Nick Brown

AZ I See It

The opposition to cost shift, a meme of anti-solar utilities, has bothered me for a long time. To begin with, the notion that a cost shift is off-limits for utilities is contradictory to the universally accepted practice of utility rate-making.

If we didn’t think that appropriate "cost shifts" — charging some customers more or less than other — is a good thing because of social, environmental or economic benefits derived, we’d simply have a single rate for everybody. Instead, we have a ratebook of varying prices for different classes of customers, times of use and types of service.

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A great example of cost shift is SRP’s E-57 rate, which charges customers about half the standard residential rate for private security lighting.

We do this because we know that site security everywhere benefits us all. It’s a social good, and we’re willing to pay to assure that private property owners adopt it widely.

The E-36 rate charges stores, restaurants and small fabrication shops about half the price of most residential customers. This helps small businesses financially, and it's worth it to SRP customers because we all depend on their economic viability. Industrial customers pay lower rates, justified because they provide jobs, benefit regional commerce, and support local education and charities.

Cost shift can be bad, but not inherently

Other cost shifts are embedded in cheap fossil energy.

Cardio diseases, respiratory diseases and cancers are caused or worsened by air pollution from coal plants. But the costs of these problems ($3.7 billion a year from coal-fired electricity alone, according to the National Research Council) aren’t included in the utility’s price to ratepayers.

They’re cost shifted to people living near generating stations, hospitals that don’t recover the full costs of treating people with these diseases, and life and health insurance companies. Arizonans pay the cost in shorter, sicker lives; hospitals and insurance companies shift costs to other patients and policyholders.

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We’re also not paying for environmental degradation caused by climate change. Widespread fossil energy use contributes to loss of species, desertification, more frequent extreme weather, sea level rise and other environmental problems.

We’re causing these problems and leaving the cost of fixing them almost entirely to the future. This is an immense, unjust cost shift from today’s electricity customers (that’s all of us) to our children and grandchildren.

Any discount or incentive that we give one customer is a cost shift to another customer. But cost shift isn’t an inherently bad thing. It can be a positive, deliberate, strategic action. We give discounts to seniors and veterans, and most people think they’re justifiable.

We also incentivize customers for investing in innovation, engaging in civic-minded behavior, and for taking risks. We do this when usual cost recovery mechanisms don’t get us to our social and organizational goals.

Encourage rooftop solar with smart cost shifts

The Arizona Corporation Commission recently decided on a new framework for defining solar rooftop energy prices, but the actual market value of rooftop solar will be determined in upcoming rate cases.

We’ll continue to ask corporation commissioners to internalize solar’s benefits related to public health, the environment and climate into electricity rates.

Rooftop owners undertake capital expenditures that utilities would otherwise have to make to buy new generating capacity.

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They reduce utilities’ costs of transmission, distribution and environmental compliance. They generate nearly pollution-free energy, enhance local energy independence and support local economies. They reduce near-term costs of climate adaptation, long-term costs of climate remediation and future costs of climate disruption.

So when rate cases come around next spring, let’s demand that corporation commissioners incentivize homeowners to become solar rooftop owners by approving smart, justifiable cost shifts.

Nick Brown sits on the board of directors of Salt River Project and is a project manager for a Scottsdale-based energy engineering firm. Email him at nraybrown@gmail.com.