Arizona Public Service is engaged in a campaign to undercut solar power in the state. The 18,000 APS customers with solar panels essentially get a credit on their bill for the energy they don't use from the regular electrical grid. APS complains, as an Arizona Republic story put it, "customers with solar often see their bills reduced to the point that they are no longer contributing toward routine costs associated with maintaining the power grid. That, they say, forces customers without solar to pay the entire cost of maintaining the grid, even though solar customers use the grid to get power at night or when clouds pass overhead and to distribute their excess electricity." APS is asking the Corporation Commission to allow it to charge new solar customers an average of $50 to $100 more.
This has produced protests and at least one critical editorial. It is happening against a backdrop of efforts to "deregulate" the state power market (California, Enron, hello…?). Even the long arm of the Koch brothers is reaching in to support APS. The state's nascent solar industry is fighting on the other side. But with the powerful and little-scrutinized Corporation Commission now firmly in the hands of the Kookocracy — I'll make an exception for Susan Bitter-Smith — APS may well win. It would be one more headwind facing solar power in the sunniest state in the union. Perhaps worse, it distracts from the conversations we ought to be having about solar. With most of the reporting being "he said/she said" stories intended to avoid irritating powerful APS, it's difficult for most Arizonans to get the facts or explore the larger issues. I'll try to make a beginning in the next few columns. But today I'll focus on APS.
The company's argument is bunk. All customers must pay a basic fee that includes maintenance of the grid. But the attempt to kill solar in the crib — 18,000 customers out of more than 1 million — shows how the state's largest utility is accustomed to wielding influence and getting what it wants.
Like all investor-owned utilities, APS sticks by a narrative that essentially goes like this: The company and its shareholders have built the system, but are constantly kept on the brink of bankruptcy by meddlesome regulators. The reality is quite different.
APS owes its existance to the federal government, which in 1945 broke up the North American Power & Light Co., partly under the belief that it would be better if its individual units were locally owned (a very different, and healthier, philosophy than has been pursued since 1980). A group of Phoenix businessmen and farm moguls including lawyer Frank Snell got a great deal and brought local control to what was first Central Arizona Light and Power. They bought Northern Arizona Light & Power and Arizona Edison and APS was born in 1952.
Like most utilities — the Salt River Project (aka The Kingdom and the Power and the Glory) is a different animal and the topic for another column — APS is regulated by the Corporation Commission. But although the commission was the creation of the Progressive Era intended to act in the public interest, it has mostly been an arm of Arizona Public Service. The commission allows APS a monopoly. It gives APS a guaranteed rate of return which, protestations notwithstanding, the utility's viziers usually have substantial leeway in crafting.
This has not always worked to the benefit of ratepayers or even the company. For example, despite benefiting from and encouraging explosive growth in its service area, APS was carrying more than $2 billion in debt in the 1980s. To work a runaround on the commission's minimal — one could never be sure of a populist turn — regulation, APS formed an unregulated holding company, Pinnacle West Capital. This allowed CEO Keith Turley to diversify into such areas as real estate and the savings and loan sector, both roaring ahead in the late 1980s. Remember Merabank? That was a Pinnacle West unit, a gamble that ultimately cost taxpayers $1.5 billion when it failed in the scandal-driven S&L collapse of 1990. Michael Lacey wrote in New Times in 1989, "When the story is fully told, I think Keith Turley's greed will rival
Charles Keating's penchant for buying U.S. senators in sheer gall." As Bill Clinton would say, it takes some brass to be complaining about a "subsidized" solar sector after the many public troughs at which APS has fed (and still nearly ran into the ground).
And there have been many. The American utility grid, as flawed as it is, is at the least the creation of a public-private partnership. Power was, and largely remains, relatively cheap in Phoenix because of massive federal projects. APS can, for example buy power when it needs it from, say, the Bonneville Power Administration, a New Deal creation. Don't forget Hoover Dam. The coal plants APS operates have been allowed to use the commons, aka the atmosphere, as a dump free of charge. Utilities enjoy a host of other subsidies. Oh, yes: for years, APS got a free ride from the Nuclear Regulatory Commission despite consistent troubles at the Palo Verde Nuclear Generating Station — one investigative report by the NRC, one of the most compromised and easy-going regulators, said that "cost controls have been viewed as more important than safety" at the plant. Even so, the NRC renewed its license for another 20 years in 2011.
