusing – it is.

On its face, it seems like a silly question, since a market does not exist in Arizona for the homeowner to cash-in any REC.  There is no gift catalog or redemption store.  Why not allow the utility to count the rooftop solar production in some fashion toward the renewable standard?  It would seem the overall goal of producing cleaner energy by both homeowner and utility is clearly the more important point than attributing credit, especially if the homeowner has no place to redeem or trade the REC.  

Net Metering in Arizona:  Fair or Not Fair?

Many organizations use public relations firms for one reason – spin a story for public consumption that paints their clients in a favorable light while demonizing the other side – whether accurate or not.  That’s how most political campaigns operate.  Sometimes the spin is effective, because the truth is ignored and/or distorted.

Well, there’s a PR campaign underway in our State which has been organized and funded by the rooftop solar industry.  It’s championed largely by out-of-state corporations.  They’ve created a cover organization called Tell Utilities Solar won’t be Killed (T.U.S.K.) and even enlisted a former California congressman with a familiar Arizona family name as their spokesperson.  Their goal is to continue the current level of subsidies built into the arrangement where utility companies are required to buy-back excess power produced by homeowners’ solar systems at high retail prices – buyback prices the solar industry considers fair.

But, fairness, like beauty, is in the eye of the beholder.

While it is true that the excess power produced by rooftop solar systems and sent to the grid has a value to the utility, that value lies in avoiding the generation costs or wholesale power costs that the utility would otherwise have to cover.  Homeowners with producing solar systems should be fairly compensated for this value.  However, the utility company still has to cover the costs of transmission and distribution of the electricity – both to the solar owner’s house and away from the rooftop to other customers.  Because net metering as currently priced requires the utility to buy power back at fully delivered retail rates, these additional, unrecovered distribution costs are simply transferred to other customers through rate surcharges and other cost recovery mechanisms.

Without these cost transfers and high buyback rates the solar companies would have a more difficult time convincing homeowners that solar is a profitable investment.  Their business model is built on the assumption that utility customers who don’t have solar on their homes will be forced to pay these subsidies, i.e., a retail price for wholesale electrons.

Innovative Ratemaking at the ACC:  Financing Aging and Deteriorating Water Systems in Arizona

AIC’s 2008 study of infrastructure requirements over the next two decades projected that in the areas of energy, telecommunications, transportation and water/wastewater systems, the funding for meeting the State’s needs in these four areas would be about a half trillion dollars – a huge number.  

Existing funding mechanisms like taxes and utility rates at the levels established in 2007 and 2008 would provide for financing some of these needs, but not all.  

For water/wastewater systems, a funding gap of $30 billion faces system operators to make necessary infrastructure improvements, to acquire new water supplies and to operate and maintain these systems.  According to our study, undertaken by economists from Arizona State University, “The water/wastewater systems built decades ago are now due for replacement – what the American Water Works calls the “dawn of the replacement era” is upon us in Arizona.

For investor-owned water/wastewater companies, the Arizona Corporation Commission plays an important role in infrastructure investment.  The ACC doesn’t make the investments itself or manage how the utility companies use their money, but it does set and control the rates these companies can charge for providing safe and adequate service to their customers.  Setting rates sufficient for utilities to attract investment capital for replacing and repairing deteriorated pipes and water plant is a critically important aspect of rate setting by the ACC.

So, in a current case before the ACC involving Arizona Water Company, which provides water service to several communities throughout the State and has serious infrastructure replacement needs, the ACC has signaled its desire to consider innovative ratemaking mechanisms to speed-up the cash flow to the company for financing and making these needed improvements.

Haircut on the Horizon for Suntech Investors?

"I am pleased to welcome Suntech to Arizona, and commend the company for choosing Goodyear as the site for its solar manufacturing operation." I am very serious about establishing Arizona as a leader in the renewable energy sector -- we offer a strategic location with a highly skilled workforce, low payroll taxes, and, now, the right incentive program to make business sense."  Governor Jan Brewer, January 27, 2010.

Well, in the past few days, Suntech defaulted on financial obligations to creditors and was forced to file bankruptcy in China.  The bankruptcy ends future production at Suntech’s only U.S. manufacturing facility in Goodyear, Arizona, which is now scheduled to close early next month.  The remaining 43 employees at the plant will lose their jobs.  And, American investors now stand at the end of the line in Chinese bankruptcy proceedings trying to recoup hundreds of millions of dollars invested in the company. 

Suntech began operations at the Goodyear plant in 2010 employing 70 workers producing 30 MW of solar panel capacity annually, with plans to ramp up production to 120 MW employing 200 workers at capacity.  The plant reached production of 50 MW in mid-2011 before financial distress forced cutbacks.  Last November, Suntech laid-off 50 workers, blaming trade tariffs imposed by the federal government imposed on materials imported for its manufacturing process.