The Arizona Energy Consortium is a business consortium that has been promoting the growth and development of Arizona’s energy industry since 2011. Our mission is to strengthen the energy industry by providing a forum for our diverse base of members to increase business opportunities, while reducing barriers to development by supporting certainty and consistency of policy. The AEC serves as a place for new businesses to integrate into the community, thereby creating opportunities to increase retention of the businesses we attract to the state. Through our collaboration with key stakeholders in Arizona and a broad range of the region’s energy industry, the AEC helps shape the initiatives that promote innovation and strengthen the diversity of our energy industry.
Since its inception, the AEC has emphasized the importance to the industry of certainty of policy. Companies must be able to understand the parameters in which they can operate and grow their businesses. The strength of financial investment in the development of new infrastructure is directly tied to the amount of certainty in the market. Last September, the AEC hosted the Southwest Energy Conference, a gathering of regional energy industry experts discussing the continued expansion of the Southwest regional markets. One of the key themes throughout the Conference was the importance of promoting certainty in policy to foster innovation.
One of the AEC’s key attributes is to provide a collective voice for industry stakeholders to share ideas to move the industry forward. The AEC continuously monitors the changing policy landscape and provides opportunities to share this knowledge with AEC members. With the numerous proposed policy changes in Arizona and the regional Southwest, it will be more important than ever to collaboratively find solutions that promote certainty for the future of the Region’s energy industry. The AEC takes a look at some of these policy issues below.
What policies are shaping Arizona’s energy future?
Arizona is fortunate to have a diverse energy portfolio comprised primarily of natural gas, coal, hydroelectric power and nuclear energy, with solar energy and storage opportunities expanding. Recent proposed policies are signaling significant changes in the demand profile for utilities. Arizona’s growing high-tech and data center sectors have significant power loads which, in many cases, demand renewable energy to power their facilities. The renewable energy sector is an economic development driver for the other high-tech industries the state wishes to attract. The Arizona Corporation Commission (ACC) recently adopted a policy statement that requires regulated utilities to implement new alternative generation buy-through programs for larger commercial and industrial customers in their subsequent rate cases.
The changing landscape of utilities’ customer loads and resource demands requires a plan that allows continued expansion of opportunities while also avoiding unnecessary externalities. It was for this reason that ACC Commissioner Andy Tobin initially proposed Arizona’s Energy Standard Modernization Plan in 2018. This Modernization Plan has since been expanded with additional proposals with other possible modifications to the ACC’s Energy Rules. Among several other proposed changes, the proposal would change Arizona’s current Renewable Energy Standard and Tariff (REST) to a Clean Resource Energy Standard and Tariff.
The other areas of modernization currently before the ACC would provide updates to the energy storage, forest health/biomass, dispatchable clean energy, energy efficiency, electric vehicles and Integrated Resource Planning and Procurement rules. The Retail Electric Competition rules currently under consideration would significantly change the structure of Arizona’s monopoly utility system. It has yet to be determined how much of these changes will be adopted or implemented; however, this remains an active docket after two years since first proposed, with ongoing stakeholder meetings showing support for the modernization proposals.
A strengthened energy infrastructure
As additional demands are placed on our aging infrastructure, Arizona’s energy regulators are proposing changes to address those demands with other modernization efforts. One of the major changes in the last decade is the integration of rooftop solar energy, known as distributed generation, into the grid. To help streamline this process, the ACC is currently proposing rules to standardize the interconnection of distributed generation and storage into the grid. After months of taking input from interested stakeholders, the ACC is expected to complete the formal rulemaking this year.
A related challenge facing the ACC is how to update and integrate its existing rules such as those dealing with Integrated Resource Planning, the REST, net metering and energy efficiency. In conjunction with the other proposed rules being considered, the integration of these rules in a modern context would substantially transform Arizona’s energy industry.
More advanced and cost-effective energy storage is another driver for strengthening the energy industry, allowing utilities to maximize its generation resource profile while also providing the ability to better manage supply and demand during peak and off-peak times. Energy storage technologies are continuing to improve and become more cost effective, allowing benefits through a more efficient and cost-effective utilization of grid resources. Although Arizona does not currently impose a mandated procurement requirement for energy storage, Arizona’s utilities are actively developing energy storage in an attempt to better understand the advantages and drawbacks. If implemented as proposed, the Modernization Plan would require a target of 3,000 MW of deployed energy storage by 2030.
The importance of regional cooperation
As traditional generation resources change, the importance of regional cooperation grows. In the past, Arizona utilities have focused on providing power within the state. Recent developments in regional markets, however, have provided opportunities for a strengthened system for the broader region. Arizona’s major utilities have begun to recognize this energy market as a major potential for cost-savings.
In 2014, the Western Energy Imbalance Market (EIM) was established by the California Independent System Operator (CAISO) as a real-time energy market, and the first of its kind in the western United States. The purpose of the EIM’s market system is to automatically find low-cost energy to serve real-time consumer demand across a wide geographic area. Since joining in October of 2016, Arizona Public Service has reportedly saved over $10 Million by participating in the EIM. Salt River Project is expected to join the EIM by 2020.
In addition to generating cost savings for its participants, some additional benefits of the EIM are enhanced grid reliability and improved integration of renewable energy, leading to the development of a cleaner grid program to strengthen the western states’ transmission system and improve reliability cost-effectively. The AEC will continue to monitor the development of the EIM and its impacts on Arizona’s energy industry, and where appropriate provide a forum for affected stakeholders to have a constructive conversation.
Fostering innovation
The changing customer base is one of the major impacts on the utilities’ load profiles. As more consumers are purchasing electric vehicles (EVs), the utilities’ generation profiles are adjusting to meet those demands. Challenges are created for the utilities to meet substantially increased generation needs when large numbers of customers are charging their EVs in later hours of the day. These challenges have prompted innovations in battery storage to allow utilities to store power during lower demand cycles and utilize it during higher peak hours. This is also why battery storage works well with solar energy that is generated at its highest peaks in the middle of the day when it is not needed to meet demand. The widespread adoption of EVs will require continued upgrades in the infrastructure and electricity rates to be sustainable in the market.
Arizona has supported innovations in EV technologies, and has recognized additional opportunities to further encourage an increased market penetration of EVs. In December 2018, the ACC adopted a new policy statement to encourage regulated utilities to implement rates and pilot programs to support the increased deployment of EVs, EV charging infrastructure and the widespread electrification of transportation in Arizona. The ACC has stated it will continue to work with industry stakeholders to improve these programs.
Another area of innovation is through blockchain-based solutions. The Public Utilities Commission of Nevada recently solicited comments on the use of alternative methods of tracking Portfolio Energy Credits. One of these suggested alternatives is blockchain management, previously associated with bitcoin, which is impacting how power is traded by offering peer-to-peer and wholesale transactions, differing from the typical utility-dominant structure. Blockchain offers the ability to create an auditable and automated record of energy generation and consumption, resulting in both cost savings and energy efficiency. There are many applications for the blockchain technology that will continue to be implemented in the energy sector, with potential to vastly change the current structure of the markets.
With all of these potential opportunities for change, it will require strength in collaboration and coordination among regulators and stakeholders to produce the certainty needed to support a thriving energy industry. The AEC will continue to work with all stakeholders to provide a reasonable voice in reducing barriers to development by supporting certainty and consistency of policy.
Michelle De Blasi is a director at Fennemore Craig and executive director of the Arizona Energy Consortium.