Palo Verde. Construction began on the nation's largest nuclear generating station — largest power source of any kind — in 1976 and operations commenced a decade later. Although APS had partners in Salt River Project, El Paso Electric and others, it was the driving force and remains majority owner. Palo Verde's $5.9 billion cost was staggering and helped destabilize APS and some of the other utilities involved. It is the only nuke not built near a large body of water — water necessary for cooling, to avoid, well… Instead, we are told, the station recycles 20 million gallons of municipal effluent to keep the rods cool. It is also located approximately 40 miles upwind of the nation's sixth-largest city, and is quickly being encroached upon by the sprawl that APS has done so much to encourage. With much of Palo Verde's power sold on the grid, it is also an example of the priceless Sonoran Desert being degraded and put at risk to provide energy to California.
The old Arizona Public Service was at least a civic leader of great consequence (even when misguided, as in advocating freeways). After its near-death experience of 1990, it shed thousands of employees and was much diminished as a force for improvement. At least it kept its headquarters downtown, the last of a distinguished cohort that once included Valley National Bank and Central Newspapers. During the optimistic first term of St. Janet, Pinnacle West boss Bill Post lent his name to all manner of progressive ideas, even saying at one gathering that sprawl was bad and needed to be stopped if Phoenix was to have a sustainable future. Public affairs capo Marty Shultz championed many good causes, including the homeless services campus. But the company was torn between such sentiments and its de-facto membership in the Real Estate Industrial Complex. Now, apparently, all it can do is ride the status quo of more single-family houses, more sprawl, more dependence on traditional means of generating electricity. And find a way to stymie solar.
The great irony is that the international solar power movement was founded in Phoenix by, among others, executives of Arizona Public Service. But that is a story for the next column.
Bravo for delving in, Mr. Talton! I will be anxiously awaiting Part II. I have a million things to say, but deadlines loom…
The article reminds one of the many, many levels of white power Republican corruption under cover of Arizona governance over the past 35 years. Who needs a mafia when you’ve got criminal thugs like Symington, Mecham, Keating and so forth doing massive fraud at the highest level of state government? They are just as corrupt today.
This is totally off topic, but while driving to work, I was listening to our local Seattle NPR station and the moderator was discussing Detroit and why that particular city has failed with some ‘expert’.
I was only halfway listening, but I noticed that the speaker spoke very slowly and deliberately, choosing his words carefully (like old-school AZ natives are wont to do). At the close of the segment, to my surprise, the moderator thanked a Mr. John Talton, a writer for the Seattle Times and the Post Intelligencer on business matters.
Wow…. That is most definitely ‘Cool Boots’, Rogue!
Thanks for covering this, Jon. Great piece!!
Thanks, headless. I have a regular segment on KUOW’s Weekday program at 10:40 about every third Wednesday, and sometimes they have me on for short pieces. One correction: I am economics columnist for the Seattle Times. The Post-Intelligencer is a different and competing “paper” (now, sadly, only online).
What’s interesting to me is that the same consulting company that APS hired to provide a study valuing solar panel electricity at 3.6 cents per kilowatt-hour, is the same company that APS commissioned a study from in 2009 which valued solar panel electricity as high as 14 cents per kilowatt-hour.
The only thing that changed is that in 2009 APS (and the consulting company) were still expecting big population growth and development in Arizona; and now they aren’t.
https://www.azcentral.com/business/arizonaeconomy/articles/20130514aps-solar-industry-odds-power-rooftop-units.html
This is really an issue that is driven by arguments and numbers. Yes, APS has benefitted by subsidies; yes, big corporations are greedy. Yes, consumers already pay a fee for infrastructure.
The question is, do the APS subsidies to individuals for solar panel power (which are apparently paid at retail rates rather than the wholesale rates paid to businesses with panels) erase that fee (and then some) for residential solar providers? On the other side of the coin, what of arguments about residential solar’s cost-saving effects on infrastructure?
I’d also be curious to know what Barry Goldwater, Jr. has to gain from all of this: his ownership interest in solar companies, etc.
Sun and water:
would someone explain why they put CAP water in an open ditch rather than a closed pipe?
Is the Republic’s Shaun McKinnon now out to pasture? For years, he did some excellent work on environmental matters and has now faded from view.
Off Subject I would like to refer you all to Bill Richardsons column on St. Janet.
https://eastvalleytribune.com/opinion/columnists/article_07c59a68-f3f8-11e2-9e71-0019bb2963f4.html
Dont hold it against Bill that he was a cop as he was a really good cop for the people.
This is from Channel 12’s Sunday Square Off:
https://www.azcentral.com/news/politics/free/20130125sunday-square-off.html
Notice how indignant Adams gets over legitimate questions (pay no attention to the dark lords behind the curtain or my own alleged criminality!).
