az4ccc

Bringing Community Choice Energy to Arizona

Moving from Business as Usual to Community Choice Energy

Shelley Gordon

Moving from Business as Usual to Community Choice Energy

New Choices for Arizona Cities and Counties in the APS Utility Service Area

Based on Testimony to the Arizona Corporation Commission by Russell Lowes, 8/28/2020, revised 6/4/2022

Electric ratepayers in our state have a choice, if the State of Arizona authorizes us to do what ten other states have already done. We will have the choice to move away from “business as usual” to a new Community Choice Energy (CCE) scenario relying heavily on renewable energy, energy efficiency, solar, battery storage and some wind. The benefits will be high. A typical household will save a substantial amount of money on monthly bills and will dramatically reduce carbon emissions.

Lower economic status individuals and families are disproportionately affected compared to higher income earners. Hence, to opt for a lower cost CCE scenario will help achieve energy equity in Arizona Public Service (APS) territory. Conversely, to opt for the higher-cost scenario of expanding the old APS mix would continue to create economic hardship for many ratepayers.

The current APS breakdown of energy options, as of 2021, includes power production mostly through nuclear and fossil energy, with some solar and efficiency. The new CCE scenario would bring a reduction in the cost of expansion, compared to the old mix, by about 29%, after about 4 years. The new scenario with CCE would also bring about an extreme reduction in CO2 emissions, by about 63% after a CCE operates for 4 years and 96% after it is 8 years old.

In the accompanying spreadsheet, you will see the detailed assumptions of this. I compare the current blend of energy options, projected forward with new expansion, with the potential new CCE scenario.

In the accompanying spreadsheet you will find the current APS energy mix, assuming the same projected future mix and associated costs of each technology for electrical expansion (that is, the cost of expanding with new power capacity for nuclear, coal, gas, solar, etc.) and that is in Table 1, in light blue, to the left. Table 1 also includes CO2 emissions and water consumption of power plants.

Table 3, in light purple, to the right, lists the energy mix and the costs, CO2 output and water use of a Community Choice Energy option.

Both the APS mix in Table 1 and the CCE mix in Table 3 are based on future costs of electrical capacity additions, given current cost estimates for newly procured energy. Similarly, both Tables 1 and 2 refer to Table 4, at the bottom, cream-colored, which is a recalculation of energy imported by APS to spread this imported energy into the mix of the different types of electricity APS currently produces. This recalculation is reflected in the first, light blue block (2nd column); this recalculation Table 4 shows how the percentages in APS household estimates in the 2nd column of Table 1 were derived.

The green “Summary” section below the three top tables shows the dollars saved per household per month, as well as the savings in CO2 Emissions per month and the water use for the CCE household per month. The bottom line is this: to steer away from expansion of the current mix of energy for new capacity, and to embrace a typical CCE strategy will cause a monthly savings for a family in APS territory of about $37 per month, about a 29% cost reduction compared to expanding with the current blend that APS lists in its latest annual report.

As large as this cost saving is, the savings in CO2 produced from the switch is stunningly high. After about 4 years of operating a CCE, a typical household using 750 kilowatt-hours per month will reduce their CO2 output from an existing 818 pounds a month to only 300 pounds. This is a reduction of 518 pounds of CO2 per month, or 63%! After about 4 more years, after the CCE goes from 80% renewable to 100% renewable with storage, the CO2 life cycle output will decrease to 31 pounds, a 96% reduction from the APS business as usual scenario.

Water reduction from cooling power plants will similarly go down. After 4 years of operating a CCE it should go from 338 gallons per month to 78 gallons, a 77% reduction. After another 4 years, at age 8, the CCE use should go down to 13 gallons per month, a 96% reduction in water use.

Clearly the move away from the outdated paradigm of energy toward the new Community Choice Energy approach will be better for families, our overall economy, and our environment.

 

Bio, Russell Lowes

My background is in power plant economics and I testified as an expert witness before this Commission in 1986 on the economics of the Palo Verde Nuclear Generating Station (PVNGS) and the alternative coal plant option. As the lead author of the book with 3 other authors, Energy Options for the Southwest, I projected PVNGS construction cost at $6.1 billion, while APS projected $2.8 billion. The plant was completed at over 100% more cost than APS had projected and within 4% of our projection, at $5.9 billion. This is one of the most accurate nuclear plant cost projections in the nation, see https://tiny.cc/EnergyOptionsSW.

