Tucson Electric defends long-term power plans as it shifts away from coal

Tucson Electric Power Co. and Arizona’s other major utilities have big plans on how to best supply increasing demand for electricity, as they shift away from the coal-fired power plants that largely powered the state for decades.

How much of that coal power will be replaced by another fossil fuel — natural gas — and how much will be supplanted by renewable energy and storage was still up for debate at a workshop this week where state regulators grilled TEP and other utility companies about their long-term plans.

The coal transition is well underway and will continue over the next decade, TEP, Arizona Public Service Co. and the Arizona Electric Power Cooperative told members of the Arizona Corporation Commission at a workshop in Phoenix on Wednesday.

As in the past, members of the conservative, Republican-dominated commission voiced concerns over the cost to ratepayers of abandoning coal and natural gas too quickly and backed more gas-fired generation for reliability.

And solar and environmental groups argued against future overreliance on gas given its environmental impact and cost volatility and said the utilities instead should focus on adding solar and wind generation along with battery storage.

Replacing coal

TEP’s 2023 Integrated Resource Plan includes a preferred “balanced” plan to retire its 892 megawatts of coal-fired generation by the end of 2032 and replace it with approximately 1,300 MW of energy storage and 2,600 MW of generation, nearly all of which would be solar and wind.

By 2038, the scope of the 15-year plan, TEP plans to add 2,240 megawatts of new renewable generation and 1,300 MW of new energy storage.

That will boost the percentage of energy TEP gets from solar and wind to 54% by 2038 — not including any additions of customers’ rooftop solar that now comprises about 8% of TEP’s energy mix — with gas-fired resources supplying 37% and wholesale power purchases providing the remaining 9%.

Compared with TEP’s last resource plan in 2020, the latest plan accelerates the company’s deployment of solar and storage resources but also adds 400MW of new gas-fired generation in 2028.

“It does include additional renewables compared to that portfolio, in the intervening years we now understand better how to accredit renewable energy during peak hours,” Lauren Briggs, TEP director of resource procurement and planning, told the ACC. “And this impact was taken into account across all our portfolios and led to an increase in the renewables that were included.”

Like the other utilities, TEP’s plan is based on extensive computer modeling of factors including various resource costs, forecasts of demand growth and the projected need for increased generating capacity.

Briggs said the company’s 15-year resource plan, which the ACC requires to be updated every three years, is driven based on reliability and includes a planning reserve margin as well as “stress testing” for events that could take power plants offline, current and future system resource costs, and forecasts for both demand and renewable energy.

Briggs said TEP also included the effect of government policy, including the cost of complying ever-tightening federal restrictions on coal-plant emissions, as well as ACC policy and the company’s own goals.

TEP has pledged to cut its carbon dioxide emissions by 80% by 2035 compared to 2005 levels, and has a goal of net zero direct greenhouse gas emissions by 2050.

Between 2020 and 2022, TEP’s carbon-dioxide emissions dropped 32% thanks to coal plant retirements and 480 MW of new wind, solar and storage projects, the company says.

TEP’s preferred resource plan assumes the retirement of one of its last two coal-fired generators at the Springerville Generating Station in 2027 and the last one in 2032.

Going for gas

Overall demand, or load, on TEP’s system is expected to increase about 1.2% each year through 2038, and the utility says it will need more gas generation amid general economic growth and the increased use of electric vehicles.

But TEP says it will need more quick-ramping gas plants, in addition to renewable resources, to serve an expected influx of new, power-hungry businesses including computer data centers.

“We’re looking at these new customers coming in, there’s a number of manufacturers and data centers,” TEP vice president for resource planning Michael Sheehan told the ACC. “We are working with a number of entities such as the Arizona commerce authority, Sun Corridor, City of Tucson, Pima County, and we’re evaluating the long term benefits that these new customers potentially bring to Southern Arizona.”

Meanwhile, TEP’s sister utility, UniSource Energy Services, plans to add 200MW of natural-gas generation to reduce its longtime reliance on wholesale power purchases, to become more self-sufficient amid tightening supplies across the West.

