A policy that has helped boost the U.S. residential solarmarket could threaten the creditworthiness of investor-owned utilities, FitchRatings said July 18.

Net-energy metering, which requires utilities in many statesto pay customers retail prices for their excess solar power, is oftencriticized as subsidy that shifts the cost of electric service on to nonsolarcustomers. While the solar market is still small, accounting for only about 1%of U.S. power generation in 2015, the fear is that problems associated with netmetering could become acute if the residential sector continues to expandrapidly.

Fitch, which suggested increasing fixed utility charges,warned that inaction could lead to a "death spiral" in which utilityrevenues erode as ever-increasing power bills lead more customers to installrooftop solar panels. "Most in the industry at this point recognize thatrate restructuring is something that needs to happen, that net metering at fullretail rates is unsustainable from a utility business model perspective,"Andy Lubershane, principal researcher at IHS Inc., said recently at theIntersolar North America conference in San Francisco.

In rate cases during the past two years, state regulatorsallowed investor-owned utilities to increase fixed charges by about 12% onaverage, well below the approximately 50% increase companies had sought,according to Kelly Crandall, senior rates and research analyst at EQ ResearchLLC. Crandall expects the push to continue, with about 40 utility rate casesfiled so far this year.

Last year, the Hawaii Public Utilities Commission the value of net-meteringcredits for new solar customers by more than half. The change was "constructivefrom an IOU credit perspective," Fitch said. For the state's solar market,however, the move created a gloomy forecast, the Hawaii Solar EnergyAssociation said.

In Nevada, solar advocates are trying to reverse a net-metering ruling that all butkilled that state's solar market in 2015. Moody's the ruling, which net-metering servicecharges while reducing the value of credits, was credit positive for , a subsidiary ofBerkshire Hathaway Energythat owns Nevada Power Co.and Sierra Pacific Power Co.

"The conundrum for regulators and utilities from anenergy policy point of view is facilitating development of distributed … solarand its clean energy attributes without unduly burdening [non net-metering]customers with higher bills due to cross-subsidization," Fitch said in areport, "Net Energy Metering: A Secular Credit Challenge for IOUs."

Crandall said no utility has successfully transitioned awayfrom net metering. There is "a lot of value to thelaboratories-of-democracy approach and exploring it in different states, but it'salso going to create a lot of conflict and variation, and we don't know how itwill really end up," she said at the Intersolar conference.

While some solar companies have shown a willingness to workwith utilities on alternatives, others are clinging to existing policy, insisting that the value ofrooftop solar outweighs any costs associated with net metering.

The problem for regulators is that a lot of the benefitssolar advocates cite are difficult or impossible to measure, said Ed Randolph,director of the California Public Utilities Commission's energy division. "[That]doesn't mean those other benefits don't exist, but when you start getting intothose then you can spend years and years arguing over what the economic valueof those is," Randolph said at the conference. "And instead, thepolicymakers … have to admit there is an unquantifiable social good that weshould pay for, and there is nothing wrong with calling that a subsidy."

For utilities, the challenge is finding the right tariffstructure that can sustain their business in the face of new technologies. A "lowprobability risk" is that ratepayers one day could "economically andpermanently disconnect from the grid."

Widespread grid defection has yet to hit Hawaii, but theloss of net metering is having an impact, said John Berdner, vice president ofregulatory and policy strategy at Enphase Energy. "[We're] … seeing thesize of the residential systems increase sharply, because the cost of solar isstill low enough [customers] want to offset all of their load during the dayeven if they can't export it," he said.