Lots of Solar… Many Missed Opportunities for Arizona

Last week I had the opportunity to talk to John Mittman, Board Chair of the Arizona Solar Energy Industry Association.  John is also Vice President of Distributed Energy Resources at Veregy.

Here are some of the highlights from our conversation.

First, Arizona Solar Energy Industry Association – or AriSEIA — is a 501c6 nonprofit trade organization, representing the solar and storage industry, solar companies, solar friendly businesses and others interested in advancing solar and storage technologies in Arizona. AriSEIA educates the public and key decision makers about solar storage technologies and energy efficiency, and ultimately increasing the use and implementation of storage and solar throughout Arizona. Over 40 members representing commercial, residential and some utility scale solar developers as well as industry advocates are working to advance solar in the state.

So what does the solar landscape look like in Arizona?

Arizona is ranked fifth nationally in solar production, which is an improvement over last year. As of Q2 2021, solar was generating 6,100 MW of energy, which is up by over 500 MW from last year. So, 23% of Arizona’s electricity is generated from solar. A majority of that is at the utility scale, through APS, SRP and TEP.  So roughly 8% of the grid is solar today.  But Arizona has the most potential for solar since it is one of the sunniest places in the country throughout the year.  There is definitely a greater market opportunity that we’re not taking advantage of.

So, the question remains, why isn’t there more solar?

For the most part, each of the utilities have made public commitments to move forward with large utility procurement efforts for solar and storage over the next five to ten years. Today most of the solar is coming from the utilities, where they have large, centralized power generation. And they’re also looking at adding energy storage to those power plants. Essentially, the utilities want to maintain control of solar and storage as much as possible.

There was a big shift over the last decade with rate schedules, net metering and rate tariffs that basically made it less valuable, especially in APS and SRP territories, for customers to adopt solar. Although the latest APS rulemaking related to home solar charges will help increase residential and commercial solar for APS customers.

But SRP is taking big steps backwards and has essentially gotten rid of net metering. As a solar developer, I (John) don’t even have solar on my house because I live in SRP territory and it wouldn’t produce any savings. Instead of encouraging customers to install rooftop solar and paying them back for surplus energy, SRP still has control of utility scale solar systems. There is still a real lack of progress in enabling customers to put solar on their own premises. It’s really challenging to make projects work in SRP territory because of that kind of nonfriendly value equation.

What about rooftop solar and new construction?  Is that a potential area of growth, given ongoing construction projects, here in the Valley and across the state?

Solar development with regards to new building construction varies depending on what the construction project is, whether it’s commercial or residential.  But it is a missed opportunity. It should be part of a long-term plan and something that AriSEIA would love to support, and it would certainly make it easier for customers to go down the route of solar adoption. Cost-wise, you’re talking about a savings of 30% to 50% in energy costs and that is significant.

But even if municipalities mandated their own building codes, the legislature in recent times has challenged any kind of progressive municipal policies. Even trying to move energy efficiency policies forward with new building construction has prompted the state legislature to pre-empt cities. So, if municipalities were to push for a policy like this, it would be met with some preemptive challenge.  A legislator could file a challenge with the attorney general stating that a municipality is in violation of state law, and that municipality would be at risk of having funds pulled when it comes to budget allocation.

Has the solar industry been impacted by supply chain challenges of so many industries?

Due to international trade conditions with supply and demand of solar panels and inverters, and commodity prices on steel, aluminum, copper going up over the last year, plus the labor market being continually challenged with all the other construction going on, we’re seeing about a 10% increase in solar in Arizona.

This is concerning, especially in an industry where the conventional wisdom is that prices continue to go down. And as folks like our company try to do business, the expectation is still there. It’s a lot more pressure to try and perform at that level. But we did have some good news recently. The import tariffs that were put in place by the Trump administration are expiring.  Also South Asian manufacturers of solar panel components will no longer be able to dump excess product in the US market, sell at a loss and undercut US pricing.

Let’s talk about Community Solar. Tell me your perspective on that.

ARISEIA is supportive of ANY efforts to expand solar throughout the state of Arizona. Community Solar would be more of a centralized project that would support dozens, if not hundreds of local facilities. Based on that definition, I think it’s interesting in places where there are more shared community spaces that would accommodate solar at that scale.  But this would not be a market for smaller solar developers.

In a city like Phoenix community solar would be more challenging because there isn’t a lot of land available. But in other communities like Payson, or up in Coconino County that have more land community solar would be an opportunity. It certainly would add a lot of resilience at the local level as well, which is an important element of grid stability.

