Appendix C


Land and Water Fund of the Rockies Energy Project



In the interest of brevity, the Land and Water Fund of the Rockies (LAW Fund) focuses its comments on five conceptual areas: penalties, incentives, future rule changes, and resource review.




The LAW Fund supports a penalty provision in this section of the Rule that is high enough to encourage ESPs to purchase appropriate levels of energy derived from solar electric renewable technologies. We are not opposed to increasing the penalty to 50「, although 30「 is probably sufficient if a workable credit system is incorporated. The funds collected through this provision, if any, should be used to advance the development of solar electric resources, i.e. to meet the objectives for the Arizona Solar Portfolio Standard outlined in the report. In our view, the best way to accomplish this goal is to transfer the funds to the administrator of the System Benefits Charge monies, and charge this entity with achieving the greatest amounts of solar electric renewable technologies possible through a competitive bidding process.


APS has proposed a concept of a 30「/required solar kWh wires charge, reduced by 30「/actual solar kWh provided by the ESP, ostensibly to avoid the "problems with penalties." The difference, if any, would be paid to the regulated "wires" companies to use in acquiring as much solar as possible. This complicated administrative approach has several fundamental flaws. First, it guarantees unnecessarily that every customer pay an explicit price for the Solar Portfolio Standard. In reality, the relatively small cost of the Standard, to which all ESPs are subject, may be absorbed by the ESP. Second, the nature of the regulated wires companies is unclear at this point. Companies whose sole business is to build operate wires may be poorly suited to administer these funds. Finally, the majority of Arizona retail electric customers will be served by regulated wires companies that are affiliated with generation companies. These corporate affiliations may provide mixed incentives to the wires company administering the "penalty" funds. We oppose APS' approach and suggest that a wording change in the Rule may solve the concern that the penalty monies may not be used to purchase solar resources.




We are longtime supporters of incorporating effective incentive provisions in regulatory regimes to encourage desired behavior. The LAW Fund supports adoption of incentive provisions which encourage not only early implementation, but also in-state manufacture and installation. Section 1 609C of the Rule provides a 2-times credit to ESPs for installation. This section can be modified to include a similar credit for in-state manufacture and installation, but a maximum credit of 2 should be imposed. In addition, the credit should have an expiration date (e.g. 2004) to avoid the possibility of effectively cutting the Standard in half. We believe that implementation of the Standard percentages as written, in conjunction with appropriate credit provisions will inherently provide cost reduction incentives to ESPs, and no further direct incentive is necessary. Moreover, these incentives, along with the banking (i.e. carry-forward) proposal in the Subcommittee Report, provide a mechanism for ESPs to avoid the large lumpy solar resource additions implicitly required by the Rule.


Future Rule Changes

There is justifiable concern that ESPs which, in good faith, implement the provisions of the Solar Portfolio Standard and work hard to acquire least cost solar resources, may be left with potentially strandable assets should a future Commission reduce or eliminate the Standard. We agree that at the time of any future Commission review which results in adverse changes to the Standard, the Commission should take steps to protect solar investments made to date. For example, ESPs that choose to pay the penalty, gambling that the Commission will eliminate the Standard, should not entirely escape cost responsibility. Continuation of penalties for a specified period and other creative cost-sharing options should be considered as options. In this regard, wording changes to the Rule must be carefully constructed to assure that all ESPs are treated fairly and equitably.


Resource Review


It's apparent from this report, other working groups, and other proceedings at the Commission, that a periodic review of electric resource needs, costs, characteristics, availability, and so on will continue to be a necessary function of the Commission. The LAW Fund recommends that the Commission continue a workable resource review process, allowing for participation in a public forum, that is an effective descendent of the IRP process to fulfill these needs.

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