Arizona shows pitfalls of Biden’s 100% clean energy plan

By Edward Klump | 06/04/2021 06:23 AM EST

Arizona regulators voted last week in support of potential standards to reduce carbon emissions at major regulated electric utilities. The debate illustrated the complexity of possibly enacting a federal clean energy standard to meet President Biden's call for decarbonizing the U.S. power sector. MariaGodfrida/Pixabay (solar panels);Tasos Katopodis/Getty Images (Biden);Palo Verde Generating Station/LinkedIn (nuclear plant)

Arizona was shaping up as a bipartisan model for carbon-free electricity in the Biden era. Until last month.

Now, the politically divided state stands as a cautionary tale of the messy path that may be required to reach a zero-carbon grid.

In early May, the Arizona Corporation Commission failed to endorse a 100% clean energy standard by 2050 for major regulated electric utilities — despite a favorable vote last November that kicked off a rulemaking process. Then, on May 26, a majority of commissioners backed a compromise with less ambitious requirements for affected utilities.

The ACC’s proposed rules include a mandatory 50% carbon emissions reduction by the end of 2032 and an 80% cut by the end of 2050. It also features a 100% drop by the close of 2070 — a date over two decades later than what many major electric utilities across the United States already plan to meet.

The Arizona plan, like the one pushed by the Biden administration, has raised concerns about its implications. Would requirements raise electric bills? Are mandates too far in the future to help address climate change in the near term? How might the fuel mix change?

Some of those questions have yet to be answered, but nuclear power is firmly in Arizona’s plan for what counts as clean energy. The potential role of natural gas and carbon capture technology is murkier, as that combination is not specifically included or excluded. Renewables are expected to play a key role, though there isn’t a new renewables requirement.

Arizona also illustrates the role of utilities in reaching carbon cuts for the power sector and how policies can shift because of a small number of decisionmakers — a factor that’s front and center in Washington given Democrats’ narrow margin in the Senate.

Regulators in the Grand Canyon State haven’t backed everything environmental advocates want, especially with the 100% clean benchmark delayed until the end of 2070. But the recent agreement on cutting carbon, which still needs to be finalized, is a notable moment for many observers.

It would create a new carbon reduction standard in Arizona and provide reforms in resource planning and updates around energy efficiency. The proposed carbon cuts are based on a 2016-to-2018 average baseline for certain electric utilities. It remains to be seen if regulators will endorse the plan again later this year.

"That compromise wasn’t the easiest thing in the world for any of them," said Bob Burns, a former Republican ACC chair who voted for updated rules when he was on the commission last year. "But I think it’s certainly a benefit … to the ratepayers."

Arizona’s saga is being closed watched as President Biden supports a decarbonized U.S. power sector by 2035 — and proponents eye a potential 80% clean energy standard nationally for the industry by 2030. As with some factions in Arizona, critics have blasted that agenda as too aggressive and unrealistic. Supporters have praised it as a key piece to help fight climate change.

The Edison Electric Institute, which represents investor-owned electric utility companies, indicated that it’s open to a federal clean energy standard. But it has concerns around timing, including a possible zero-emissions benchmark for 2035.

"We support a well-designed clean energy standard in that it could provide a lot of certainty to us with respect to future investment, send a lot of signals to other stakeholders about where we’re all headed," said Emily Fisher, general counsel and senior vice president of clean energy at EEI.

It also could help deal with some of the "flip-flopping that we’ve seen in the past on different regulatory regimes," she said.

Tom Steyer vs. utility interests

Arizona’s effort followed a failed ballot measure in 2018 that would have required 50% renewable power sales by 2030 from major regulated utilities. An expensive tussle occurred, as the parent of Arizona Public Service Co. was against the plan, while support came from NextGen Climate Action, an entity linked to billionaire climate advocate Tom Steyer.

The defeat of the proposal wasn’t close. APS and its parent were blamed by many observers for its demise.

But APS has supported the commission’s recent efforts to lock in a new carbon reduction standard that’s not presented in the form of a constitutional amendment like the ballot item and that sees a role for nuclear as clean energy. The 2070 timeline for 100% clean power also could be moved up in the future, if the political will were to surface.

For now, an existing requirement for certain Arizona electric utilities is 15% renewables by 2025 — though that could go away if new rules supersede it.