Community solar is straightforward. It’s no different than most utility scale or largescale power plants. The challenge is on the policy side and the pushback from legislators. But on the Corporation Commission side, Commissioner Kennedy would be an advocate and possibly Commissioner Tovar.

I would be interested in your opinion of CCA.

I think it’s an interesting concept. And I think, as an industry group, we generally support anything that advances solar energy and energy storage.  It does seem like it’s a few years out, at least before really being attainable. And that’s just because, again, with the policy landscape, how do we remove obstacles to Arizona being the market leader in solar?  We would need progressive policies to put us in that position.

I would think that if you’re able to get to the deregulated market, you definitely have a more favorable body in the Commission that would be willing to consider it. But as we’ve seen efforts to move forward with deregulation here in Arizona in the past is a steep hurdle to climb. But I do think people are coming around slowly.

Mainly you have the utilities saying they don’t want deregulation. And one of the main talking points is using Texas as an example of deregulation and rolling brown outs, how that could happen in Arizona. And what do we do to homeowners in the middle of summer when it’s 120 degrees and they don’t have electricity?

I think you would have to use statistics and evidence backed arguments and say what a deregulated market could bring. But I will also point out the utilities are using the most recent Texas debacle where the entire grid went down for reasons why deregulation is bad. So Texas is a prime example as to why not to do something, and it gets used quite a bit as talking points, whether or not it’s true.

So how do we get to a deregulated market?

I think there’s a misconception about deregulation. And in Texas, if you look at ERCOT, the issues there stemmed from a lack of investment at the transmission and distribution.  I think if, in theory, the vertically integrated utilities in Arizona were required to divest from their generation or transmission assets, creating a nonprofit transmission operator, we would still include coal, natural gas, and existing assets that provide that baseload security. But solar would be the dominant energy.  So I don’t think that deregulation would really change our energy security as long as it’s managed properly at that level with the right kind of planning. We would need a regional transmission operator for that to happen.

But I think what it would do is eliminate the obvious conflict of interest that we constantly battle with vertical utilities that don’t want to give up their generation control. We need to transition from utilities of old being centralized to having distributed assets that can manage those same grid outage situations. Theoretically, it’s a lot more efficient to have local generation.  But you have a lot of vested utility interests that don’t want to go down the deregulation path because of what it would represent to shareholders. It throws them out of that whole utility category altogether.

AriSEIA partners with other solar advocates like Solar United Neighbors and the Sierra Club and we aim our efforts toward the Corporation Commission where we think we have a better chance of moving favorable energy policy, like deregulation, along. We partner with other advocacy groups aimed at legislative efforts. We have to pay attention to both branches of government.

 

Arizona needs to roundly reject Texas’ failed model of predatory electricity marketing

By Duane Ediger

No surprise $17,000 utility bills, please!

Arizonans can be grateful that Texas gave us a warning about a misguided effort in AZ to open the retail electricity market to a wide swath of deceptive practices.

A frigid February arctic wallop knocked out electric service across Texas.  But many customers whose service continued may have wished it hadn’t.

Scott Willoughby of Royce City, Texas, had a typical monthly electric bill of $200.  During the cold snap, it shot up to $16,800, which was automatically deducted from his bank account by his competitive market supplier, Griddy.  The payment eroded Willoughby’s retirement savings. (See NBC report, from 5:06)

Arizona is on the cusp of a decision that could lead to similar customer treatment here.

A currently open docket in the Arizona Corporation Commission is an attempt to follow long-expired guidance from the State Legislature.  In the late 1990s, the legislature mandated the Corporation Commission to open electric retail sales to competition before the end of 1998.  But bad experiences in other states following the same path led Arizona to drop such efforts.

The guidance was only taken up again in 2019, when a retail competition docket opened under Commissioner Justin Olson.  Olson has attempted to steer the docket on a path based on the Texas model, which has long invited shady and deceptive offers from retailers to customers. New scrutiny will undoubtedly lead to reassessment in the Lone Star state.

Arizonans would do well to closely examine Texas’ mistakes and adopt measures that are giving customers in other states the kinds of choices they really want.  Community Choice Aggregation (CCA) is leading to lower prices and cleaner air in states across our country.  CCA allows cities and towns to buy clean/green electricity in the aggregate and pass cost savings onto customers.

Not only do customers buy their electricity at a discount, they still have the option to opt out of the CCA and stay with their utility if they so choose.  So it’s a win-win.  Moreover, customers have a say in what kinds of energy CCAs purchase.  Think of a city selling energy to customers in the same way it sells garbage and water, except with choices and a say over those choices.

