Arizona net metering battle ramps over taxation concerns

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Battles in Arizona between the state's largest utility company and the solar industry have been ratcheted up after a business coalition filed controversial analysis to regulators claiming that federal tax credits would be replaced by federal taxes.

In July, Arizona Public Services submitted proposals to the Arizona Corporation Commission that would replace net energy metering with a feed in tariff that would give solar customers $.04c per kilowatt hour even though the utility could sell it for full retail value at $0.12c or more.

In addition to a lower value for solar, customers would also be liable to pay income tax on the electricity they sold back to the utility, effectively killing off any economic incentive according to The Alliance for Solar Choice (TASC).

TASC submitted the memorandum earlier this month from Skadden, Arps, Slate, Meagher & Flom, a top US legal firm determining that all residential solar systems using feed in tariffs would be subject to income tax. There are around 36 FiTs across the US in which 100% of the electricity generated is sold to the utility, and therefore regarded as a business. However, net energy metering (NEM) is not subject to income tax but can also monetise the federal tax credit at 30%. NEM also requires utilities to pay customers for the retail value of the solar.

“APS offers the commission a choice of two poisons, the first of which would require residential customers to deliver all output from on-site,” TASC told the ACC in a letter. “The memorandum confirms that such a requirement will essentially exchange federal tax credits for federal taxes, reversing the existing flow of money into Arizona. The APS proposal will jeopardise Arizonan’s access to the federal residential tax credit. Moreover, payments received by an APS customer under the APS proposal will likely increase the customer’s taxable gross income.”

Bryan Miller, president of TASC and vice president of public policy at Sunrun, said that APS was trying to eliminate the solar industry in Arizona by replacing NEM with FITs.

“At 4c per kwh, FITs are completely uneconomic and far below the value that APS would receive and would result in the destruction of the industry. It's a very black and white position for us, we've got to make sure that APS does not succeed in taxing the solar industry out of existence.

“The memo is going to raise questions across the country because the analysis is equally applicable in California, Minnesota or Austin, Texas. Utilities love FiTs because they allow utilities to keep the solar market in a constant state of flux, in a constant state of suspension, never knowing from year to year or regulatory decision to regulatory decision on what the market is going to look like and that makes it impossible to grow and scale a business.

Results of a new poll on public attitudes to APSs attacks on solar released today revealed that an overwhelming majority of Arizonans across party lines oppose their efforts.

When asked about plans by APS to replace NEM with taxable FiTs for rooftop solar, 83% said the plan should be rejected. The poll used APS’ own proposal language to test public support. In addition, three quarters of the 300 participants in the poll disagreed that more rooftop solar would increase costs for non-solar customers.

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