This piece originally ran in The Western Tribune on April 29, 2022 and can be accessed here.
Earlier this year, the Arizona Corporation Commission voted down, by a vote of 3-2, the energy rules package it had been considering for more than three years. The package would have required utilities to generate 100% of their energy from carbon-free sources by 2070, more robust energy efficiency standards, battery storage provisions, and critical updates to the Integrated Resource Plan (IRP) and purchased power agreement processes.
The Commission was heavily criticized for ending years of work, but what was largely missing from that criticism was any mention of what happened after the energy rules were voted down: Chairwoman Marquez Peterson brought forward a separate proposal to open a new docket, moving forward with rulemaking on the IRP reform provisions on their own.
Looking on the bright side
This is good news for Arizona and provides a reason to be optimistic. While the carbon-free standards of the now-defunct energy rules package certainly garnered the most headlines, the IRP process reforms, and all-source RFP provisions contained therein, will significantly benefit ratepayers by ingraining transparency, competition, and market forces in the resource planning process. These are important protections for ratepayers and will lead to a more efficient and effective power delivery system for the state of Arizona
Additionally, it will create a more open energy market that gives clean and renewable energy sources — which are now more cost competitive than ever — a real chance to compete for a place in Arizona’s energy arena.
Competition carves a path forward to carbon-free
Understandably, it’s easy for someone to overlook the IRP provisions in favor of the headline-grabbing carbon-free goals. When someone says 100% carbon-free by 2050, it’s easy to understand what that means (even without necessarily knowing where all that carbon-free energy will come from). The same cannot necessarily be said for the IRP reforms. After all, they are technical changes to process-related provisions in Arizona’s existing energy rules. But, if done correctly, these provisions have the potential to achieve the same clean energy outcomes that stakeholders involved in the energy rules hoped to achieve.
How can that be? The answer is simple: by creating a multi-step Commission review process that includes truly competitive, all-source bidding as well as opportunities for meaningful stakeholder engagement and input, all of which are included in the new provisions.
The problem with existing processes
The existing IRP process is focused on two things: how much energy we need (called the load forecast) and where that energy is going to come from (called the resource mix).
Years ago, these determinations were made in Arizona as part of a utility’s rate case, and were often contentious. That is because utilities had every incentive to maximize the load forecast. The determination about which resources were needed to meet a utility’s energy demands, while once more straightforward, has similarly become increasingly fraught over the years. It was also incredibly difficult for stakeholders to track and engage on these issues, because rate cases tended to be long and complicated. But in 2010, the IRP process was stripped out of the rate case into its own proceeding, creating additional opportunities for oversight, monitoring over load forecast and resource mix as technologies changed, and better opportunities for stakeholders to engage.
Likewise, the request for proposal (RFP) process, used to determine the resource mix, has also gone through some changes over the years. In fact, there was a time in Arizona that RFPs were not required at all, resulting in self-dealing on the part of utilities. To deal with that problem, the Corporation Commission created an RFP process that required independent monitoring to ensure bids were truly arms-length transactions. Since then, the RFP process has gone through a subsequent evolution, wherein the parameters of an RFP might only include certain resources (natural gas, for example) or are clearly written to apply to certain predetermined winners. As a result, the situation now is that resources that could meet the energy demands in an RFP — such as renewable energy technologies — might be excluded entirely from a bid.
Out with the old, in with the new
The new IRP process has three distinct steps to deal with all of those issues to create a more modern process with a truly competitive energy market.
First, the Commission will review and vote on the load forecast provided by a utility. This provides a far more robust process in terms of stakeholder participation and input, making it much more difficult for a utility to, for example, simply forecast exponential growth indefinitely, and Commissioners will need to agree on the load forecast before the process can continue.
Once the load forecast has been agreed upon, a utility can move to the second step of the process which is to issue an RFP. That RFP must be reviewed and voted upon by the Commission before it goes out for bidding to ensure it’s truly all-source. This second review also builds in additional Commission and stakeholder oversight and engagement to ensure utilities are not trying to skew the playing field for any predetermined outcome. The all-source RFP will generate a true market response on the resources that could be utilized to meet energy demand, including everything from clean and renewable sources to nuclear to traditional sources of energy production.
Unlike the current system, an all-source RFP will yield a snapshot of what is actually available and all relevant factors on the various resources. It can even provide information on resource diversity mix, including demand side options like installing thousands of smart thermostats as part of an overall bid to meet a utility’s needs. As clean and renewable energy technologies continue to evolve and become even more cost competitive, the all-source RFP process ensures that those resources are given an opportunity to compete. And, if they are truly the cheapest energy source — as evidence suggests — clean and renewable resources will represent a growing percentage of Arizona’s portfolio.
Finally, once the bids come in, the utilities propose back to the Commission an action plan outlining the procurement steps. The Commission then reviews the proposal and casts a third and final vote.
With these updates to competitive all-source bidding, market forces will help create an inclusive and cost-competitive energy economy that, over time, can bring Arizona closer to meeting the same types of carbon-free goals for which stakeholders were advocating in the Commission’s original energy rules package.
Doran Arik Miller is the Arizona Director of The Western Way, a nonprofit organization that builds support for commonsense market-driven solutions to environmental challenges that support the economy and improve the environment.