Revised carbon-cutting standards last month were backed by the ACC after two new members — Anna Tovar, a Democrat, and Jim O’Connor, a Republican — worked together to forge a compromise. They were joined by another Democrat, Sandra Kennedy, in a 3-2 vote in favor of the plan.

Critics blamed Chairwoman Lea Márquez Peterson, a Republican, for derailing the 2050 standard earlier in May by supporting a shift to goals from requirements (Energywire, May 7). She expressed concern that the financial impact of standards wasn’t yet known, saying she didn’t want to give utilities a blank check.

O’Connor was the only other commissioner who joined the chair in supporting the amended version of the rules in early May.

Márquez Peterson didn’t end up supporting the amended rules endorsed by the commission on May 26. She told E&E News she wanted to see consumer protections, saying a cost-benefit analysis isn’t expected until the summer. "We don’t have the cost impact to the ratepayers," Márquez Peterson said.

The chair also said she didn’t like the use of a requirement early in the time frame or pushing back the end of the standard to 2070 in terms of proposed rules.

But a majority of the ACC — which has three Republicans and two Democrats — backed the new plan, even if those in favor didn’t get everything they wanted.

"Joining with Commissioner O’Connor as newbies, we very much felt the need to make sure that we tried to do everything possible to bring forward solutions that would move our state forward in regards to clean energy rules," Tovar said during the May 26 meeting.

Consumer and environmental advocates applauded aspects of the latest proposal with some noting elements that could bolster energy efficiency and distributed energy storage. Still, much of the focus has remained on the timing around carbon.

Adam Stafford, a senior staff attorney with Western Resource Advocates, said the 50% carbon emissions reduction standard by the end of 2032 would be a positive step.

But he tempered his praise, declaring in a statement that "the 2070 date for reaching carbon-free electricity falls far short of meeting the timeframe that scientists tell us is needed to avoid the worst impacts of climate change."

It’s clear Arizona has work to do to improve its emissions profile, even as the Palo Verde nuclear power plant provides a positive starting point from a carbon-free emissions perspective for some power providers.

In February, Arizona’s top net electricity generation source was nuclear, at about 37%, according to the U.S. Energy Information Administration. That was followed by natural gas, at nearly 32%, and coal, at around 17%. Non-hydroelectric renewables were close to 8%, while hydro was nearly 7%.

‘Maybe not perfect’

Arizona Public Service has said it plans to end its use of coal-fired power generation by the close of 2031. It also aims to reach 65% clean energy in its resource mix by 2030, with 45% of its portfolio coming from renewables. The company intends to deliver 100% carbon-free power to customers by 2050.

In an email, APS told E&E News that its "energy mix is currently over 50% clean and evolving as we add renewables, demand-side management resources and storage to our portfolio." It also endorsed the ACC’s latest version of potential clean energy rules.

"We support the Commission’s vote on energy rules [May 26], which includes a carbon emissions standard our commitment will meet," the company said in a recent statement. "We look forward to working with the ACC and other stakeholders to achieve the new standards while maintaining our focus on affordable, reliable service for customers."

Joseph Barrios, a spokesperson for Tucson Electric Power and UniSource Energy Services, also offered support for the commission’s new plan.

"The proposed rules align with our companies’ existing resource plans," Barrios said via email. "Tucson Electric Power, for example, is working to reduce carbon emissions 80 percent by 2035. The proposed energy rules provide an opportunity to work alongside regulators to create a cleaner energy grid in a cost-effective manner for customers."

Some of the unknowns include what would happen if or when Palo Verde were to shut down. The same is true for any natural gas-fueled power plants whose owners may want to invest in carbon capture technology.

Not everyone is sold on the idea of mandates to cut carbon emissions, however.

Commissioner Justin Olson, a Republican, has consistently ripped efforts to install a new clean energy standard without cost protections for customers. He has said Arizona should pivot toward a discussion of creating a competitive power sector. That could include a version of retail choice found in parts of Texas.

On May 26, Olson reiterated his concerns about a proposed standard during the Arizona commission meeting and discussed possible cost implications of requiring investments in generation that doesn’t emit carbon. He said the new rules would drive up rates, though some supporters of new standards have touted potential savings.

"Our primary constitutional mandate on the commission is to ensure that the utilities are charging rates that do not exceed that just and reasonable rate of return," Olson said.

Márquez Peterson has repeatedly expressed interest in pushing toward 100% clean energy while taking issue with certain provisions.

