Policy Background Memo Clean Energy Standards

Context and Value of Business and Institutional Voice The Arizona Corporation Commission regulates Arizona’s investor-owned electric utilities, including Arizona Public Service Company (APS) and (TEP).1 More than a year ago, the Commission initiated a rulemaking proceeding to consider changes to a number of policies including for renewable energy, energy efficiency, transmission planning, and resource planning – among other topics.2 The energy rules process has taken so long in part because Commission staff have slow-walked this process and proposed inadequate draft rules that would fall short of actually enabling more investment in efficiency and renewables – including an initial version that lacked binding deployment targets.

In a recent Commission meeting, Chairman Burns requested Commission staff to provide modifications to the energy rules proposal by the end of June or the first week of July. The Commission will review the updated draft rule and then vote to open a formal process to finalize the energy rules, which will likely take place on July 30th. We want to finalize ambitious rules by the end of this year (before key champion Chairman Burns leaves office). In order to do that, all Commissioners must be in agreement by the time of their vote because there can be no substantive changes made to the proposal once the formal process is underway. Therefore, we plan to submit a letter before July 30th that supports strong standards – specifically a 50% by 2030 renewable energy standard, a 35% by 2030 energy efficiency standard, and a 100% by 2050 clean energy electricity standard. These targets are directly aligned with Chairman Burns’ position.

Arizona Commissioners need to hear that the state’s large employers and energy users support robust clean energy standards, including technology-specific standards for renewables and efficiency, as key tools to drive investment, expand clean energy access for businesses, institutions, and residents, and support economic recovery across the state. Companies and institutions with a large presence in Arizona are in a unique position to influence the direction that the Commission ultimately adopts.

Please note: This is a living document that will be updated periodically as the energy rule modifications are submitted by Commission staff. Ceres and partners will keep prospective signatories apprised of updates as this process moves forward.

Existing Regulation: Arizona’s Clean Energy Standards ● Renewable Energy Standard and Tariff (REST). Adopted by the Commission in 2006. Requires regulated electric utilities to obtain renewable credits (RECs) from eligible renewable resources to meet 15% of their retail electric load by 2025. 30% of the RECs must come from distributed generation (DG) by 2012 and thereafter. The REST includes annual benchmarks. While aggressive at the time of its adoption, the REST is being met easily by AZ’s utilities today and is no longer driving renewable energy growth. Each year, Arizona's utilities are required to file

1 The Commission does not regulate (SRP). 2 See ACC Docket No. RU-00000A-18-0284, “In the matter of possible modifications to the Arizona Corporation Commission's Energy Rules.” annual implementation plans describing how they will comply with REST.

● Electric Energy Efficiency Standard (EEES): Adopted by the Commission in 2010. Requires regulated electric utilities to achieve 22% energy savings by 2020 (energy savings of 20% of retail energy sales by 2020, plus 2% for reductions from demand response). Includes annual energy-saving benchmarks. Utilities must submit annual or biennial implementation plans to detail progress in meeting goals and to estimate cost and energy savings for programs over the next two calendar years.

Timeline ● Chair Bob Burns has requested Commission staff to provide modifications to the energy rules draft proposal by the end of June or the first week of July. ● The Commission will review the updated draft and then vote to open a formal rulemaking process. The formal rulemaking process will include public hearings. ○ The Commission vote is likely to take place on July 30th. ● To finalize the rules by the end of this year (before key champion Chairman Burns leaves office) there can be no substantive changes made after the initial Commission vote. Therefore, we plan to submit the letter before July 30th. ○ Please note: There is the possibility that this timeline might change. We will be sure to keep prospective signatories updated.