I’ve given this some additional thought. In order to understand what’s going on it’s necessary to stay focused on the key issue:
In 2009, when APS assumed that Arizona’s traditional model of high population growth and development would continue (or resume post-recession) it supported current solar panel compensation rates for homeowners. Now that its model assumes (comparatively) low growth, it opposes those same compensation rates. Why?
The answer is related to the fact that APS supported subsidies for homeowners to increase their energy efficiency by updating homes using modern insulation technologies and methods and new, more efficient cooling and heating equipment. Subsequently, it raised rates, telling the Corporation Commission that increased efficiency had decreased its revenues to the point of fiscal unsustainability:
“…last year’s rate increase by APS, brought on by the success of energy-efficiency programs. Less electricity was sold because of the programs, leaving APS’ parent company, Pinnacle West Corporation, with less revenue to pay bills. Because APS is allowed by the Arizona Corporation Commission to make a predetermined profit to promote stability for such a vital service, the company is allowed to boost its rates to make up losses.”
https://www.phoenixnewtimes.com/2013-07-11/news/an-epic-battle-between-solar-firms-and-power-utilities-could-leave-one-side-unplugged/full/
The common denominator is APS’ inability or unwillingness to sell less juice. If the population doesn’t grow, then every solar conversion and energy efficiency increase by conventional electricity users results in less juice sold by APS. If the population grows slowly but solar conversions and energy efficiency improvements grow faster still, APS also sells less juice. Only if the population grows quickly enough relative to the rate of solar conversions and/or energy efficiency improvements, does APS maintain or increase its sales of electrical power. (Obviously, increased nighttime temperatures over time tend to increase electricity usage, but that’s an extraneous factor.)
The real problem, then, seems to be a utility model which incorporates contradictory premises. On the one hand, business and residential customers have a cost-saving incentive to be more efficient and use less energy; on the other, APS is unhappy if its total customer base uses less energy, and raises rates to offset this.
The same is true for solar. If clean energy cost incentives reduce total APS electricity sales (or cut into sales growth targets) then APS reduces the incentives, because it’s unhappy in selling less juice than it otherwise would. That conventionally generated electricity customers would bear the burden of offsetting rate increases if the solar compensation rate isn’t reduced might be true, but only because APS insists on offsetting rate increases in order to maintain or increase the amount of juice it sells.
This is a fundamental contradiction: the whole point of both clean energy (like solar) and increased energy efficiency of homes and businesses is to decrease conventional power generation (whether per capita or absolutely); but the whole point of APS’ pricing model is to maintain or increase conventional power generation levels.
This is a serious problem. If APS’ operating cost claims are true, then a new utilities ownership/operating model is called for. If its claims are false, then a new regulatory crackdown is necessary. Both are unlikely while a Republican majority controls the Arizona Corporation Commission.
How much juuce do u have to give a politican to insure your stock holders make the profit they have grown use to?
Here’s an answer to Cal’s question. It (the comment reproduced below) smells like the work of a lobbyist or PR flack, and to what extent the details are true I can’t say, particularly the “historical” (what does that mean, exactly?) 5-6% profit per year (and who determines APS profits other than APS?). Nor does it change what I wrote above. But it does address the question of profit.
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https://www.dcourier.com/main.asp?SectionID=36&SubSectionID=73&ArticleID=115989
Comment, posted by “Always Profits Secured at utility” dated February 13, 2013:
Arizona Public Service (APS) has a fiduciary duty to improve or maintain shareholder value.
As a corporation enjoying a monopoly, it is regulated by the Arizona Corporation Commission (ACC).
To insure consumers receive power from that monopoly, ACC must secure APS profits in order to maintain share prices and future investment opportunities, as well as insure the credit status of APS.
Historically, this has required a regulated profit in the range of 5 to 6 per cent per annum.
With decreased profits due to decreased sale of kilowatt-hours, ACC has granted a charge to offset the continuing fixed costs of operations, transmission, maintenance and upgrades to the APS infrastructure.
It has also granted a rate increase per kilowatt-hour usage to allow for and secure that APS continues to provide power to current consumers, as well as plan, build and provide power for Arizona’s future needs.
This is in addition to the existing charge to consumers to provide mandated funding for the subsidies of alleged “green power” systems such as solar and wind generation, whether that be by consumer rooftop photovoltaics, or larger scale commercial power production not reliant of fossil fuel or nuclear sources.
You asked for it, you got it!
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Thank U!
Speaking of ‘the grid” (on Sunday Square Off (thank you eclecticdog)) and NPR; On NPR’s Diane Rehm show a day or two ago, I listened to a segment about ‘Managing The Nation’s Electricity Needs’, subtitle: electric suppliers efforts to keep up with demand. It is also about government’s role in updating the grid. https://thedianerehmshow.org/shows/2013-07-23/managing-nations-electricity-needs#comments
My guess is that APS reads the writing on the wall, with Fukushima still emitting clouds of isotopes the future for nuclear is unclear.