Besides its preferred, “balanced” generating portfolio, TEP modeled nine other cases over the 15-year period ending in 2038, including ones with earlier or later than planned retirement of Springerville, and scenarios with heavier buildouts of solar or wind generation.

Other cases studied in TEP’s plan include scenarios with future additions of pumped hydroelectric power and small modular nuclear reactors, now under early development, as well a transmission and market reform scenario where regional capacity is boosted and wholesale energy prices drop.

Among all the studied energy plans, TEP says its balanced portfolio is the “least-cost” plan going forward.

Clean-energy goals

Commission member Kevin Thompson asked TEP officials how much of its preferred power portfolio was affected by the company’s “voluntary commitments” to cutting carbon emissions.

The ACC in recent years have rejected a new set of statewide clean-energy goals, though TEP and other utilities have largely met mandates for solar and wind set by the ACC in 2006.

More recently, ACC Chairman Jim O’Connor in December issued a statement that he would reject any long-utility plans based on “environmental, social and governance,” or ESG, saying the state’s renewable-energy policies have cost ratepayers $6 billion.

Thompson and fellow Republican ACC members Nick Myers and Lea Marquez-Pederson also have voiced similar cost concerns.

But TEP’s Sheehan said the company’s emission-reduction goals did not factor into its plan, but it was heavily influenced by costly federal environmental regulations.

“Our portfolio was informed by the best information we had at the time, and it’s really being driven by EPA regulations,” Sheehan said. “When you when you look at those regulations, we’d have to put a significant amount of money into pollution controls to basically run those coal plants beyond 2032. In our opinion, it would be best served to spend that money on natural gas, renewables and storage, because they’re going to have a longer lifetime.”

Arizona Public Service is part of a group of utilities that in May sued the U.S. Environmental Protection Agency over its planned new, tougher greenhouse-gas rules issued in April.

During questioning, ACC member Myers cited TEP’s plan to shut down one of the two remaining coal-fired generators at the Springerville plant in the fall of 2027, while 400MW of new gas-fired plants wouldn’t come online until 2028.

“First thing that came to my head was ‘Wow, that’s quite a gamble,” in a in an era of supply chain issues and delays,” Myers said. “What happens if it doesn’t come to fruition the way you think?”

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Sheehan said TEP now believes it won’t have the new gas plants online by 2028, given the project delays the company is tracking, noting that the company notes in its resource plan it is tracking such changes.

The locations of the new gas generation has not yet been decided.

“As we said earlier, we’re not shutting down (Springerville) unit one unless we’ve got resources in place and obviously, we’ve got the 2026 (Integrated Resource Plan) to make final decisions,” he said.

TEP also expects to lose more coal generation in 2031, when APS plans to close down the Four Corners Generating Station in northwest New Mexico. The Tucson utility owns 7% of Four Corners.

APS defends plan

Mike Eugenis, director of resource planning at Arizona Public Service, said during his presentation on APS’ plans that the company’s preferred plan maintains the 2031 retirement date for Four Corners.

APS’ plans also adds significant amounts of renewable energy, as well as gas, boosting the percentage of energy the company gets from renewables to 30% by 2027 and 42% after Four Corners is retired.

The company currently gets about 15% of its energy from coal resources, 20% from gas and oil (including a small diesel-fueled power plant in Douglas), 10% from purchases, 20% from nuclear at the Palo Verde Nuclear Generating Station, 18% from renewables, with the rest made up with demand-side management sources including energy-efficiency and demand-response measures.

“The preferred plan is one of the least-cost plans that was studied as a part of this effort and recognizes and takes advantage of value to our customers from many different resource types,” Eugenis said, adding that keeping Four Corners running until 2031 is essential.

“The Four Corners plant provides reliable energy and capacity to our customers, both today and for many years in the past, and as we navigate the growth that we see in our service territory, we want to make sure that we have a responsible transition from this resource into the future,” he said.

