Utility Costs vs. Charge Types Residential Inclining block, TOU-Energy Rates

1. Solar Rate Issues and Potential SolutionsPresented to RUCO Workshop May 2013Chuck MiessnerPricing Manager APS

2. Utility Costs vs. Charge TypesResidential Inclining block, TOU-Energy Rates

3. Self Supply versus Net Metering Consumption "Export " Net-Metering Solar Generation The potential for solar to shift costs to other customers is predominantly a rate design issue. Net Metering contributes by extending the issue to the nighttime load as well as the daytime load and seasonally to other months.

4. Potential Billing Gap - Summary

5. Utility Services $/kWh Avg. residential costs and rates are 12.5 cents per kWh before taxes, 13.8 cents with taxes. Larger homes pay higher amounts due to inclining block rates – 15 to 16 cents per kWh. Rooftop Solar provides only a portion of utility services – fuel and a portion of power plant costs. However, current policies allow a customer to avoid paying for all of the services, except metering. These other costs are paid by other customers through higher rates. Avg. Residential Med and Large Homes Services Provided by Solar

6. Other Perspectives Avg. Residential Med and Large Homes Some solar advocates believe that solar customers should get bill savings today, based on the projected growth in fuel and power plant costs over the next 20 years, not based on current rates. Some also believe that solar power creates other value which should also be credited against today’s bills. This total value is estimated to be 22 to 24 cents per kWh average over the next 20 years – double the current cost of all utility services. Services Provided by Solar

7. APS’s Perspective • This issue is not about APS retaining market share or revenues; it’s about fairness between customers. • Solar customers should receive bill savings based on the services they are no longer taking from APS (fuel and a portion of power plant costs), based on today’s rates. • These bill savings will grow over time to the extent that costs (and thus rates) increase. • It is not appropriate to base bill savings today on projected (marginal) costs in the future, because the projected cost are uncertain and APS’s rates are based on actual historic costs. • APS believe that solar advocates projections are high. Also, their claim of other benefits to utility are hypothetical and difficult to quantify. • APS could purchase solar power for the same 20 year time period for a significantly lower cost than the value of rooftop solar estimated by some solar advocates. • If regulators believe that rooftop solar should receive additional incentives beyond current rates, the incentives should be set in a transparent manner, outside of the utility rate structure.

8. DE Rate Equity IssuesPotential Solution Concepts Rate Design Concept DE generation serves a portion of the customer’s load; the utility serves the remaining load at a retail rate that is designed to appropriately recover the cost of service, considering DE’s impact on the utility’s costs. Excess generation is exported to the grid and may be compensated through net metering or net billing. Total DE Export Concept Total DE generation is exported to the grid and purchased by the utility at a purchase price, which considers DE’s impact on the utility’s costs. Customer’s total electrical load is served by the utility at the retail rate. Net Metering Currently APS offers net metering to all customers for up to 125% of their connected load, in accordance with Arizona regulation. Net metering may need to be revised as part of the solution. Incentives Incentives could be considered along with the proposed solution.