Arizona's largest utility in a Nov. 6 filing reduced its rate increase request and asked regulators to authorize more than $144 million to fund a "just transition" for communities affected by imminent coal plant closures. Beneficiaries of Arizona Public Service's Coal Community Transition funds would include the Navajo Nation, which has suffered inordinately from the COVID-19 pandemic and faces the demise of coal operations on and around its land.
The 2,250-MW Navajo Generating Station, located just outside the Navajo Nation in Page, Arizona, closed in November 2019, just weeks after the closure of its associated Kayenta Mine on the Hopi Nation. The potential closure also looms of the 847-MW San Juan Generating Station, near Farmington, New Mexico, but off the Navajo Nation, and its associated San Juan Mine in 2022. APS in January announced plans to close the 1,540-MW Four Corners Power Plant, also located near Farmington and on the Navajo Nation, in 2031, seven years ahead of schedule.
The utility seeks $128.75 million in assistance to the Navajo Nation in conjunction with the closure of Four Corners. Of those funds, $23.75 million would come from APS shareholders, Jeff Guldner, the company's CEO and president, said in testimony filed Nov. 6 with the Arizona Corporation Commission in APS' pending rate case [E-01345A-19-0236].
The Four Corners funds would include $110 million over 10 years for a transition, as well as funding for electrification efforts on the Navajo Nation, transmission development, and regional economic development efforts. APS also plans to seek proposals for at least 600 MW of clean-energy projects on the Navajo Nation as part of its Four Corners closure plan, with a request for proposals for 250 MW expected within 24 months, Guldner said.
APS proposes $12 million, including $1.1 million in shareholder funds, to assist communities in Navajo County, Arizona, where the 839-MW Cholla plant near Joseph City currently employs about 200 people. APS retired the 288.9-MW Cholla Unit 2 in 2016, and PacifiCorp plans to shutter the 414-MW Unit 4 this year. APS owns units 1 (111.3 MW) and 3 (312.3 MW) and plans to close both in 2025. Unit 1 began operation in 1962 and Unit 3 in 1978.
APS' plan also includes $3.7 million in assistance for the Hopi Tribe, which was affected by the closure of NGS and the Kayenta Mine in 2019. Shareholders would provide $350,000 of those funds. Salt River Project, NGS' operator, offered reassignment and in some cases training for new positions within the utility to all NGS employees, though most workers had to relocate to accept the positions. APS in its filing also committed to making alternative job offers to its employees affected by the closures.
Public Service Company of New Mexico, the operator of San Juan, plans to offer $40 million in assistance to its largely Native American community and workforce through the securitization of stranded assets at the plant, as authorized by New Mexico's 2019 Energy Transition Act (see CEM No. 1575). PNM on Nov. 2 announced it would leave its stake in Four Corners in 2024, seven years ahead of its previous schedule. If approved by regulators, securitization will enable PNM to finance its stranded assets in Four Corners and release the utility from coal contract obligations while providing $16 million in workforce and economic development assistance to the Navajo Nation. PNM will also transfer its share in Four Corners to the Navajo Transitional Energy Co., a business wholly owned by the Navajo Nation, which also owns and operates the associated Navajo Mine (see CEM No. 1615).
A separate project by Enchant Energy of Farmington to convert the San Juan plant to a carbon capture, utilization and sequestration operation could prevent the plant's closure after PNM's abandonment.
The CCT funds are part of APS' transition to a clean-energy future, the utility said in its filing, and thus it proposes to collect them from customers through an "Advanced Energy Mechanism." The AEM would recover capital carrying costs and expenses associated with APS' clean-energy investments and could replace or consolidate some of the company's current adjustors into a single mechanism, executives said in the filing.
Barbara Lockwood, senior vice president of public policy for APS, in her testimony said that "APS intends to pursue the necessary legal structures required for successful securitization in Arizona," and that if the financial tool is implemented properly it could reduce the financial impact of the clean-energy transition for both the utility and its customers.
Securitization would remove the remaining book value of stranded assets from rate base and compensate the company through the sale of low-interest, ratepayer-backed or "securitized" bonds by a special-purpose entity. The cost of debt would be lower than the utility's regulated cost of capital, thereby saving ratepayers money. Securitization would also provide APS with an influx of funds it could reinvest in clean-energy infrastructure, Lockwood explained in her testimony. Legislation authorizing securitization in Arizona would be required, however, in order for the bonds to be marketable, she said.
Lockwood said misconceptions surrounding APS' controversial 2016 rate case, which ended in a settlement in 2017, have clouded issues and created roadblocks in the current case, which she says is necessary for improvements and sound energy policy. Guldner urged the ACC to allow APS to earn a "reasonable rate of return," and said its financial stability is "integral to the success" of its commitments to assist the coal communities.
In light of the impact of the COVID-19 pandemic, the utility determined that a modest reduction in its rate request would allow it to maintain financial stability while reducing the impact of the increase on ratepayers. APS in its filing reduced by $15 million the overall revenue requirement requested in its initial application, to $169 million.