Arizona appeals court overturns extra fee on APS solar customers

In a unanimous ruling, the Arizona Court of Appeals overturned a controversial fee on Arizona Public Service customers who have solar panels on their homes.

When the the Arizona Corporation Commission approved an APS rate hike in 2024, it also allowed the utility to charge solar customers an extra $2-$3 per month to cover what it characterized as “extra costs” it incurs to provide power to those residents if their panels fail or don’t generate enough electricity.

A three-judge Arizona Court of Appeals panel found that regulators didn’t give opponents the opportunity to argue against that fee — and that APS never provided evidence that solar customers are responsible for increased costs.

The appeals court also concluded that APS never technically asked for the rate increase in the first place.

Instead, APS had sought an across-the-board rate increase on all customers.

“The Public Notice said nothing, in other words, about a rate increase that would apply only to solar residential customers,” the court found.

But the Arizona Corporation Commission approved it anyway after an administrative law judge overseeing the rate case backed the fee, relying on testimony from APS officials who testified that the utility faces extra costs to provide back-up power to solar customers.

That violated the due process rights of solar advocacy groups and customers opposed to the change, because they weren’t even informed the solar fee was on the table or given a fair opportunity to state their case, the appeals court concluded.

“Had APS’s application in the Current Rate Case proposed a solar-specific increase, we would have little trouble concluding that APS’s application and the Public Notice, read together, provided notice sufficient to satisfy due process,” Presiding Judge Daniel Kiley wrote. “But APS did not propose a solar-specific charge at any point during the initial proceedings.”

Kiley pointed out the Arizona Attorney General’s Office and two solar customers who challenged the fee in court did not participate in the original rate case because “they had no meaningful notice that a solar-specific charge was under consideration.”

Commissioners upheld the charge following a rehearing in the case requested by pro-solar groups.

Several of those groups — including Vote Solar and the Arizona Solar Energy Industries Association — and the Arizona Attorney General’s Office appealed the decision.

The history

Past commissions had approved special fees on solar customers after APS argued those customers weren’t covering their fair share of costs to maintain the utility’s grid, which serves around 1.4 million customers across Arizona.

But the regulators later rejected the solar charge in 2019 after finding APS had failed to provide evidence backing up that argument.

At the time, the commission left the door open to re-instate the charge if APS provided proof that solar customers were actually responsible for extra costs.

A few years later, a new commission approved the solar charge in 2024.

“$61 million dollars were imposed on APS’ residential customers that do not have solar. That means about one million customers have been paying the bill for those that have solar on their homes,” former Commissioner Jim O’Connor said in a statement at the time.

But the appeals court found APS never actually provided the proof to justify it.

“Although the Commission determined that APS does not provide any unique services to residential solar customers, the Commission nonetheless authorized APS to impose a unique charge on those customers,” Kiley wrote.

The appeals court ordered the Corporation Commission to either hold a new hearing on the solar fee or remove it from the rate case it approved, which would effectively stop APS from levying the fee on customers.

Solar advocates praised the court’s decision.

“This decision confirms what AriSEIA has argued from the beginning: Arizona's rooftop solar customers should not be singled out for discriminatory charges that were never properly proposed or supported,” Autumn Johnson, executive director of the Arizona Solar Energy Industries Association, said in a statement.

In a statement, Commission Chair Nick Myers did not say whether the commissioners will appeal the ruling, though he said he believed the fee would be upheld following a new hearing.

"The court indicated it would have had no problem affirming the GAC but for deficiencies in the notice going all the way back to 2019. We will wait for guidance from counsel before taking further action," Myers said.

An APS spokesperson said the utility is reviewing the decision.

"Arizona Public Service (APS) is reviewing the Court of Appeals’ decision regarding the procedural aspects relating to the solar charge implemented in the 2022 rate case and is assessing its implications. APS remains committed to providing safe, reliable service while supporting rates that are fair for all customers," according to a statement.