The Arizona Corporation Commission, which regulates most of the electric utilities in Arizona, is prodding the electric industry in the direction of clean sustainable energy. But in the process a fissure has opened within the fivemember panel. The problem is that many green sources are still more expensive than conventional fossil fuel and nuclear power plants, even with the sharp run-up in the price of oil and natural gas.
On Feb. 27, the commission voted 3-1 to sharply expand the amount of electricity that utilities will be required to generate or purchase on the wholesale market from renewable sources. Under the current rules, utilities need to acquire only 1.1 percent of their power from renewables each year from 2007 to 2012 — a percentage that they are already close to meeting.
But the proposed new rules would drastically increase the percentage to 3.5 percent by 2012 and 15 percent by 2025. The commission is allowing the utilities to impose a surcharge on monthly customer bills to recover the added cost of renewable energy. The amount to be paid is determined by the amount of electricity each consumer uses in a month and under the new rules would be capped at a maximum of $1.05 per month for residential customers.
Currently the cap is 35 cents a month.
Leading the opposition to the surcharge is Mike Gleason, a Sun City Republican who was the only commissioner to vote against the expansion of the Renewable Energy Standard. He said it could cost Arizona ratepayers $15 billion to $20 billion in higher utility bills over the next 20 years. He sees the $1.05 surcharge as rising far higher in future years as the renewable percentage increases.
“I’m concerned about the fairness of forcing customers of ACC-regulated utilities to pay a premium to subsidize uneconomical energy,” he said.
Gleason is most skeptical about the distributed energy portion of the renewable program. Under that provision, the utilities reimburse homeowners and businesses for a portion of the cost of installing photovoltaic panels that generate electricity from the radiant energy in sunlight on their buildings, thereby reducing their demand for electricity from the regular grid.
Thirty percent of the utilities’ renewable energy program must be dedicated to distributed generation by 2012.
But Gleason said photovoltaics are the least cost efficient of renewable technologies. Even with government tax incentives and utility subsidies, a typical homeowner will have to pay about $9,000 out of pocket for a rooftop system and in return will save about $480 a year, he calculated. If that money was loaned at market rates, it would make a greater return than that, he said.
Solar hot water systems are cheaper and also qualify for a subsidy, but they save less energy. “We went through that hot water thing 15 or 20 years ago,” Gleason said. “I don’t see it as a real viable alternative.”
GREEN ENERGY SUPPORTED
On the other side of the green energy divide is Chandler Republican Bill Mundell, one of the three commissioners to favor the more aggressive renewable energy program. He said $1.05 a month is a small price to pay to promote development of alternative energy sources that will reduce the U.S. dependence on fossil fuels.
He noted that Arizona Public Service is seeking a series of rate increases to pay for the higher cost of natural gas fuel for its generators. Those increases, if approved, will have a far greater impact on consumer electric bills than the renewable energy program, he said.
“You can’t look at this in a vacuum,” Mundell said. “We’re talking about increasing the (renewable energy) portfolio by 70 cents a month. We have applications from APS that will raise the average utility bill over $32 a month.
“There’s no question the price of natural gas will continue to go up. The only question is when and how much. We need to wean ourselves off of fossil fuels.”
Green energy sources also have the benefits of promoting cleaner air and water and economic development for Arizona, he said.
“All of those billions of dollars we pay for natural gas are going out of state, to west Texas and other natural gasproducing parts of the country. If we develop solar and renewable facilities in this state, it means economic development here.”
Also Mundell said some renewable technologies such as wind power and some commercial solar installations are moving closer to being price competitive with conventional energy. As for the high price of photovoltaic systems, Mundell said they are not beyond the reach of the middle class.
“We are encouraging the utilities to work with homebuilders to put this in their mortgage just like any other feature in a new home,” he said. “We want them (the utilities) to work with the homebuilders so people are aware they have this as an option, and they can put it in their mortgage.”
IMPROVED TECHNOLOGY SOUGHT
Gleason thinks a better use of the money raised from the surcharge would be to help the utilities develop better technologies rather than promote the use of technologies that, while seemingly exotic, have been around for 50 years or more.
“There are some very new efficient photovoltaic systems,” he said. “Let’s put our money into getting new technologies.”
Because the February vote was the first of two that the commission must take to implement the rules, Gleason said there’s still time for public pressure to convince the commission to modify the decision.
A public comment meeting is scheduled by the commission at 10 a.m. May 23 at the ACC building at 1200 W. Washington St., Phoenix.
Barbara Lockwood, manager of renewable energy for APS, said green energy will definitely be a part of Arizona’s future, but she said the $1.05 surcharge authorized by the corporation commission won’t be enough to meet the commission’s renewable requirements.
“What the level will have to be, I can’t give you an answer,” she said.
“We’re on board with the overall objective. But the distributed (photovoltaic) piece is a challenge. We think there are some aggressive targets there. We will try and meet those targets, but we think it is a challenge.”
Of all of the renewable sources, APS is most interested in wind and geothermal because they are “pretty competitive” in price with conventional sources, she said.
Biomass energy is more expensive, and photovoltaic solar is the most expensive at four to five times the price of fossil fuel electricity, she said.
“If we had a larger (solargenerating) plant, the cost would decrease,” she said.
“But the initial cost is too high.”
Commission Chairman Jeff Hatch-Miller, who was not present at the Feb. 27 meeting and did not vote on the renewable standards, questions their feasibility, but he added that the program can be tweaked in future years.
His major doubt is that renewable power plants such as wind and solar need conventional backup generators to provide electricity when the wind isn’t blowing or at night and on cloudy days when the sun isn’t shining.
That adds further to the cost, which isn’t factored into the cost calculations for renewable energy, he said.
“The dilemma is we have to have two systems,” he said. “That isn’t much of a cost when the (renewable) percentage is low, but eventually it will get to the point where these added costs will come up, and they will have to be factored into the basic rates (for electricity).”
The main hope he believes will be the development of new technologies that will reduce the cost of renewable energy, particularly solar, which he said is the only sizeable renewable resource available in Arizona.
Most of the 15 percent of renewable energy mandated by the commission will have to come from solar technologies that haven’t been developed yet, he said.
Specifically, he said solar air conditioning has the potential to make a serious impact, but that technology is still in its infancy.
Hatch-Miller wants some of the money from the $1.05 monthly surcharge directed to the state universities for research on improved solar technologies.
“I’m confident this commission is able to steer the energy ship so we will wind up with reliable power at reasonable cost from predictable sources,” he said.
“We can get there.”
Contact Ed Taylor by email, or phone (480) 898-6537