But APS’ plan came under fire from a representative of the Free Enterprise Club, which has railed against environmental, social and governance influence on the utilities’ plans, contending that such company policies will double ratepayers’ electric bills.

Justin Olson, a former Corporation Commission member from 2017 to 2023, questioned whether the APS plan was the least-cost option.

Olson, a former Arizona legislator and current Republican candidate for a District 10 House seat, asked if APS had included a potential carbon tax in its cost modeling, which would make fossil-fuel generation more expensive.

Eugenis said APS had included a carbon tax in its projections but would provide the ACC estimates without that factor.

Rushed transition?

Olson said he is concerned that the utilities are retiring fossil-fuel plants that provide continuous, “dispatchable” power too fast to replace them with cleaner resources, citing recent comments from a former Federal Energy Regulatory Commission member who said a rushed transition to renewables could affect grid reliability.

“APS plans to retire large sums of dispatchable generation sources and replace them with unreliable renewable sources — is APS taking into consideration these warnings from FERC regarding grid reliability?” asked Olson, who is chief financial officer of the conservative group Turning Point USA.

“We understand the gravity of that situation in terms of the retirement of these resources, and we’re committed to making sure that we provide reliable service going forward,” Eugenis said. “That’s one of the reasons why you see natural gas as a prominent part of the preferred portfolio — we need to have incremental resources on our system to be able to provide dispatchable generation to meet customer needs.”

While conservative Republicans have moved to preserve the use of fossil fuels in the name of cost and reliability, environmental groups say the utilities aren’t moving fast enough to retire them.

Alex Routhier, senior policy advisor with Western Resource Advocates said natural gas provides a large share of Arizona’s electric power generation and will for some years, but the sooner those assets can be retired, the better for consumers and their wallets.

“Renewables cost the same amount no matter what happens to fuel prices, because the fuel is the wind and the sun,” Routhier said. “Natural gas prices fluctuate significantly, and if there’s a spike in prices that risk is basically passed directly to ratepayers.”

A surge in wholesale gas prices in 2021 and 2022 resulted in big increases in the monthly surcharges Arizona ratepayers pay to allow utilities to recover their costs.

Western Resource Advocates also criticized APS and TEP for inconsistencies in their resource plans.

Though the group and other members of a resource advisory council for APS were provided licenses for computer modeling software to run their own models, APS didn’t provide data for anything but its baseline planning scenario, while TEP didn’t show any long-term generating capacity expansion modeling — an industry best practice, Routhier said.

TEP’s Briggs said the utility did study long-term capacity expansion as part of its resource planning, but has a difference of opinion on how to use that modeling.

A consultant to The Sierra Club also faulted TEP for its use of long-term capacity modeling and called APS’ modeling of retirement scenarios for Four Corners flawed.

Too much gas

Devi Glick, a principal in Massachusetts-based Synapse Energy Economics, said her research showed that both utilities rely too much on gas plants to replace coal.

“Like with APS, we are concerned that the TEP analysis did not fully consider the risks of reliance on gas resources, the risks of fuel-price volatility and supply constraints ratepayers will be exposed to,” Glick said.

The Sierra Club’s report also said that APS and TEP should look to run their existing coal plants only seasonally until their eventual retirement.

TEP already has plans to run one of the Springerville generating units seasonally, shutting it down during the low-demand winter months.

A consultant for the Arizona Solar Energy Industries Association said the reliance on solar in the future is positive, but the utilities’ plans should allow and encourage customer-owned community solar projects including so-called “virtual power plants” aggregating rooftop solar arrays.

The ACC does not need to approve the utilities Integrated Resource Plans but usually formally acknowledges the plans at an open meeting and uses them to guide decisions in rate cases, where utilities must show their investments were prudent to win recovery of their costs.

In 2018, a previous, all-Republican Corporation Commission rejected the resource plans filed by TEP, UniSource and APS and ordered them to develop plans that cut their planned reliance on new natural-gas plants in favor of more renewable energy and storage.