One more link: https://lumencache.com/
The future, however, for ‘nukular’ power still shines brightly in the minds of many ‘Murricans’.
I may not make it to a library tomorrow or Saturday so decided to post this here ahead of this week’s Friday Saloon. The reference to Gannett was quite a surprise to me.
From journalist John Roy Carlson’s “Under Cover: My Four Years in the Nazi Underworld of America” (E.P.Dutton & Co., 1943), pp. 472, 474-5. Parenthetical comments are mine.
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As I continued my investigations among groups fronting for those “big business” interests who hated the President (FDR) more than Hitler, I saw that they were often headed by men who had grudges that went back as far as the last war (WW I).
Take for example the Committee for Constitutional Government which financed (during WW II) tremendous lobbying campaigns and collaborated with America First (a fascist influenced/controlled WW II era isolationist/appeasement political movement). In one instance alone it financed the printing and distribution of 16,000,000 pamphlets (12% of the total U.S. population, including infants and children, of 132 million in 1940)…
Its program of “constructive Americanism” is directed by executive secretary Dr. Edward A. Rumely who served a sentence in the Atlanta penitentiary as an agent of Imperial Germany (during WW I).
. . . . Rumely is boss (executive secretary) of the Committee for Constitutional Government and second in command to Frank E. Gannett, publisher of a string of newspapers and founder of the Committee in 1937.
. . . . Rumely’s friendship with Henry Ford dated prior to the summer of 1918 when Ford rushed to Washington in an unsuccessful attempt to save Rumely from being indicted.
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There is a lot going on at the ACC, and the issue should not be conflated. Before turning to the substance, I have to politely disagree that the ACC is “in the hands of the kookacrocy.” Certainly the members of the Commission are, by and large, conservative to one degree or another, but they are also well-informed, thoughtful, and transparent. Chairman Bob Stump, for instance, is a graduate of Harvard Law and UC-Berkeley. The Commission staff likewise has a degree of professionalism that distinguishes them from others.
As for the issues, two open dockets are drawing the most attention. The first, No. E-01345A-10-0394, is a proceeding initiated to evaluate APS’ contention thatthe economic terms pursuant to which it accepts and credits distributed energy (most prominently rooftop solar) back into the grid. APS claims that the terms disfavor both APS and its non-DG customers. In this proceeding, it’s basically APS and Tucson Elextric Power versus everyone else, including many rooftop solar providers and companies, as well as some large customers such as Wal-Mart and the Veterans Administration. The opponents claim that the utilities’ proposal to adopt a “Track and Record” mechanism for demonstrating compliance with Arizona’s renewable energy standard tariff will cost them money, as they will not longer be able to sell credits for the renewable energy generated by their rooftops. (The REST requires utilities to generate or source an increasing share of their power by renewable means). The pro-solar side also argues that changing the economics of the status quo will be a disincentive to future solar investments. Many faith-based and poverty groups have also expressed fear that competition would raise prices for the smallest customers.
Independently, the Commission has opened a separate docket (No. E-00000W-13-0135) on whether Arizona should again consider transitioning to retail electric competition (that is, to make regulated utilities compete with other geenrators for retail business). The lineup on this issue is a bit different. APS, SRP, the Navajo Nation, many rural co-ops, and various utility investory groups are vigorously against retail competition, arguing that it would produce no real savings (especially for small customers), would create an unstable market, and would disrupt investment and planning. SRP and the Navajo Nation have argued that retail cometition could cause the death of the Navajo Generating Station, and APS has asserted that even the opening of the analysis has delayed its sale of the Four Corners Plant. The Sierra Club has also weighed in against competition, arguing that it might be an impediment to renewable development.
Those in favor of competition include the Goldeater Institute, large customers like Freeport McMoRan (fka Phelps Dodge), WalMart, and several groups that represent large national power generators. The pro-competition side has also attrached the support of the Sonoran Institute, a conservation group normally aligned with the Sierra Club to some extent.
It’s hard to say how this will all shake out, but there are vigorous and powerful advocates on both sides of the issue, indicating to me that the merits rather than politics will carry the day.
If you want to read more, the the ACC web site (azcc.gov) contains all of the filings in both dockets. Go to the bottom of the page, look for “e-deocket,” type in the docket number, and click on the PDDF version (to the left) of whatever you want to read.
Or read Cadillac Desert.
if the Navajo generating plant shuts down does the CAP pumps shut down?