Arizona regulators give tentative OK to new clean-energy rules 

Arizona’s state-regulated electric utilities will be required to get 100% of their power from carbon-free sources by 2050 and at least 50% of their power from renewable sources by 2035, under new rules tentatively adopted Thursday by the Arizona Corporation Commission.

In amendments to a package of clean-energy rules still awaiting final approval, the commission also voted to require major utilities including Tucson Electric Power Co. and Arizona Public Service Co. to cut their carbon emissions in steps to 100% by 2050.

The regulators during a virtual open meeting also approved a measure requiring the installation of energy-storage systems with an overall capacity of 5% of each utility’s peak demand by 2035, with 40% to be customer-owned or -leased systems.

In mid-October, the Corporation Commission gave tentative approval to part of the new rules on energy efficiency that would require utilities to implement enough energy-saving measures by 2030 to offset 35% of their 2020 peak demand, up from an existing requirement to use efficiency measures to meet 22% of their energy demand by this year.

The new standards – which count power from APS’s Palo Verde nuclear plant as a carbon-free “clean energy” source – replace the state’s current renewable-energy standard, which requires utilities to get 15% of their power from renewables like solar and wind by 2025.

Once finalized, the rules will bring Arizona more in line with other states that have beefed up their clean-energy mandates since Arizona adopted its initial rules in 2006.

The clean-energy standards passed as an amendment proposed by Commissioner Sandra Kennedy on a 3-2 vote, with Democrat Kennedy joined by Republicans Bob Burns, the panel’s current chairman, and Commissioner Boyd Dunn.

Republican Commissioners Justin Olson and Lea Marquez Peterson voted against the standards, with Olson contending the rules exceed the commission’s constitutional rate-making authority.

Kennedy said it was time for the commission to adopt stronger clean-energy standards, citing higher mandates in other states and goals set by TEP and APS that are far more ambitious than the current state mandate.

The amendment adopted Thursday requires the utilities to reach interim carbon-emissions reductions of 50% by 2032 and 75% by 2040 before reaching 100% in 2050.

“The majority of other states in the West have both carbon-emissions reduction standards and renewable-energy standards, or clean-energy standards,” Kennedy said. “The renewable-energy standard is necessary to signal support for Arizona-based, inexpensive renewable energy pathways to reduce our carbon.”

She noted that APS has a goal of providing 45% renewable energy by 2030, and TEP has pledged to deliver more than 70% from solar and wind by 2035.

DRIVING UP RATES

Marquez Peterson said she supported the proposed carbon-emissions standard, but she could not vote for the renewable-energy standard, adding that she thought that the measure would replace the renewables measure.

“I’m not in favor of a renewable-energy mandate,” said Marquez Peterson, a Tucson resident and former longtime CEO of the Tucson Hispanic Chamber of Commerce.

Olson said he could not support the clean-energy mandates because they are bound to impose additional costs on consumers, and so would violate the commission’s constitutional mandate of setting “just and reasonable” utility rates.

“I cannot adopt a mandate that is intended to drive up rates, and it seems that is the intention here,” said Olson, citing estimates that Arizona ratepayers have paid more than $1 billion in higher electric bills since the original renewable-energy standards were adopted in 2006.

Olson also noted that in 2018, Arizona voters overwhelmingly rejected Proposition 127, which would have required nongovernmental electric companies in the state to generate 50% of their power from renewables by 2030.

“The ratepayers told us loudly and clearly they do not want these mandates that drive up their rates,” he said, adding that the rules may exceed the commission’s constitutional ratemaking authority and address environmental issues outside the panel’s jurisdiction.

But Burns said the comparison with Proposition 127 is “apples to oranges,” noting that the rules have built-in flexibility and future commissions could change or refine them.

“That (Prop. 127) would have locked us into an unchangeable system that could create all kinds of havoc,” said Burns, a former legislator who will leave the commission in January after serving the maximum two terms.

“This is making recommendation to the next commission, and it may or may not go beyond that,” he said. “I think the importance of having the standards or the mandate, or whatever you want to call it, is it’s important for the economic development of the state.”

Burns noted that companies contemplating moving to the state want to see a commitment to clean energy to align with their corporate goals.

Dunn said Proposition 127 failed largely because it was being funded and pushed by an out-of-state group.

“Voters didn’t like an outside group coming in with that, but we’re stepping up and doing something different.”

The commission voted down a proposal by Olson that would have essentially required utilities to acquire the lowest-cost available power, along with a follow-up amendment that would have limited any excess costs to meet the rule to $1 million annually for each utility.

FLEXIBILITY, NEXT STEPS

The proposed new rules will have some flexibility – utilities can seek waivers to the rules on a case-by-case basis and are specifically allowed to acquire power that doesn’t meet the clean-energy goals if it’s required to meet reliability needs or handle emergencies.

The commission also exempted the state’s rural electric distribution cooperatives like Trico Electric Cooperative from a new resource-planning process, instead designating each co-op’s board of directors to serve as stakeholder groups to oversee their load-forecasting and resource-planning processes.

But the rules will apply to the Arizona Electric Power Cooperative (AEPCO), a generating co-op that is owned by member distribution co-ops and operates the Apache Generating Station.

The Corporation Commission was nearing agreement late Thursday on a new resource-planning process for four “load-serving” utilities – TEP, sister rural utility UniSource Energy Services, APS and AEPCO, which have for decades been required to submit their 15-year “integrated resource plans” to satisfy future power demands to the commission in each evenly numbered year.

Under the new process, the commission will review load forecasts from each utility and a new “all-source request for proposals” for new power sources, with input from stakeholder groups.

The commission’s staff was instructed to pull together various amendments related to the new planning process for a vote on the overall clean-energy rules package at the next available open meeting.

The panel’s next open meeting is scheduled for Nov. 4 and 5, with a contingent date of Nov. 19, but the commission could also schedule a special open meeting to take up final consideration of the rules.