What provisions, if any, are necessary to effectuate a gradual replacement of those existing plants in Arizona which are older, more polluting and less efficient than the newer combined cycle plants currently being built?
Experience to date suggests that existing power plants are likely to be very valuable in a competitive market, and Independent Power Producers are going to be unwilling to retire them.
Several older fossil-fired steam plants have been sold to IPPs at high prices, suggesting that (a) they are considered very valuable in a competitive market, and (b) the owners intend to operate them for a considerable period. These existing plants (whose construction costs are sunk and who already have permitted sites and access to transmission lines) will make it difficult for new entrants to compete on economic grounds.
Once new, efficient gas plants are financed, permitted and constructed, they may be able to displace some of the generation of the highly-inefficient, older plants. But even this is not guaranteed &endash; it depends upon the operating economics of the existing power plants (in particular, the efficiency and the fuel costs).
Also, if the older, less-efficient plants are on the wrong side of a transmission constraint and thus "must run" during peak hours (as is the case in the Phoenix area) it will be difficult for newer, more-efficient plants to replace them. Thus, the elimination of transmission constraints may be necessary if we are going to depend on competitive forces to retire older, less efficient plants.
Under continued integrated utility planning, the Commission has more scope to influence the retirement of more polluting and less efficient plants and the construction of newer, cleaner, more efficient plants. The utilities could be given favorable regulatory treatment, e.g. by allowing rapid depreciation of old plant and providing an assurance that the companies would not have to take write-offs; and the assurance of rapid rate-basing of new facilities and their reflection in rates. Under a deregulation scenario, the Commission would presumably have little authority to effect the replacement of existing power plants.