by Julian Spector
March 22, 2018

Sometimes you think you’re up on the latest trends. You’ve transferred your retirement savings to Ethereum, swapped out Gmail for Snapchat and watched Black Panther like five times already.

And then a bunch of Arizona regulators rock your world with a hot new take that you’ve never even thought of.

At least, that's an interpretation of a grid modernization enthusiast’s experience last week as news trickled out that the Arizona Corporation Commission voted to A) officially rebuke the long-term plans of the state's major utilities, due to excessive focus on new gas infrastructure, and B) halt development of new large gas plants for the remainder of the year.

There’s a lot there to unpack in this week’s Storage Plus. We’ll also check in on a related development in Massachusetts with major ramifications for storage taking on a peak power role in that young market.

First, let’s start with what the Arizona decision doesn’t do.

Not the end of gas, but the beginning of something new

The Arizona regulators aren’t locking up gas and throwing away the keys (that would be an ineffective way to contain a substance that is lighter than air and expands to fill the shape of its container).

Instead, they are telling the utilities not to get ahead of themselves. The commission is still gathering stakeholder feedback on a sweeping proposal by Commissioner Andrew Tobin to reorient the state’s electrical grid around 80 percent clean energy, with energy storage stepping up in a big way to take over peaking duties so ratepayers don’t have to buy billions of dollars of new gas plants.

The regulators don’t want to see utilities moving ahead with new gas while that grid overhaul is still in the works; such investments could quickly become stranded assets, meaning poorly spent ratepayer dollars. There is a mechanism to get permission for new builds if an urgent need arises for more capacity.

It’s not clear that the freeze will actually stop a new plant from being built. Arizona Public Service, the state’s largest utility, told me it isn't planning to construct any in this timeframe. The impact, then, could be more symbolic than practical.

As for what this does mean...

These guys are serious

The regulators (they actually are all guys in this case) wouldn’t go so far as to break with tradition, publicly chastise the utility's plans and freeze new gas-plant development if they weren’t serious about developing Tobin’s grid modernization proposal.

The proposal looks even better with the 15-year integrated resource plans as a foil. In APS’ document, the company envisions a world with too much variable renewables. With an expected surge in distributed solar, the company will cease utility-scale construction and build thousands of megawatts of flexible gas to balance the grid, with some batteries on the side.

Turning away from large solar is a crazy idea when Arizona sits on a massive solar resource that promises essentially free power during daylight hours. APS, though, is rightly worried about the difficulties of balancing the massive ups and downs of heavy desert solar capacity. They turned to tried and true gas to save the day.

Tobin’s plan looks at the expense of the projected gas build-out and says, “Stop.” He proposes a 3,000-megawatt energy storage target and a “Clean Peak Standard” to require an incrementally rising percentage of peak hour production come from clean sources. The way the cost curves are heading with storage, this looks like a good bet for ratepayer pocketbooks compared to a massive build-out of assets that only run a few days a year.

Put another way, if the commissioners accept the logic of the grid mod proposal, they had to say something about the gassy future the utilities were proposing.

The utilities are further ahead in practice than on paper

It’s common to hear large companies talk a big game about saving the planet, only to lag on real action. The strange thing about Arizona is that the utilities are much further ahead in deed than their integrated resource plans were in writing.

Take APS, which didn’t expect any utility-scale solar or storage development in the next five years. It just announced a groundbreaking 65-megawatt solar farm paired with a 50-megawatt battery, explicitly serving those summer evening hours that the integrated resource plan would build gas plants to meet.

More strikingly, this project beat out gas plants, and everything else, in competitive bidding. It didn't need any supplemental income from government agencies to pencil out economically.

Why lay out such a different vision on paper? Charitably, because the integrated resource planning process takes a long time. The documents up for discussion last week reflected a certain outlook from 2016, and energy storage has a pesky habit of beating expectations.

The regulators have raised the issue of streamlining the utility planning process, which could prevent such misfires in the future.

These planning documents matter. They’re the way utilities tell their community stakeholders where things are going over the long term. Those stakeholders deserve to get documents that accurately reflect what’s happening on the ground.

March Madness

Let’s wind back the clock a month, and imagine someone offered a bet: pick Arizona to freeze new gas plant permits before California, or pick Arizona to make it past Round 1 of the NCAA Tournament.

I’d have lost.

At GTM, we’ve been covering California’s incremental steps to push back the tide of gas. Regulators have come out against the Puente plant because storage can do the job with less collateral damage. They’ve told PG&E to get new storage rather than pay to keep existing gas peakers open.

But there hasn't been a mainstream debate about an all-out freeze on new gas, or what procedural moves could make that happen. Suddenly, that’s on the table as a thing regulators could do.

Every state has its own set of laws and procedures governing how energy regulation works. Arizona’s regulators seem to have a good deal of freedom to bring their own ideas to the table. California’s rulebook is particularly dense.

It’s by no means clear how exactly the heavily solar-powered California grid would handle a moratorium on new gas. Now, suddenly, that’s a far less crazy debate to have.

Massachusetts is getting in on it

Speaking of unexpected flows of ideas across state borders, Massachusetts Gov. Charlie Baker introduced a bill last week inspired by Arizona’s Clean Peak approach.

The Bay State has its own problem with expensive peak power: 10 percent of hours drive 40 percent of the grid costs for ratepayers. As the state ramps up clean generation per an existing law, Baker wants to see storage shift it to peak hours. The state’s constrained access to natural gas and penchant for cold snaps make it even more pressing to wean off gas reliance.

The proposal now needs to run a legislative gauntlet that won't necessarily be easy. The proposal comes a little out of left field as a grid planning measure in a bill that's mostly raising funds for climate adaptation and environmental protection. Injecting energy into the conversation could invite amendments and debate. 

Some clean energy advocates suspect Baker of trying to sneak more gas into the state, although it's hard to see how that could happen through legislation designed specifically to reduce gas reliance. And there's some lingering ill will over his administration's choice to pick a controversial mega-transmission project to deliver clean energy, as opposed to sourcing it locally within the state.

It’s worth noting the broader political dimensions here. The Clean Peak idea jumped from an all-Republican regulatory body in red state Arizona to a Republican governor in progressive Massachusetts. It works in a conservative landscape with no major climate change policies to drive grid change, and in a state that has a legislative mandate to reduce greenhouse gas emissions and acquire cleaner electricity.

These states share little in common. One suffers from incessant nor’easters, the other from blazing heatwaves. Both states, though, have declared an interest in avoiding excessive spending on poorly utilized, single-purpose grid assets. They may not be the only ones.