Political Landscape Commissioners: ● A simple majority vote (3 of 5 elected Commissioners) would be needed to approve the new requirements. ● Here is a "best guess" on where each Commissioner stands: ○ Chairman Bob Burns (R): the leading voice on moving forward with the rulemaking and would like to finalize the rule before he leaves office in Jan. 2021. He has expressed his support for 100% clean energy by 2050, a 35% EERS by 2030, and a 50% REST by 2030. ○ Commissioner Justin Olson (R): opposed to standards, see his op-ed that ran in the Arizona Republic here. ○ Commissioner Sandra Kennedy (D): likely to support new requirements. She has submitted comments in support of 100% clean energy by 2040 (but would support by 2050), a 50% REST by 2030, and 35% EERS by 2030. ○ Commissioner Boyd Dunn (R): Previously proposed a 85% clean energy standard, a 35% REST by 2030, and a 35% by 2030 EERS (see his plan here). However, in recent months, Dunn has expressed concerns over the need to establish technology-specific standards for renewables and energy efficiency. Dunn seems open to a 100% clean energy standard. ○ Commissioner Marquez Peterson (R): Peterson expressed support for a 100% clean energy standard, however she remains hesitant to support individual standards for renewables and energy efficiency. Utilities: ● Arizona Public Service (APS): Believes that any standards developed by the Commission should incorporate flexibility, adaptability, and simplicity. The utility recently announced ambitious new sustainability goals that includes a 100% carbon-free electricity goal by 2050, 45% renewable energy by 2030, and coal-free electricity by 2031. ● Tucson Electric Power (TEP): Currently on track to meet 30% renewables by 2021. Prefers that any resource direction be set and decided through the integrated resource planning process.

Business and Large Energy User Community: ● American Express submitted comments highlighting support for an increased REST. See their comments here ● The Arizona Technology Council, a technology-driven trade association with over 850 members, submitted comments in support of a 50% REST by 2030 and a 100% carbon-free goal by 2050. ● Arizonans for Electric Choice and Competition: Represents the state's large industrials, primarily FreePort McMoRan, a Phoenix based mining company. Strongly focused on trying to get retail competition implemented in the state (though retail competition faces legal obstacles) and believes that competition can deliver more renewables. Supports goals not requirements. See their comments here.

The Importance of Technology-Specific Standards for Renewables and Efficiency Renewable Energy ● Arizona is competing with other states that have set aggressive targets for renewable energy and are incentivizing those projects, which could make that energy cheaper and more ripe for importing. ● Without technology-specific standards, Arizona’s clean energy rules may not necessarily translate to being built in the state. Thus, Arizona would lose out on the significant benefits associated with in-state projects from job creation and increased tax revenues to improved air quality and reduced water consumption.

Energy Efficiency ● Energy efficiency investments in particular face significant regulatory barriers. Under most utility business models, including for Arizona’s electric utilities, profits are linked to selling more energy. This incentive to sell more electricity discourages energy efficiency. ● Without an EERS or a similar requirement, energy efficiency would be left to the discretion of utilities which means little to no efficiency would likely be achieved despite being Arizona’s least-cost resource. ● For example, a new demand-side management plan for APS has not been approved since 2017 – and energy savings proposed by the utility have declined each year (2017 = 1.64% energy savings; 2018 = .85%; and 2019 = .6%).3 ● A Robust EERS will ensure there is sustained investment in energy efficiency, which is critical to helping businesses and homeowners keep their energy costs low and predictable.

Economic Opportunity ● The REST and EERS are important drivers of economic opportunity for Arizona: ○ Ceres recently commissioned a report which found that from 2008 to 2018 the REST: ■ Provided $2 billion in gross benefits to Arizona utility customers and the public;

3 Comments of Arizona Pirg Education Fund, Building Performance Association, and Southwest Energy Efficiency Project, https://docket.images.azcc.gov/E000006108.pdf. Percentages are net savings at the customer level and do not include the savings credit from the Demand Response contribution Energy Storage and Load Management Rewards Programs. ■ Attracted $11.62 billion in solar-industry investments, which has stimulated job growth and market development; ■ Reduced statewide greenhouse gas emissions by 3%, leading to improvement in air quality and public health; and ■ Savings of 7,129-acre feet of water annually, enough water to serve the needs of nearly 44,000 Arizonans each year ○ A 2019 analysis found that renewable energy has stimulated more than $9 billion in economic activity and resulted in more than $16 million in tax revenues in Arizona’s rural areas alone. ○ Analysis has found that from 2008-2016 energy saving efforts implemented by the state’s three largest utilities have created nearly $3 billion in net economic benefits. ○ The clean energy industry employed more than 62,000 Arizonans as of 2019.