Renewable Portfolio Standards – Arizona

Updated March 2006: In February 2001, the Arizona Corporation Commission (ACC) adopted a renewable portfolio standard [known as theEnvironmental Portfolio Standard (EPS)] requiring that utilities derivea portion of their electricity through renewable sources – topping out at 1.1 percent of sales in 2007. Sixty percent of the standard in 2007was supposed to be met by solar energy.

Since the EPSgoals were not being met, in August 2005 the ACC voted to change and expand the program. The ACC set a higher renewables requirement for the state’s utilities, raised the rates that utilities may charge toadminister the program and dropped the mandatory solar energyrequirements of the previous program.

A final ACC ruling on the new proposal was made on February 27, 2006. Before taking effect, the rules must go through a review by the Attorney General’sOffice and a formal rulemaking process with the Arizona Secretary of State’s office. It could be late in the third quarter or early in thefourth quarter of 2006 before the regulations are binding.

According to the ACC’s new plan, the state’s utilities must procure 15% of thestate’s electricity from renewable resources by 2025 and submit to anannual review. The solar requirements have been dropped and a newrequirement for local distributed generation was added. The ACC votedto require that 30% of the EPS requirement be met by local onsiterenewables installed by homes and businesses.

The state’s two largest utilities, Arizona Public Service and TusconElectric, had retail sales totalling about 34 billion kWhs in 2004. A15 percent standard using this 2004 sales figure would require 5.1billion kWhs of renewable electricity generation (or credits). Assumingan average capacity factor of 25 percent (estimate of combining solar,wind, biomass), these two utilities would need about 2,300 MW ofrenewable capacity.

The distributed energy requirementstarts at 5 percent of the total portfolio in 2007 and grows to 30percent of the total required renewable energy mix after 2011. Thedistributed energy portion of the standards allow utilities to count avariety of solar thermal projects towards the 30 percent requirement(e.g. solar hot water, solar industrial heating and cooling, solarspace heating or cooling system). A solar thermal project thatdisplaces the equivalent to 3,415 British Thermal Units (Btus) of heatis given one renewable energy credit – equivalent to 1 kWh of renewableelectricity.

The new rules allow renewable projectsinstalled before December 31, 2005, to receive "extra credit" up totwice the actual kWhs produced for various factors. The ACC is alsoallowing utilities to count out of state renewable energy developmentin meeting the standard. And renewable energy credits are allowed to betraded.

To help offset the increased cost of meetingthe more aggressive standard, the current Environmental PortfolioSurcharge amount will change. Currently, customers pay $0.000875 perkilowatt-hour. The new surcharge amount is $0.004988 per kilowatt-hour.There are monthly caps in place to limit the total impact on customerbills. Currently, residential customers are capped at 35 cents. The newcap will be $1.05. Nonresidential customers currently have a cap of $13but that will increase to a maximum charge of $39.00. For extremelyenergy-intensive commercial accounts (mines, heavy manufacturing, etc.)the surcharge is capped at $117, up from $39.