Arizona transforms into national leader in energy conservation

Posted: Thursday, January 20, 2011

Arizona will dramatically reduce its energy use, pioneer a new business model for state utility companies and save ratepayers billions of dollars, thanks to new policies passed by Arizona’s public utility commission, national energy and environmental groups said in a joint statement.

“Arizona has transformed itself into a national leader in energy conservation,” said Howard Geller, executive director of the Southwest Energy Efficiency Project. “In 30 years of working with utilities and regulators, I’ve never seen so much progress happen so fast.”

Although other states have energy savings goals, Arizona’s policy package raises the bar, Geller said. Unanimously passed by the bipartisan Arizona Corporation Commission, the changes require a 22 percent reduction in electricity use and a 6 percent reduction in natural gas use within the next decade. The policies establish a more transparent process for utility companies to follow as they plan to meet the state’s energy needs. They also allow for a new financial model so utility companies would no longer benefit from wasteful energy use.

“This is a game changer,” said Kris Mayes, chair of the Arizona Corporation Commission, which regulates utilities in Arizona. “Our electric energy efficiency standard means that ratepayers in Arizona won’t have to buy the equivalent of three large coal or nuclear power plants, thereby saving billions for customers.” An independent analysis by the Department of Energy’s Lawrence Berkeley National Laboratory estimates that the energy savings will reduce ratepayers’ bills by $9 billion. “There is widespread agreement in the utility industry that saving energy is less expensive than building new power plants,” said Gary Pierce, commissioner of the Arizona Corporation Commission. “Our focus on cost-effective energy efficiency will save money for ratepayers.”

The policies are already having an effect. To achieve the energy savings requirements, the electric and gas utilities – such as Arizona Public Service, Tucson Electric Power, and Southwest Gas – are expanding existing energy conservation programs and launching new ones. For example, residential energy assessments, which the utility companies help pay for, will save money by plugging leaks in buildings and installing efficient lighting. Homeowners will learn about opportunities to save even more from insulation and efficient appliances, and utility companies will offer financing, rebates and technical help.

The new conservation strategy represents the leading edge of a nationwide shift for energy providers, said Arizona Public Service Chairman and CEO Don Brandt. “Energy efficiency is smart business,” he said. “At APS, our innovative energy efficiency programs are helping our state achieve important environmental policy goals while helping our customers save energy and money. Arizona is creating an excellent model for the nation.”

Under the old financial model, utilities received profits based on the amount of energy they sold to customers. That discouraged utility support for conservation. With the new financial model, utilities could increase their earnings by better serving customers and meeting energy conservation benchmarks.

“Instead of turning a profit because you kept your inefficient air conditioner running while your doors were open, the utility companies would now make money because they helped you reduce your energy bill and provided you with superior customer service,” said Ralph Cavanagh, senior attorney for the Natural Resources Defense Council. “Arizona is better aligning a utility’s financial interest with the interests of its customers and the public.”

“Because of these strides forward, utility companies can go beyond delivering reliable energy to now helping our customers use that energy in the most efficient way possible,” noted Jeffrey Shaw, CEO of Southwest Gas.

The Arizona Corporation Commission, which consists of three Republicans and two Democrats, adopted the policies after a review process that included workshops, public comment periods and open meetings that ended last week. In addition to establishing new conservation rules, the policies require more transparency. For example, utilities must disclose when they might build new power plants and how much those plants would cost in terms of money and environmental impacts. Such information wasn’t secret before, but it was harder to find.

“Under Arizona’s new resource planning rules, energy conservation will be compared on a level playing field to conventional power plants,” said Alison Cairo, Deputy Director of the U.S. Public Interest Research Group. “We are confident that cost-effective energy efficiency will come out on top and that customers will be the beneficiaries.”

Leading environmental groups hailed the changes. “Utility companies and ratepayers, Republicans and Democrats, businesses and environmentalists – we’re often seen as adversaries,” said Michael Brune, Executive Director of the Sierra Club. “These advances in Arizona show how we can work together to establish energy policies that protect the environment, provide jobs, and save money for customers.”

“The Arizona electric energy efficiency standard requiring 22 percent savings by 2020 is among the strongest in the nation,” said Steve Nadel, Executive Director of the American Council for an Energy-Efficient Economy. “Arizona is a prime example of a state moving forward, and the progress is impressive.”

Editor’s note: This story was provided by the Southwest Energy Efficiency Project.