Arizona regulators voted to ax the state’s energy efficiency standards Wednesday, in part because they said the rules were out of step with growth from data centers and factories.
The state first enacted energy efficiency standards in 2010, requiring that regulated electric utilities achieve annual savings of at least 22 percent by 2020. Under the program, utilities incentivized energy-efficient appliances, promoted smart thermostats and rewarded customers for lowering demand during peak periods.
The standards only ran through the end of 2020 and have not been updated — a fact that made them ripe for elimination by the all-Republican Arizona Corporation Commission.
Commissioner René Lopez said the rules were “done with the best intention” but provided diminishing returns for the over $1 billion in utility spending.
Plus, Lopez said, having a standard on the books could leave utilities at risk as they serve more manufacturing facilities and data centers that cannot be as flexible as a home or small business. Arizona is already one of the top states for data center development and the state’s largest electric utilities have said their load could nearly triple because of the influx of tech infrastructure in the coming decades.
“When you bring on large load customers, there’s no way to be more efficient,” Lopez said at Wednesday’s commission meeting.
According to data provided to the commission, regulated utilities and electric cooperatives had all met or exceeded the standards. The state’s two largest investor-owned utilities, Arizona Public Service and Tucson Electric Power, had achieved 26 percent and 28.5 percent cumulative energy savings, respectively.
Environmentalists and ratepayer advocates, however, said the fact that the efficiency standards were out of date doesn’t mean they should be scrapped. They urged the commission to update the rules to better reflect current grid conditions and technology, especially since efficiency programs can help lower ratepayers’ bills.
A staff analysis of the repeal found that getting rid of the program could result in “higher energy consumption and long-term utility bill increases” for residential customers by removing incentives for utilities to consider energy efficiency. Commission staff also said there could be short-term bill benefits from removing surcharges that have funded statewide efficiency programs.
“This is a short-sighted moment for this commission,” said Will Greene, Arizona representative for the Southwest Energy Efficiency Project. “There will be plenty of opportunity in the future to bring forward the kind of performance-based efficiency and demand-side management programs that we know work, but in the short term we’re going to be reliant on utilities to do this with no requirements and no reporting.”
According to the American Council for an Energy-Efficienct Economy, which advocates for efficiency measures, Arizona was one of 26 states plus the District of Columbia that had requirements for utilities to achieve efficiency. In a February report, the council said utility efficiency programs can help meet growing grid needs at less than half the cost of new gas-fired power plants.
The Trump administration has scaled back federal work on energy efficiency and clean building standards. Last week, the Department of Energy proposed changes to its energy efficiency standards program for home appliances — a shift that critics said could make it harder to make equipment more efficient in the future.
Arizona commissioners said Wednesday that removing the mandate would not ban utilities from enacting efficiency measures on their own. Commissioner Rachel Walden noted that utilities would still be able to include demand response or efficiency in their long-range resource plans and said the commission would support measures “that don’t have a cost shift.”
Under demand response programs, utilities incentivize customers to reduce their load — like having homeowners turn down air conditioning or data centers reduce their activity — when the grid is strained.
Walden said that too many benefits of efficiency spending had gone to wealthy households that could afford to replace appliances or meet building codes.
In a statement, Tucson Electric Power spokesperson Joe Barrios said “energy efficiency and demand response remain part of our resource planning process.”
The utility will maintain funding for previously approved programs, Barrios said, and “TEP will continue to evaluate the cost-effectiveness of measures that can provide benefits to customers and our local energy grid.”
A spokesperson for Arizona Public Service did not immediately respond to a request for comment Wednesday. The utility has previously said in comments to the commission that it would continue to offer efficiency programs.
This week’s decision is another move by the Arizona Corporation Commission to strip away mandates on the power sector. In March, the commission voted unanimously to repeal renewable energy standards adopted in 2006.
“This Arizona Corporation Commission continues to eliminate every possible tool we have to keep energy affordable in Arizona,” said DJ Portugal, organizing director at the Chispa Arizona grassroots organization, in a statement. “This commission is clearly looking out for the interests of greedy electricity companies, while leaving Arizonans to drown in expensive light bills.”
