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Arizona weighs fate of key solar power subsidy

By Nichola Groom

LOS ANGELES, Nov 13 (Reuters) - Arizona utility regulators on Wednesday began considering the fate of a little-known solar subsidy that, if altered, would be a major blow to the burgeoning U.S. rooftop solar industry in one of its biggest markets.

The outcome of the long-awaited two-day hearing is being closely watched by utility and solar players far beyond the Grand Canyon State. In Arizona and elsewhere, the two industries are increasingly at odds over a policy known as net metering, which allows homeowners with rooftop solar systems to sell the power they don't use back to their utilities at retail rates.

Arizona became the nation's top battleground over net metering when its biggest utility, Arizona Public Service, earlier this year sought approval from regulators to either add a charge to solar customers' bills or to lower the price at which it will buy the excess power their panels generate.

The utility argued that the dramatic growth of residential rooftop solar in its service territory - systems are being added at a rate of about 500 a month - has shifted $18 million in annual costs to non-solar customers.

If the Arizona Corporation Commission adopts either of APS's proposals, companies like SolarCity Corp, Sunrun and others who finance or install residential solar systems could see the critical part of their sales pitch - monthly payments that are lower than their utility bills - erode significantly.

That would be a big setback to solar businesses in Arizona, which was the No. 2 state for photovoltaic solar installations in the second quarter of this year. The state's solar industry employs about 10,000 people.

The hearing in Phoenix kicked off with a morning of testimony from members of the public, most of whom said they were solar system owners and against the APS proposals. The chief executive of SolarCity, the nation's top solar panel installer, also made an appeal to the five-member panel.

"The truth is APS is afraid of the competition and doesn't want to give consumers the control," SolarCity CEO Lyndon Rive said.

The Commission members, who are elected officials, are expected to vote on the issue on Thursday.

Challenges to net metering have cropped up in several states in recent years, but it has yet to be rolled back in any of the 43 states with such policies. Utilities have argued that solar customers in states with net metering policies enjoy the benefits of being connected to the electric grid without shouldering the costs to maintain it. They argue that as more homeowners go solar, those costs will be spread out over fewer and fewer utility customers.

The solar industry, meanwhile, says net metering is critical to making solar affordable and underpinning the whopping 76 percent growth rate in U.S. solar installations last year.

In Arizona, the two sides in the last few months have waged high-profile ad campaigns to win over the public.

APS's parent company, Pinnacle West Capital Corp, said earlier this month it had spent $3.7 million on lobbying efforts tied to the net metering issue in Arizona.

The Alliance for Solar Choice (TASC), whose members include SolarCity, Sunrun, Sungevity, Solar Universe, Verengo Solar and REC Solar, had spent more than $335,000 as of Oct. 31 and planned to spend an additional $100,000.

Arizona Corporation Commission staff have recommended the Commission take no immediate action on net metering and instead evaluate the issue during APS's next rate case in 2015.