THE BLOG
10/14/2013 01:14 pm ET Updated Jan 23, 2014

'Big Coal' Favored Over Electric Power Competition in Arizona?

Arizona's storied battle over net metering is expected to come to a head in mid-October, when the five-member Arizona Corporation Commission (ACC) decides to vote on it, or send it before an administrative law judge. But before Arizona's net metering issue ever surfaced, the state utility commission had decided to explore opening the state's electric markets to competition -- something Arizona briefly tried before.

ACC planned to hold public hearings to gauge how electric deregulation might impact the state, opening a docket for written public comments. And those comments came pouring.

"Stakeholders have said that 'we don't want you to delay the vote,'" Jodi Jerich, ACC Executive Director told me in early September.

But seemingly out of nowhere, the commission voted 4-1 during a routine meeting on Sept. 11 to quietly shelve the deregulation proposal. While there were plenty of good reasons to reject electric deregulation outright (high retail electric prices; no other Rocky Mountain deregulated state as a model; the possibility of electric market manipulation like California's Enron scandal and now with J. P. Morgan), the ACC simply cited qualms about its "constitutionality."

Yet, one of the biggest concerns expressed in written comments asking ACC to "immediately end its inquiry" into deregulation was the impact it would have on the region's coal-fired power plants and coal mines.

"It's been very interesting to see how groups have responded on the coal plant issues, and it certainly does highlight the risks of these big old coal plants and the risks of investing more dollars in them," said Sandy Bahr, Director of the Sierra Club's Grand Canyon Chapter.

Arizonans for Electric Choice & Competition, Direct Energy, Noble Americas Energy Solutions, Constellation New Energy, the conservative Goldwater Institute, Americans for Prosperity -- Arizona, Freeport-McMoRan Copper & Gold Inc., and the Arizona Mining Association had all urged the ACC to move forward with deregulation.

Interestingly, most solar energy groups became strange bedfellows, since they were not opposed to deregulation.

"We operate currently both in regulated and deregulated markets. It doesn't make a big difference," said Edward Fenster, Co-CEO of SunRun in a phone interview. "We've probably seen less opposition in deregulated markets honestly because utilities are used to competition."

In comments filed with ACC, the Alliance for Solar Choice noted deregulation and solar net metering "are compatible." Vote Solar, NRG Solar, SunEdison, Solar Alliance, and the Solar Energy Industries Association (SEIA) agreed.

"There are a number of states that have a deregulated electric market that also have thriving renewable energy standards, such as New York and New Jersey," said Rhone Resch, SEIA President and CEO in an email response.

Opposing deregulation were the Arizona Power Consumers Coalition, and the state's largest utilities: Arizona Public Service, Tucson Electric Power, and Salt River Project.

"What you see over and over in the states that deregulated, the large energy users peel off, they go make their own deal," explained Nancy LaPlaca, an energy consultant who served as policy adviser to former Arizona Corporation Commissioner Paul Newman from 2009-2012. "What scares the bejesus out of the utilities is they know if they are forced to have deregulation, then they get stuck with all the residential people and that's where you make less profit."

But most telling was how the coal interests rallied behind opposition from the Navajo Nation, which covers parts of northern Arizona and New Mexico. Tribal leaders feared new electric competition would force the closing of both the coal-fired Four Corners and Navajo Generating Stations, as well as the two coal mines that supply them -- all located on their reservation and all supplying land lease revenue and jobs.

In written comments to the ACC, Navajo Nation President Ben Shelly said closure of the two power plants "would be catastrophic for the Navajo Nation."

The state's largest utility -- Arizona Public Service -- had cited deregulation uncertainty for delaying their long-planned buy-out of the Four Corners Power Plant outside Farmington, N.M. If that plan fell through, the power plant would probably close.

That would be bad news for the Navajo Nation, who had just formed the Navajo Transitional Energy Company (NTEC) in April in order to buy the Navajo Coal Mine in New Mexico from Australia's BHP Billiton, which supplies 8 million tons of coal a year to Four Corners. The tribe planned to continue selling coal to the plant, but APS made plain that it would not sign a coal purchase agreement until Arizona's deregulation issue was settled.

The Navajo Nation has a similar interest in the Navajo Generating Station near Page, Ariz. Closing that power plant would affect nearby Peabody Energy's Kayenta Coal Mine since the power plant is the mine's only customer and tribal leaders had just agreed on a land lease extension through 2044 with the power plant's operator, Salt River Project. The new lease would raise annual tribal revenues from the 1969 price of $3 million a year to $44 million a year when it takes effect in 2019 -- the same year the land lease with Peabody's coal mine is up for renewal.

But Salt River later wrote the ACC on Aug. 16 that "NGS will require significant investment to keep the plant operating," warning that "a deregulated electric market will not support this type of investment."

The odd logic for keeping the coal plants and mines open is it gives the Navajo -- and the southwest -- an avenue for "transitioning" into "more renewable and alternative sources" of energy. That's because the Navajo's energy company, NTEC, is mandated "to reinvest 10 percent of its net income in clean and renewable energy resources." According to the NTEC, "coal gasification" is considered "clean and renewable energy resources." In fact, the "coal as a transition energy" argument got further muddled in other documents filed with the ACC.

"If NGS and FCPP shut down, Arizona will forever lose coal as a reliable, affordable source of energy," wrote Navajo President Shelly, noting deregulation's impact "will further compromise" the Navajo's "market for coal extraction and power generation."

The Central Arizona Project (CAP) sided with the Navajo. CAP, the largest and most costly aqueduct in the U.S., supplies over 80 percent of Arizona through a 336-mile canal running from the Colorado River into southern Arizona. In order to pump that water, 90 percent of CAP's electricity comes from the Navajo Generating Station. Shut NGS down, and water rates would "skyrocket with potentially devastating consequences for Arizona's economy," warned CAP in their Aug. 22 comments to ACC.

Tucson Electric Power, which gets some power from both coal plants, took a different approach by pointing to the -- then impending -- proposed EPA carbon pollution rules. TEP wrote in their July 15 comments that with "a White House committed to combating climate change," the EPA is "drafting new restrictions... that threaten the future of coal-fired power plants." TEP argued that electric competition "could push the risks of coal-plant ownership beyond the breaking point."

At that time, EPA had not yet made its Sept. 20 announcement regarding emission rules for new power plants, and the proposed rules on existing power plants are not due until June 2014. Interestingly, the day before that big EPA unveiling, the Energy Department had quietly announced it was reviving a program to pump some $8 billion into helping the fossil fuel industry produce cleaner energy -- including new coal plant emissions technology.

The Sept. 11 decision by Arizona's utility commission to simply shelve deregulation must have been painful for the all-Republican, quasi-judicial elected commissioners, since four of the five commissioners are alumni of the conservative American Legislative Exchange Council (ALEC). But while deregulation fits nicely into the conservative ideology, beating-back Obama's "War on Coal" is even higher on the conservative agenda.

So, the "Coal-izona" economy is safe and moving ahead for now: APS is finalizing their take-over of the Four Corners power plant and Navajo Nation President Ben Shelly restated his support for buying the Navajo Mine during a press conference on Oct. 4.

Ironically, an Environment America Center report outlining "America's 100 Dirtiest Power Plants" released Sept. 10 -- the day before the ACC voted to shelve deregulation and save coal -- ranked the Navajo Generating Station at No. 10, while Four Corners was close behind as the 15th dirtiest.