Stakeholders, Utility Unite in Face-Off with Regulators Over Arizona Just Energy Transition

Arizona Public Service (APS) raised the national standard for a Just Energy Transition with its $144.45 million settlement with affected communities and tribal peoples in late 2020.

The money was for assistance to communities impacted by the already-closed coal fueled 2,409 MW Navajo Generating Station and planned 2031 closures of the 2,270 MW Four Corners Generating Station , and the 1,129 MW Cholla Generating Station . Navajo supplied and the Four Corners’ supplies power to California.

The urgent need for the proposed APS investment to rectify the coal plants’ decades-long destructive impacts was emphasized April 27 in the first of several April-May town hall meetings on the ACC ruling. Chaired by Commissioner Anna Tovar, the citizens of Joseph City, Arizona, testified to coal generation’s pollution of local air, water, health, and economics.

Endorsed by environmental groups and tribal peoples, the coal plant settlement included $128.75 million for the Navajo Nation, $12 million to Cholla communities, and $3.7 million to the Hopi Tribe. But the plan required Arizona Corporation Commission (ACC) approval. The commission objected to APS’s proposal of recovering almost $120 million from ratepayers and sharply cut the amount to be recovered through rates.

That investment would support “a solid economic transition,” Navajo Nation President Jonathan Nez told this reporter at the time of the agreement. It would “electrify homes, increase renewable energy projects, and promote economic development” and could make Navajo Nation lands “a renewable energy epicenter,” Nez said.

As Western utilities close uneconomic coal facilities , affected communities and advocacy groups are pushing for economic justice in the transition to clean energy. Landmark efforts include Washington state’s $55 million in 2011 , New Mexico’s $40 million in 2019 , and the April 26, 2022, agreement for closure of Xcel Colorado’s Comanche facility, which could approach APS’s proposed expenditure.

Used with permission from the Institute for Energy Economics and Financial Analysis

Largest just transition spending

The APS plan would likely be the biggest just transition utility expenditure in the U.S. to date, according to APS and Arizona State University Just Energy Transition Center Co-Director Amanda Ormond .

The ACC disrupted that ambition. In its final decision late last year, concerned about costs to APS’s 1.2 million Phoenix and central Arizona customers , the commission reduced the proposed $119.25 million ratepayer share of the Just Energy Transition payment to $10 million.

“APS has a corporate obligation to support a just and equitable transition away from coal-based economies for communities impacted by early power plant closures,” the commissioners acknowledged in their final decision , which was approved by a 3-2 vote. But the utility did not make clear how it determined the obligations of its customers and those of its shareholder-owners, the decision added.

Customers have the primary obligation under traditional ratemaking practices for plant closure “site reclamation” and “decommissioning costs,” APS argued . The ACC disagreed .

APS did not show customers were “the exclusive or even principal beneficiaries” of the coal plants and decades of dividends paid to APS shareholders make it “disingenuous” to claim they “have not benefited,” the decision said.

But with coal closures imposing “economic devastation” on Arizona communities and tribes, “it is just and reasonable for APS customers and shareholders to share the burden of transition assistance costs,” the ACC ruled.

APS would be allowed to spend only the $10 million in money recovered from customer rates, the commission decided. Separately, the ACC approved $1.5 million in APS ratepayer funds to closure-impacted communities and tribes specifically for job redeployment, employee relocation, and delivering electric service to the estimated 15,000 tribal homes without electricity .

After the APS proposal, and before the ACC ruling, Tucson Electric Power’s rate case raised similar questions and led the commission to create a “Generic Transition Docket” ( E-00000A-21-0010 ). It is the “appropriate venue” to further define “APS's and other utilities' equitable obligations to coal-impacted communities,” the ACC ruling said.

Used with permission from Arizona Public Service

APS’s response

The APS plan came from the utility’s commitment to “do what is right” while protecting its financial health, reliability, and pledges to be coal-free by 2031 and emissions-free by 2050, APS Chair and CEO Jeff Guldner told the commission during the proceeding .

The utility is “disappointed,” but will continue to pursue Commission approval for “the full funding package” in both “the generic docket and future rate cases,” APS Director of Environmental Sustainability Eric Massey told Current . And APS has already begun to disperse the committed shareholder funds and ACC approved customer funds, he added.

Ratepayer investments in a just energy transition is “consistent with traditional cost-causation principles” and “cost-of-service ratemaking,” Massey added. Customer rates “routinely” include “end-of-plant-life costs” and should include meeting the needs of those “most impacted by our exit from coal-fired generation,” he said.

But approval of further ratepayer funding “is at the sole discretion of the ACC,” Massey acknowledged. The Commission’s intent in the generic docket is to make just transition policies “broadly applicable,” and APS hopes the docket’s findings will “make it possible for APS to request more in just transition spending in future rate cases, he said.

The utility is also preparing an estimate of rate impacts from the original $144 million settlement for submission in the generic docket, Massey added.

Meanwhile, APS and many concerned about future Arizona just energy transitions await three steps in that docket, stakeholders told Current. Commission-ordered workshops and the townhall meetings are to obtain customer and stakeholder input intended to inform an ACC staff report to the commission about how to structure future just transitions in the generic docket.

Stakeholders stand firm

Arizona’s influential Residential Utility Consumer Office , a ratepayer advocate, supported the commission by calling for the generic docket “to thoroughly investigate” the ratepayer impacts of APS’s proposal, Hudson River Energy Group Principal Frank W. Radigan said in testimony on behalf of the consumer advocate .

But most stakeholders agreed with APS and agreed the generic docket will allow the ACC to further engage with the impacted communities on statewide just transition planning, several told Current.

“As major polluting coal plants begin to close, we must ensure a just and equitable transition for communities such as the Hopi and Navajo that includes investments in clean energy , economic development, and clean up and mitigation of harm,” Sierra Club Grand Canyon Chapter Director Sandy Bahr said. “We need the just and equitable transition package proposed in the APS rate case to be approved in full and additional support as requested.”

Though the ACC’s decision was “disappointing,” it was also somewhat encouraging because it “recognized the critical needs of the impacted communities and tribes,” Western Clean Energy Campaign Executive Director Eric Frankowski said.

The $10 million is “an insult to the communities that have been exploited for the last 50 years,” but it made clear the utility’s “responsibility and ethical obligation to these communities,” Frankowski added. The “sliver of a silver lining” is that “this debate is now front and center in the regulatory process and we're not going to let it go away.”