To: Editors, News Directors

Date: February 11, 2004

For: Immediate Release

Commissioners Boost Renewable Energy Requirement

PHOENIX – Three years ago, Arizona became one of the leading states in the nation to support the use of renewable energy sources for electric power generation. Yesterday, the Commissioners voted to continue increasing the percentage derived from renewable sources. The original plan called for a review in 2004 to determine if the increased costs of meeting the Environmental Portfolio Standard had declined to a point where the costs and benefits were in balance.

The Environmental Portfolio Standard requires regulated utilities to generate a minimum percentage of their total retail energy sales from renewable sources, beginning in 2001. The percentage increases each year to 1 percent in 2005 and tops out at 1.1 percent in 2007. The decision applies to companies regulated by the Commission that sell retail electricity in Arizona.

Representatives of the Residential Utility Consumer Office, Grand Canyon Trust, Sierra Club and representatives from the solar and wind energy industries all spoke in favor of increasing the portfolio percentage. In addition, representatives from Northern Arizona spoke in favor of renewable biomass energy to enhance forest preservation.

The Environmental Portfolio Standard covers solar technologies such as solar generation, solar water heating and solar air conditioning. Non-solar technologies such as landfill gas generators, wind generators and biomass generators are also qualifying technologies.

Key provisions of the Environmental Portfolio Standard are:

• Retail electric providers must meet the following portfolio requirements. The percentages are based on total retail energy sold.

• 0.8% in 2004 – The 2001 decision stated that the Commission will review the costs and benefits of the portfolio requirement in 2004 to determine if the percentage should be frozen at 0.8% for a period of time or if it should continue to increase as currently anticipated. Yesterday’s decision approved the increases as follows:

• 1.0% in 2005
• 1.05% in 2006
• 1.1% from 2007 to 2012

• From 2004 through 2012 the portfolio must be 60 percent solar electric with no more than 40 percent solar hot water or other environmentally friendly renewable electricity technologies.

• The Environmental Portfolio Standard also includes extra credit multipliers to encourage the early installation of these environmentally friendly technologies.

Are the Commissioners looking at additional changes to the portfolio?

The Commissioners also called for the staff to hold additional workshops to study possible future changes to the Environmental Portfolio Standard. The Commissioners identified five key issues for the group to examine:

• Increasing the total portfolio requirement – The Commissioners are seeking input on requiring utilities to generate a greater percentage of their electricity from renewable or environmentally friendly technologies.

• Funding – The group will study whether it is appropriate to change the funding level. Funding currently comes from a mix of special programs, current rate structures and the portfolio surcharge. The Commissioners would like to study these and any other funding options.

• Portfolio Term – The Commissioners want feedback on extending the term of the Environmental Portfolio Standard beyond year 2012.

• Demand-Side Management – The Environmental Portfolio Standard rule required Demand-Side Management funds to be shifted to renewables. The Commissioners want input on the issue of restoring the Demand-Side Management funding to its original purpose.

• Portfolio Structure – Presently, there is a requirement for solar to make up a certain percentage of the portfolio. The Commissioners seek comments on the fundamental structure of the portfolio and whether the allocation is still appropriate. New and emerging technologies are to be considered.

Does the decision affect electric rates?

There are no rate changes associated with yesterday’s decision. Beginning 2001, Arizona ratepayers started paying a small portion of the costs associated with the increased investment in environmentally friendly technologies. The Environmental Portfolio Surcharge is $0.000875 per kilowatt-hour. The Commission set a rate cap for three different categories of ratepayers. There is a monthly cap of 35 cents for all residential customers. A typical residential customer who uses 400 kilowatt-hours or more will be assessed 35 cents per month. Depending on the time of year and monthly usage patters, many residential customers pay less than 35 cents.

Business accounts are currently assessed the same monthly surcharge rate of $0.000875 per kilowatt-hours. Over 99 percent of non-residential accounts are subject to a maximum cap of $13.00 per month. Hotels, schools, office buildings and most medium to large retail stores consume enough energy to reach the $13.00 cap. Smaller businesses such as beauty salons, barbershops, strip mall stores and others likely fall below the $13.00 monthly assessment.

A $39.00 cap applies to the state's largest non-residential users – those using more than 3 megawatts of power such as mining facilities and large manufacturing plants. Based on estimates, there are fewer than 150 accounts statewide that are affected by the larger monthly cap.

How did the Environmental Portfolio Standard come to be?

In May 2000, the Arizona Corporation Commission adopted a renewable portfolio standard requiring that utilities derive a portion of their electricity through renewable sources. The 2000 decision ordered Commission staff to begin the rulemaking process. In February 2001, the Commission voted to codify the Environmental Portfolio Standard, as it's now known, as a formal rule.

The Commission’s Utilities Division convened a working group in 2003 to study the costs and benefits of the standard. The group assessed the costs and benefits of the standard and outlined recommendations in a June 2003 report (details at http://www.cc.state.az.us/utility/electric/environmental.htm). Subsequent workshops and discussions led to this recent decision to continue implementing the escalating requirement.

What are the Commissioners saying about this change?

Chairman Marc Spitzer: "There are some things you can’t put a price tag on and the environment is one of those things. If you costed out all the benefits of cleaner air on human health and welfare, I think the balance weighs in favor of providing some financial support, at least initially, for the higher cost of renewable energy."

Commissioner Bill Mundell: "This is a great day for Arizona and, in particular, for our children and grandchildren. It sends a clear message to the utilities and to the companies providing renewable technologies that we are not going back to the days when energy was produced from fossil fuels only. It also enhances our state’s tax base, promotes growth of well-paying jobs, invites innovation and protects the environment."

Commissioner Jeff Hatch-Miller: "We can decrease our reliance on coal and natural gas. We must generate electricity using new methods that are cleaner, use Arizona resources, and build a strong foundation for Arizona’s energy future."

Commissioner Kris Mayes: "I strongly believe that solar is Arizona’s internet. We need to nurture this technology in its infancy so that we leverage our greatest resource – the sun – to become the solar capital of the United States."

Commissioner Mike Gleason: (Commissioner Gleason cast a dissenting vote) "Today’s vote is premature. The Commission should wait until we can review the workshop recommendations. We shouldn’t decide on something that requires the utilities to incur ongoing financial costs without determining how the program is going to be funded. We could wind up promising something we can’t deliver."