Arizona regulators begin process to repeal utility energy efficiency rules

Arizona regulators have started the process to repeal efficiency rules requiring the state’s largest utilities to achieve annual energy savings.

The energy efficiency rules, first adopted by the Arizona Corporation Commission in 2010, require utilities like Arizona Public Service and Tucson Electric Power to “achieve 22% cumulative energy savings” by 2020.

In order to meet those goals, the utilities adopted a range of policies, including helping customers purchase energy-efficient appliances and offering other incentives to reduce energy use during high-demand periods.

By all accounts, the program has been a success.

“We’ve had reconfirmed today that as of 2024, APS is at 26.2% and TEP is currently at 28.52%,” Commissioner Lea Márquez Peterson said in a statement.

Peterson and her fellow commissioner unanimously voted to start the process to repeal the rules on Thursday.

The original rules actually expired at the end of 2020, according to commission documents. But commissioners indicated that utilities were still being held to some of the requirements included in the rules.

“It was the reporting criteria,” Commission Chairman Kevin Thompson said. “Because all the utilities still had to report every year whether they met the intent or not met the intent, and so it was costing ratepayers money for them to just have an attorney to say, ‘we met the intent.’”

Commissioner Rene Lopez said that’s a problem.

“I'm not a big fan of government instituting rules or policies with expiration dates and letting them linger,” he said.

Environmental groups and consumer protection advocates asked the commission to update the rules rather than repeal them, saying energy efficiency programs are a key tool to combat rising electricity costs as demand spikes across the state.

“These rate increases are pushing us further into an affordability crisis, and energy efficiency is a key solution, “said Claire Michael with Wildfire, a group that advocates for policies to end poverty. “It is the lowest cost, fastest deployable resource to reduce demand and decrease the need for new infrastructure, which will lower bills for all rate payers long term.”

Sandy Bahr, director of the Sierra Club’s Grand Canyon Chapter, said she is worried that removing the rules will reduce access to energy efficiency programs like those that help Arizonans purchase energy-efficient appliances.

“Over the years, energy efficiency and the standards have been something where there was significant bipartisan agreement and people from across the spectrum understood that it was really common sense to invest in reducing people's energy bills,” she said.

Cost-benefit analysis

The energy efficiency rules were originally adopted by an all-Republican Corporation Commission in 2010, led by then-Commission Chair Kris Mayes, who is now a Democrat and the state’s attorney general.

Mayes criticized the current all-Republican commission for its vote.

“If Arizona removes this key consumer protection and economic policy, electricity bills will go up and the power grid could become less reliable as a result,” Mayes said in a statement.

The current commission expressed support for utilities’ energy efficiency programs but said it was time for the commission to stop mandating the programs, arguing the mandate caused unnecessary costs and reporting requirements.

“I think there were some really good motivations behind those original efforts at the commission, but energy efficiency in DSM has snowballed into an autopilot Frankenstein,” Thompson said.

The commissioners argued they haven’t seen enough evidence that the program provides a return on the over $1 billion in ratepayer money they say has gone into the program.

“What I do not support is the cost shift that mandated programs have created, laying the costs across all ratepayers, which includes those that can least afford it,” Commissioner Rachel Walden said.

Mayes and other supporters argued the programs more than pay for themselves, saying they help lower energy demand and help reduce spending on power plants and other infrastructure that is ultimately paid for by ratepayers.

“By pushing this repeal, the ACC is turning its back on the very ratepayers it’s meant to serve,” Mayes said.

According to an analysis commissioned by regulators, “some residential customers may experience short-term savings on their utility bills due to the removal of energy efficiency surcharges previously used to fund statewide programs,” though it noted the surcharges could continue without the rules in place.

And the report, prepared by Elliot D. Pollack & Company, indicated some customers could face long-term energy bill increases “particularly as older appliances and systems remain in use without upgrades or incentives.”

“Low- and moderate-income households — especially in rural areas — could be disproportionately affected by the loss of subsidized programs, rebates, and technical support designed to reduce energy burden and improve affordability,” according to the report.

What’s next

Commissioners say the utilities will still operate their current energy efficiency programs for the time being, and commission staff confirmed that utilities can’t simply jettison any individual program without approval from the commission.

“A repeal of the EE rules does not require electric energy efficiency to cease,” Márquez Peterson said. “Electric utilities are always able to submit applications for cost-effective EE and demand response programs.”

Attorneys for APS and Tucson Electric Power indicated they planned to continue operating at least some of the programs they have in place.

“As we look to the future, the DSM portfolio that we have is likely to remain a key part of how we serve customers,” APS attorney Jeff Allmon said, referring to programs that incentivize customers to reduce energy demand.

Critics question how long that commitment will last, though.

“Elimination of the standard is especially concerning at a time when utilities are backsliding on their commitments to ratepayers,” Bahr, with the Sierra Club, said.

The vote to begin the repeal of the energy efficiency rules came just a month after the commission voted to start repealing renewable energy standards for utilities. Days earlier, APS announced it was backing off its own commitment to use 100% clean energy by 2050.