Arizonans Face Stiff Rate Hikes as Utilities Switch to Renewables

Published February 27, 2020

Tucson Electric Power (TEP) customers may soon be paying much more for their electricity, as the utility moves away from coal-powered generation in an effort to meet its goal for 30 percent of the electric power it delivers to be generated by renewable energy sources, such as wind and solar, by 2030.

In April 2019, TEP requested the Arizona Corporate Commission’s (ACC) Utilities Division (CCUD) and the Residential Utility Consumer Office (RUCO) allow it to increase its non-fuel operating revenues by $114.9 million to help finance the construction of new renewable power, by adding $7.61 to home customers’ monthly electricity bills beginning in May 2020.

In response to objections by consumers and regulators, TEP has lowered its request to $99.5 million, reducing the proposed rate increase for the average household to about $6.80 per month.

Generating Conflict

TEP’s requested rate increase would also allow the company to recover some of the costs of two recently acquired generating assets. One is a 182-megawatt (MW) natural gas fueled generator the company recently installed at its H. Wilson Sundt Generating Station in Tucson. The other is TEP’s recent purchase of the 550 MW Gila River Generating Station Unit 2 gas plant at Gila Bend.

Because these power units ramp up and down quickly, TEP says they are critical to satisfying its regulatory requirement to supply reliable energy as the mandate adds increasing amounts of intermittent wind and solar generating sources to the grid through 2030. TEP says the gas-powered units are half as expensive to construct and operate and are much more reliable than battery storage.

CCUD and RUCO have each proposed reducing TEP’s request. The CCUD would trim it by 47 percent, to $60.6 million. RUCO would slash it by 95 percent, to $5.2 million.

Plant Closure Led to Woes

TEP was among the co-owners that voted to close the Navajo Generating Station (NGS), a giant, 2,250 MW coal-fired power plant located on Navajo land in northeastern Arizona.

After providing reliable baseload electricity to customers in Arizona, California, and New Mexico for decades, NGS was shut down on November 18, 2019. Baseload power is the minimum amount of power the electrical grid needs at any given time. Power from the NGS was also used to pump millions of acre-feet of water through the 336-mile Central Arizona Project water distribution system.

In addition to TEP, other owners of the NGS that pushed to shut it down included the Arizona Public Service, NV Energy, and the Salt River Project. Under President Donald Trump, the U.S. Bureau of Reclamation, which had a minority stake in NGS to deliver water, fought against closure, but it was outvoted by the majority owners, who said closing the plant would result in lower electricity prices by reducing the amount of money spent on fuel. Wind and solar facilities don’t use fuel when operating.

NGS’s closure eliminated the jobs of about 500 full-time employees, most of them Navajo. An additional 265 Hopi and Navajo were laid off in November at the nearby Kayenta Coal Mine, which had supplied coal to NGS for decades.

‘Conned by Utilities’

The ACC is currently holding evidentiary hearings over TEP’s proposed rate increase. An administrative law judge will be able to adopt, amend, or reject any proposal ACC approves.

This should be a lesson to ratepayers about the virtues of fossil fuel power and the false promises made by proponents of purportedly cheaper renewable energy, says Jay Lehr, a senior policy analyst with the International Climate Science Coalition.

“One can hope consumers will wake up and realize electricity from coal and natural gas will always be significantly less expensive than from undependable wind or solar power,” said Lehr. “They shouldn’t be conned by utilities saying otherwise.”

TEP’s plan was never likely to save ratepayers any money, says David Wojick, director of the Climate Change Debate Education Project.

“TEP’s switch to renewables is a pay-now, maybe-save-later gamble,” said Wojick. “Utilities are making a fortune building new assets.

“The fair deal would be for TEP to forgo its profits until the savings arrive, if ever,” said Wojick.

Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow.