Arizona regulators freeze new gas projects, demand renewables

Source: Benjamin Storrow, E&E News reporter • Posted: Tuesday, March 20, 2018

Arizona regulators gave the state’s largest utility the cold shoulder last week, essentially rejecting Arizona Public Service Co.’s plans to double its natural gas fleet over the next 15 years.

Instead, they imposed a temporary freeze on most new natural gas projects and asked the power company to draw up plans for acquiring more renewable energy.

The decision sent tremors across the Southwest. Observers said they could not recall a time when Arizona’s utility commission, where Republicans control all five seats, had rebuffed a long-term plan from one of the state’s utilities. Greens heralded the move, saying it would speed the transition to renewables in one of America’s fastest-growing states.

“I don’t want to overstate national implications, but I do think it’s recognition that continued investment in natural gas is risky,” said Stacy Tellinghuisen, a senior climate policy analyst at Western Resource Advocates. “Commissioners are seeing clean energy is cheaper. They’re seeing that’s what the public wants. So I think this decision reflects all those factors.”

Arizona’s power sector is in a state of upheaval. Coal interests are fighting to stave off the retirement of an iconic plant that has long powered the state economy. Utilities and solar companies have battled over residential and commercial installations. And a former utility commissioner was indicted on federal bribery charges last year, prompting fresh questioning about the relationship between Arizona regulators and the companies they oversee.

That was the backdrop for last week’s deliberations at the Arizona Corporation Commission, which regulates utilities in the state.

Arizona Public Service’s 15-year plan called for adding 5.3 gigawatts of natural gas by 2032, bringing the company’s total gas capacity to 8.7 GW. By contrast, the company called for adding 183 megawatts of renewables. Roughly 702 MW of coal is projected to be retired in that time.

The utility’s plans forecast 3.3 GW of distributed solar, but those projections drew scoffs from environmentalists, who noted that APS has fought efforts to install panels on residential and commercial rooftops.

Commissioners ultimately expressed worry that the company had overestimated demand growth and did not sufficiently consider the impact of potential increases in natural gas prices on consumers.

They imposed a temporary moratorium on buying or building new natural gas capacity over 150 MW and ordered APS to return with plans to acquire more renewables.

“It’s time for this commission and those who can be held accountable to set the policy and set the plan, rather than the other way around,” Commissioner Andy Tobin said in an interview.

APS said it disagrees with the commission’s decision, saying it remains committed to a diverse energy mix. Natural gas can provide flexibility to support the growth in renewables, the company said.

“Our plan keeps Arizona on course for a cleaner energy future,” the company said in a statement.

Arizona utilities have long enjoyed a cozy relationship with the state’s regulators. Few, if any, long-term plans have ever been rejected by the commission, said Amanda Ormond, a former director of the energy office at the Arizona commerce department who now operates a consulting firm.

But the relationship between regulators and the companies they oversee has come under greater scrutiny in the last year, after a former ACC member was indicted on federal bribery charges.

Former Commissioner Gary Pierce is alleged to have accepted $31,000 in bribes in exchange for approving a water utility’s rate increase. The charges came on the heels of questions about APS contributing to the campaigns of its preferred ACC candidates.

The APS case represented something of a test for whether the commission would stand up to the power company, Ormond said. APS predicted steep demand growth despite the fact that electricity demand has been stagnant in recent years. It also heavily weighted its portfolio toward natural gas.

“I think if the plan had even somewhat more balanced, we wouldn’t have seen this outcome. But because it was all natural gas and no utility solar, the commission had no choice,” she said. “Utilities have a new bar they need to meet. They have to prove that putting more gas on the system is necessary and will provide value. That certainly wasn’t proven here.”