UES Electric drops mandatory demand charge proposal, except for new solar customers

Dive Brief:

UES Electric, which serves customers in northwest and south central Arizona, amended its proposed rate plan now before the Arizona Corporation Commission, dropping mandatory demand charges for standard customers.
The new rate plan proposes a choice of two three-part rate plans for new rooftop solar customers, both of which include a demand charge. Net metering rates would drop from about $0.11/kWh to $0.06/kWh — about the price of solar from utility-scale facilities, according to the Arizona Daily Star.
Standard customers and customers with rooftop solar installed by June 1, 2015 would be grandfathered under the current net metering plan and two-part rates. Standard customers would retain the two part rate structure with fixed fees and volumetric charges.

Dive Insight:

Utilities looking mitigate the effect rooftop solar panels might have on their revenues are exploring the inclusion of demand charges in their rates.

In Illinois, Commonwealth Edison introduced legislation that includes a demand charge. Oklahoma Gas and Electric also is proposing changes in its rate structure, including implementing a mandatory demand charge.

Arizona, however, is the furthest along in those efforts. Municipal utility Salt River Project earlier this year implemented a mandatory demand charge on its customers.

UES Electric — which serves 93,000 customers in Mohave County in the northwest and in Santa Cruz County in south central part of the state — about a year ago filed a rate request with the Arizona Corporation Commission seeking approval for a three-part tariffs – energy, fixed and demand charges – for new solar customers, with an opt-in feature for standard customers.

Ahead of hearings in March, ACC staff recommended that all residential customers be included in the three-part rate structure.

That proposal generated backlash among consumer advocates and the solar industry, which argued the demand charges would undermine its value proposition in the state.

In the end, UES asked the ACC to approve a rate structure under which standard customers would have a choice of five different rate plans, including option for demand charges and time-of-use rates. New solar customers would be given a choice between two three-part plans. Both of those options would include some form of demand charge.

“Three-part rates give customers more control over their electric bills and better reflect out costs,” spokesman Joe Barrios said.

The UES rate case was watched closely in Arizona, as it could affect the proceedings on a similar proposal from its larger sister utility, Tucson Electric Power (TEP). Last November, TEP proposed a new rate plan with lower net metering rates, higher fixed fees and demand charges for solar customers.

TEP serves about 420,000 electric customers of which about 10,000 have rooftop solar. About 2,000 of UES's 93,000 customers have solar. How Arizona reuglators rule on their two high-profile rate cases could set an example for regulators in other states wrangling with how to reform net metering rates.

UES Electric and its sister company, UES Gas, are both subsidiaries of UniSource Energy Services (UES). UES and Tucson Electric Power (TEP) are both subsidiaries of Fortis, Canada’s largest investor-owned electric and gas utility.