Arizona utility regulators upend clean energy goals

PHOENIX — Arizona utility regulators have taken a major step toward repealing a nearly two-decade-old rule requiring power companies to get more of their electricity from renewable sources like solar and wind.

The move taken by the Arizona Corporation Commission sets the stage for utilities to meet surging demand from data centers, new computer chip plants and population growth by keeping old coal plants online and building a fleet of new natural gas plants.

That’s a step that the state’s largest utility, Arizona Public Service, has already taken for coal by ending its commitment to shutter a big New Mexico plant by 2031. And it and several other utilities, including Tucson Election Power, are embracing new gas pipelines and plants, despite solar power being a cheaper option.

The commission’s move came a week after APS reneged on its 2020 pledge to get 100% of its power from zero-carbon sources by 2050, with 65% coming from clean sources by 2030.

CEO Ted Geisler said on an Aug. 6 earnings call for parent company Pinnacle West Capital Corp. that the utility would completely ditch its 2030 promise and only commit to be “carbon-neutral’’ by 2050. That means that instead of eliminating all plants that emit carbon dioxide its new sources of the planet-warming gas won’t add to its total current emissions.

Tucson Electric Power hasn’t changed its renewable energy goals. The utility, owned by Canadian utility company Fortis, promised in 2020 that it would retire its coal plants by 2032 and get more than 70% of its power from solar and wind by 2035. Its goal is to reduce carbon emissions, which are tied to climate change, by more than 70% by 2035.

But TEP joined with APS, Unisource Energy Services, the Salt River Project and the city of Mesa earlier this month and committed to buying natural gas from a new pipeline from Texas expected to be open by the end of the decade. APS and SRP are already developing big new gas plants. And SRP is acting on its own as it isn’t regulated by the commission and not subject to its renewable energy requirements.

The backtracking on clean energy by the commission and APS come after the GOP-controlled Congress and President Donald Trump eliminated tax breaks for electric cars and solar and wind power as part of the “One Big Beautiful Bill’’ tax and spending law he signed on July 4.

Environmental and renewable energy advocates called the commission’s move to eliminate the renewable energy mandate “misguided’’ and “shortsighted’’ and let fly with a slew of other arrows as the commission heard comment on the proposal last week.

But the five Republicans who sit on the Corporation Commission were unmoved. They voted unanimously Thursday to initiate a formal repeal of the Renewable Energy Standard and Tariff rules adopted in 2006.

And they pushed back on criticisms that repealing the REST standards will lead to the death of the solar industry in the state. Instead, they argued the repeal will end subsidies that they say consumers are forced to pay for clean power and actually lower bills while allowing utilities to invest in solar and wind when they make the most economic sense.

“I think there’s a lot of doom and gloom narrative that people throw out there,’’ Commission Chairman Kevin Thompson said before the vote. “We hear a lot of teeth gnashing anytime we touch subsidies and anytime we really try to help ratepayers at large.

“And what I heard from (Arizona Public Service) is that potentially millions and millions of extra dollars are being put on the backs of APS ratepayers to meet mandates and we’re stuck with these artificially high rates for decades,’’ Thompson said. “And we know that TEP and UNS are probably in the same boat.’’

Nick Myers, vice chair of the panel, agreed it was time to scrap the standard.

“Utilities should have the flexibility to choose the most cost-effective energy mix to deliver reliable, affordable service — without being burdened by government-imposed rules that ultimately increase costs for customers,’’ he said.

Several commissioners pointed to the Solana Generating Station solar plant, which was built just after the standards were adopted. APS buys all the power at about 15 cents per kilowatt hour, far more than the 2.5 cents current solar plant cost. APS attorney Jeff Allmon told commissioners.

The commission’s 2006 rules mandated that the state’s electric utilities get at least 15% of their power from renewables like solar and wind by this year, with 30% of that coming from “distributed energy’’ sources like rooftop solar. Thompson and another commissioner campaigned on eliminating the REST rules, saying they increase regulatory burden and costs for utilities — and their customers.

Power companies like APS are now above that level, but not by a lot. Annual reports filed with the commission show APS got 16% of its total retail power sales from solar and wind sources in 2024, while TEP got just under 23%.

Last week’s votes kick off a long process of “rulemaking” to repeal the renewable energy standards. Final repeal could come next year, and the 5-0 commission vote signals the rules will almost certainly be adopted.

But Lea Marquez Petersen, another member of the commission, said none of this means solar is dead in Arizona. She said many of the companies coming to Arizona like Google, Microsoft and Amazon have their own clean energy goals.

“Based upon market demands and the low cost of solar, I believe that renewable energy will continue to thrive in Arizona without a renewable energy mandate,’’ she said.

Legal fight possible

Democratic Attorney General Kris Mayes pledged to fight the effort, calling it illegal because the commission is abdicating its constitutional duty to set just and reasonable rates. Mayes sat on the Commission as a Republican when the REST standards were adopted.

In a letter to the commission, Mayes noted that the commission staff’s own analysis of the repeal proposal “concedes that doing so will harm Arizonans. Bills will likely increase for individuals and for businesses.’’

Growth in the vibrant renewables industry, which employs nearly 10,000 workers, could stall, and tax revenue going to local and state government could drop, she wrote. The industry is already facing headwinds from the repeal of tax credits in place for years.

