Utility regulators have proposed easing up on the incentives that Arizona Public Service Co. offers to help pay for solar panels on homes and businesses, which has prompted immediate protests from solar companies.

The monthly tariff that residential APS customers pay to fund solar projects still is likely to increase in 2012 to about $5.54 a month from about $4 a month, but the amount of money for incentives is not as much as some of the solar-installation companies had expected.

The tariff could rise to as much as $6.41 a month under one proposal from APS, but the Arizona Corporation Commission staff is recommending a smaller increase because the utility can get as much renewable power as it needs without collecting and spending that much.

The Corporation Commission requires APS and other utilities to get increasing amounts of electricity from renewable sources like solar until they are getting 15 percent of their power that way in 2025.

Each year since 2006, when the renewable-energy requirements were put in place, the tariffs increase to pay for the increasing amount of power from renewables.

Businesses pay a tariff capped at about $150, and the large-business cap is about $450.

The money pays for contracts to buy power from big solar and wind farms and to subsidize rooftop solar panels, among other renewable-energy initiatives.

APS gave the regulators three options for its 2012 renewable-energy plan. Because the company has so many rooftop solar projects, especially those on large businesses, it could have met the state requirements for those power sources without any new investments in 2012.

The company gave regulators other suggestions to maintain some funding for those projects. But the commission staff recommended keeping the increase as small as possible.

Part of the reason, according to the staff report, is that the cost of solar panels has fallen, meaning the industry needs fewer subsidies to be price competitive with traditional power sources. The report said the reduced incentives are aimed at keeping consumer prices low.

Incentives for residential and commercial solar projects would both decrease under the recommended plan.

“Staff believes that the (current) incentive for residential upfront incentives has shown that there is a strong market for residential (solar) systems,” the staff report said.

The five elected commissioners likely will vote on the final tariff sometime this month or next.

Solar-industry proponents argue that if the pot of money for subsidies shrinks too much too fast, it could cripple an emerging solar industry that the state officials are striving to foster.

“Arizona was just named the third-largest state for jobs in the solar industry,” said Court Rich, an attorney representing installation company SolarCity. “If you cut the budget by 70 or 80 percent across the board, you are crushing jobs. If (the commission) wants to talk about this in the future when the economy isn’t miserable, maybe that would make some sense. Not now.”

The five elected commissioners don’t have to accept the recommendation in the staff report, although it is a likely indicator of the direction they will choose.

The commissioners don’t commonly discuss their positions on such matters before taking a vote, but some of the correspondence that they have placed on the record for the rate case hints at where they are leaning.

Commissioner Brenda Burns filed questions on the case record in September, asking APS if the company would be investing in renewable energy at all if not required by the state and what year the company anticipates that incentives for renewables will no longer be needed.

She also asked the company what the customer surcharge is anticipated to be for the next five years.

The standard requires not only that utilities get a certain amount of electricity from sources such as solar and wind, but that it get a certain amount of that power from “distributed” sources like rooftop solar rather than large power plants, and some of the distributed power is from homes and some from businesses.

APS had proposed eliminating the rebates for solar on businesses for a few years since the company is meeting the requirement for those power sources, but the staff recommended keeping some funding.

“Staff believes that APS needs to continue a reasonable level of support for (commercial) projects over the next five years,” it said.