Stafford, of Western Resource Advocates, told E&E News that the commission could waive compliance with potential rules if costs outweigh the benefits.

And environmental advocates aren’t giving up on seeking faster standards that could come to fruition in the future.

"A more urgent timeline of no later than 2050 for eliminating the harmful fossil fuel emissions that cause climate change is of critical importance," Stafford said in a statement, adding that his organization would "continue to pursue stronger policies to better protect a livable future for Arizona."

There also are limitations in terms of what’s on the table, as electric cooperatives have flexibility to make their best efforts under the proposed clean energy standards. And certain other power providers, such as the Salt River Project, don’t fall under the ACC plan.

More public comment on the rules endorsed by the commission in late May will be sought because they contain substantial changes from what was approved last November, before two new commissioners arrived at the ACC following the 2020 elections. It’s possible that the revised rules in the docket could be approved by the commission before the end of 2021. Or more changes could delay the process further and lead to more public comment.

Potential discussion around natural gas and its role in power generation is one area that could lead to further changes to the rules package, for example.

If rules are finalized by the ACC, they would need to be certified by the state attorney general’s office. Mark Brnovich is the current Republican attorney general of Arizona, and his office didn’t provide a comment by press time to E&E News on potential certification of ACC rules.

Former ACC Chairman Burns, who turned 83 on the day of the May 26 vote, said he was pleased that various reforms, including on integrated resource planning, were supported by a majority of the commission.

He noted that states around Arizona have clean energy standards, and he suggested that Arizona’s move could lead to more investment in the state for new data centers or other businesses.

"It’s a very positive move," Burns said. "Maybe not perfect, but very positive."

Biden, Congress and net zero

The debate over Biden’s clean electricity standard echoes the Arizona debate in several ways, including in crossfire about costs to consumers and whether interim and long-term carbon-cutting targets should be shifted.

Similar to Arizona, utilities also are playing a major role in Biden’s plan — not only with long-term grid planning but in conversations with policymakers. Southern Co. CEO Tom Fanning, for instance, recently said he was in discussions with Biden climate adviser Gina McCarthy (Energywire, May 27).

Varying approaches may be explored by government leaders across the country, from requiring certain levels of clean energy to focusing on carbon emissions reductions.

An important area to watch is whether electric utilities indicate they could meet ambitious U.S. clean energy requirements. The current plans of many power producers do not mirror Biden’s proposal (Energywire, July 15, 2020).

The president’s targets also are more aggressive by decades than Arizona’s plan. Along with Biden’s push to decarbonize the U.S. power sector fully by 2035, there are calls for an 80% clean energy benchmark for electricity by 2030. The White House didn’t provide a response by press time to questions about clean energy efforts in Arizona and nationally.

In an interview before the latest commission vote in Arizona, Mike O’Boyle, director of electricity policy at Energy Innovation: Policy & Technology LLC, backed the idea of net-zero carbon by 2050 as a bare minimum — with the potential to go faster as technology improves and falls in cost.

"As a regulator, your know, job is to ensure that utilities do what they say and to hold them accountable to do things that you believe are in the public interest," he said.

O’Boyle said a challenge in terms of an 80% clean energy target for the U.S. power sector is whether projects can be sited, built and interconnected quickly enough. He pointed to a recent report that looked at a pathway to reach the 2030 target with technologies such as wind, solar and batteries while also using existing gas, nuclear and hydroelectricity.

Robert Chapman, a senior vice president at the Electric Power Research Institute, used a recent webinar sponsored by the U.S. Energy Association to note the potential to study a range of new technologies, including advanced nuclear, hydrogen, and carbon capture and storage, to reach national clean energy goals. And he emphasized that timing and economics are important parts of the equation in terms of lower carbon emissions.

"If we can’t support decarbonization while maintaining affordability for all stakeholders, all ratepayers, then decarbonization becomes a negative aspect for many socioeconomic groups," Chapman said.

While a federal clean electricity standard is not likely to be passed right now in the U.S. Senate with 60 votes, there could be avenues to explore via budget reconciliation. That could involve tax incentives or other elements such as transmission.

O’Boyle said people can get hung up on a lack of clarity on net zero instead of scaling up solutions that are around today. Leaders can and should look to go faster, especially on interim goals, he said.

"I think state and federal action can be quite complementary, because states ultimately still have jurisdiction over their investor-owned utilities," O’Boyle said.