The benefits to the utility industry, lower regulatory and administrative costs, “pale in comparison,’’ she wrote. She said the move is also illegal because the original REST rules were passed in a full-blow rate case but the commission is repealing them through administrative rulemaking.

In an interview, Mayes said her office won’t sit back and watch the commission undo the rules.

“We’ll see whether we have to sue,’’ she told Capitol Media Services. “They are going to be going through a long rulemaking process here that we will engage on, and we will make every argument for why they should not repeal the REST rules.’’

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Mayes ticked off a series of concerns about eliminating the renewable energy mandate, concluding that APS and other utilities would stop expanding their solar and wind investments to focus on natural gas plants.

They also have a financial incentive to do so, because owning and building a gas plant is far more lucrative: The cost of building gas plants gets folded into electricity rates, essentially passing the costs on to customers.

“There’s a reason the utilities want to build natural gas plants more than they want to build renewable energy,” Mayes said. “And that’s because they make more money off of that kind of plant.’’

The commission’s vote to end the REST rule comes just four years after commissioners nearly adopted a rule mandating 100% clean energy by 2050.

Power demand rising

Clean energy advocates testified Thursday against the repeal, noting that with huge new power demand expected from data centers and computer chip plants, utilities will soon slip below the 15% target for renewable power as they build new gas plants.

“Given the load growth projected by the (utilities), the plans to spend approximately $5.3 billion on a new gas pipeline, and APS’s recent announcement that they are reneging on all of their clean energy goals, there is absolutely no certainty that the utilities will remain at 15%’’ Autumn Johnson of the Arizona Solar Energy Industries Association told commissioners.

More concerning for consumers, she said, is that natural gas is subject to wild price surges — and wind and solar are not. About half the state’s power currently comes from gas plants.

“This over-reliance on these specific technologies, all of which have out of state supply chains, is a vulnerability for Arizona,’’Johnson said. “It also can have unexpected and dramatic impacts on costs, as many of you witnessed firsthand.’’

Besides APS’s Aug. 6 announcement that it was ending it’s 2020 commitment to be carbon free by 2050, the company also ditched its plan to shut down the big coal-fired Four Corners Power Plant in New Mexico seven years early.

Although APS is walking back the closing date, a spokesman said Friday the newly announced 2038 closure plan isn’t set in stone.

“We expect that our exit from coal will be no later than 2038, consistent with the end of operations under our Four Corners lease,’’ spokesman Mike Philipsen said in an email. “Coal is an important part of our balanced energy mix today, and we will not exit it any earlier than is in the best interests of our customers to ensure reliable service at the lowest cost possible.’’

Philipsen said the company’s decision to end its clean energy by 2050 pledge was driven by the need to ensure reliable energy at the lowest cost amid surging demand. Removing the 2030 goals was done for the same reason.

“The interim goals have been removed to better match our near-term resource needs, which include natural gas along with renewable and clean energy projects,’’ he said.

‘Going in the wrong direction’

All that said, Philipsen said APS remains committed to renewable energy, if it is reliable and cost competitive.

“Clean-energy resources — such as solar paired with battery-energy storage — that provide a ‘best-fit, least-cost’ solution to serving our customers (as demonstrated through our competitive all-source request for proposals process) will continue to be a key part of how we provide reliable service at the lowest cost possible for our customers,’’ he said.

Philipsen put solar and wind power total at 19% of APS’ electricity supply. And with the Palo Verde Nuclear Generating Station west of Phoenix, 54% its power comes from carbon-free sources.

“Arizona is growing fast and we’re making sure we’re planning for the increased energy demand we anticipate in the future,’’ he wrote in the email. “By 2038, APS customers will require more than 13,000 MW of energy to serve peak needs, a staggering 60% increase over today’s peak demand which took APS 140 years to reach since it first began serving customers.’’

A megawatt is enough to power about 160 homes. APS has broken its own peak energy demand records three times this summer.

APS has 1.4 million customers in 11 Arizona counties. TEP supplies electricity to nearly 560,000 homes and businesses in Pima County while Unisource, also a subsidiary of Fortis, have more than 107,000 customers in Mohave and Santa Cruz counties.

For Mayes and other clean energy advocates, that growth is another reason to boost the supply of renewable energy, the least expensive source of new power today at less than 4 cents a kilowatt hour. Arizona’s average retail power price for residential customers was just under 16 cents a kilowatt hour in May, according to the U.S. Energy Information Administration.

By comparison, retail residential rates per kilowatt hour in California sit at 35 cents, Nevada at 13.3, Utah at 12.6 and New Mexico at 14.6 cents.

Mayes said both the commission and APS should be embarrassed by their moves.

“Frankly, it’s pathetic that these commissioners would attempt to eliminate the renewable energy standard. It’s embarrassing,’’ she said.

“It is absolutely going in the wrong direction, and it’s not where other states are, but certainly it’s where Donald Trump is,’’ the attorney general added. “So one can imagine, that’s why they’re a part of the reason why they’re doing it.’’

As for APS, she said their move to end their commitment to renewable energy is bad for consumers, especially after five years of promoting its clean energy commitment.

“It tells me that this utility doesn’t give a damn about its consumers,’’ she said.

“And you know, it just spent a whole lot of time greenwashing itself,’’ Mayes said. “And it’s got a commission that is doing it’s bidding in a lot of different ways. So, yeah, APS should be ashamed of itself.’’