CCAs give customers choice while avoiding the chaos and deceptive practices that rightly gave our state pause twenty years ago.

 

Sources:

https://www.youtube.com/watch?v=4UbmnTpbqr0 (5:06 – 6:19)

https://www.newsweek.com/some-texas-residents-see-electric-charges-jump-much-14k-after-winter-storm-1570742

 

 

 

Time to Demonopolize Arizona IOUs, Make Room for Energy Choice

Vicki Sandler, Executive Director of the Arizona Independent Scheduling Administrators Association and AZ4CC Advisory Board Member, shares her thoughts on CCA, the limitations of monopoly utilities and opening up the energy market in Arizona to electric suppliers and ratepayers.

What is the problem with investor-owned utility monopolies?

Monopolies are needed if the barriers to entry are too high to support competitors entering the market. This was certainly the case over 100 years ago. Today, there are many independent power producers and when they choose the energy resources to invest in, the risk is shifted from captive ratepayers to their investors. There’s plenty of competition to build generation.  Compared to a regulated rate of return, typically these plants can be built at less cost competitively than if the monopoly builds it. Just the wires should remain as a monopoly. But today there is no incentive to compete because monopolies dominate their market.

The energy industry – and IOUs – are one of the few remaining industries that have not been deregulated.  Imagine if the airlines and telecommunications industries were still controlled by a few monopolies. Would we have the cell phone today?  Competition and choice transformed travel and communications.  We the people are accustomed to choice and choose most things that we buy and that should happen with regard to what generation we choose to purchase, be it 100% green or otherwise.  But because IOUs are a monopoly there is often little incentive to take risks such that creativity and innovation can be stifled.

What do you see as the benefits of the CCA model?

Community choice aggregation models operate through local governance where we the people, through our elected officials, get to choose what we buy, including a greener energy mix.  Today, many citizens want more green and are willing to pay for it.  The green renewable resources are often the least cost in the market also. The CCA model has been shown to be a way to achieve more clean, green energy faster and cheaper than in a regulated monopoly environment. Municipalities form the CCA and gain access to the wholesale energy market.  All decisions are local.

Another key benefit of CCA is that any profits realized are reinvested back in the community typically.  The cost of equity is lower in muni structures.

What are the benefits of the retail competition model that some of the AZ Corporation Commissioners favor?

There are 20 years of best practices on the best model of retail competition and that could be adjusted to fit Arizona’s peculiarities. Texas is the cleanest model with a free market. Prices have come down and more renewables have been added in Texas than in any other state. For the RE 100 companies that have pledged to be 100% renewable, they are economically incentivized to put facilities in the state of Texas.

There are other models nationwide such as Pennsylvania where choice works. Just like you can review a company on Yelp and decide not to go with that particular business, you can do that with your energy provider. The AZ Corporation Commission would need to adopt best practice enforcement to ensure that only high-quality players remain and if any suspicious sales tactics are used, they would pull their certificate to serve. Note that our Commission is not practically able to pull the regulated monopoly certificate because there are currently no alternative providers.

CCAs Keep Energy Profits Local

by Duane Ediger

One of the ways CCA programs benefit their local communities is by keeping proceeds from energy purchases local.  Where Investor-Owned Utilities (IOUs) commonly send those proceeds across state or national borders (for example, Tucson Electric Power customers fund a 10% return on investment to Canada-based Fortis Inc.), a CCA pours profits back into the community.

According to Lancaster (CA) City Manager Jason Caudle, Lancaster’s CCA, Lancaster Choice Energy (LCE), which was created in partnership with IOU Southern California Edison (SCE), generates $4 million in local energy revenue per year.  Caudle encouraged other southern California cities gathered for an economic outlook conference in spring 2020 to consider the CCA model.

LCE’s default service saves customers on monthly bills with  higher (35%) renewable content than under SCE.  Some customers pay a premium for the 100% renewable option.  Profits pay for energy efficiency programs, sponsorship of city events, and building up of a reserve for years when there is an energy shortfall due to unforeseen events.

Another CCA, Peninsula Clean Energy is using its surplus to install 3500 charging stations, as well as incentivizing customers to switch to electric vehicles by paying them rebates.

As city coffers throughout Arizona have taken a hard hit during the COVID pandemic, being able to keep more utility payments local will improve the resiliency of our cities and the well-being of Arizonans.

Cities and counties throughout the state will be able to strengthen their budgets once the Arizona Corporation Commission establishes a rule that makes it possible to start CCA programs, with access to wholesale energy markets.