An Update on the War on Solar at the Arizona Corporation Commission

by Russell Lowes and Keith Bagwell

            Two utilities, Tucson Electric Power and its sister subsidiary UNS Electric, are applying for rate hikes with the Arizona Corporation Commission. Included in these rate cases is a troubling and unprecedented restructuring of how rates are applied. These proposed rate reshufflings are bad for the families and businesses in these monopoly areas. Additionally, these proposals are assaults on family and business-owned rooftop solar energy installations.

            TEP and UNS have engaged in a public relations campaign to promote the inaccurate idea that rooftop solar energy is costing non-solar customers more than if there was no additional rooftop solar installed.

            Tucson Electric Power has recently made a number of erroneous statements about rooftop solar costs. However, we will focus here on the most glaring blunder, in what has NOT been said. The utility company does not consider the “opportunity lost cost” for not going with rooftop solar. TEP again made this error of omission in a recent exchange with our County Board of Supervisors, who are opposing the proposed rate shuffle. That is, what happens if families and business owners, schools and local governments in the TEP service area do not install solar panels? TEP is installing centralized utility-owned solar energy plants, and this solar is costing non-solar customers much more than the customer-owned rooftop solar. See the table below, which further explains this.

Examples of Typical Un-Subsidized Energy Costs for New Power Capacity in Southern Arizona, in Cost Per Kilowatt-Hour

Energy Production & Efficiency Options

Initial Un-Subsidized Cost

Trans-mission & Distribution Component

Total Cost

Cost Covered by  Rooftop Solar Families & Business-Owners

Maximum Cost Borne by Ratepayers

           

Homeowner Rooftop Solar Financed with Homeowners Equity Line of Credit, 5%

$0.115(a)

$0.005

$0.120

$0.115

$0.005

Homeowner Rooftop Solar Financed with Lease

$0.120(b)

$0.005

$0.125

$0.120

$0.005

Medium-Size Business Rooftop Solar Financed with Commercial Loan, 6%

$0.095(c)

$0.005

$0.100

$0.095

$0.005

Utility-Owned Rooftop Solar, Financed with Blend of 50/50 Rate of Return and Corporate Bonds, 9% (per IRP)*

$0.110(d)

$0.005

$0.115

$0.110

$0.115

Utility-Owned Centralized Solar, Financed with Blend of 50/50 Rate of Return and Corporate Bonds, 9%

$0.090(e)

$0.060

$0.150

$0.000

$0.150

Utility Solar via Power Purchase Agreement (Subsidized Fixed Contract)

$0.062(f)

$0.060

$0.122

$0.000

$0.122

Utility-Owned Centralized Gas Plant Financed with Same Finance Mix

$0.084(g)

$0.060

$0.144

$0.000

$0.144

Energy Efficiency**

$0.050(h)

$0.000

$0.050

$0.000

            **

           

 * The vast majority of this cost will be borne by the ratepayer directly benefitting from this installation.

**Energy efficiency comes in many forms and at many different costs and benefits. The ratepayer-

   borne portion of this, on average is likely under 1¢ per kilowatt-hour saved.

 

            Recently TEP just secured more fossil fuel power capacity. This will cost much more for non-solar customers in total dollars, and in cents per kilowatt-hour.

            TEP claims that family-owned solar energy increases costs for its non-solar ratepayers. In this claim TEP is probably really talking about what the utility company losses will be. The company financial losses to customer energy efficiency and solar investments are real, if you do not count the gains to the company in terms of grid diversification, performance fees TEP earns on customer energy efficiency investments, etc. However, these gross costs (before these other offsetting benefits) are very minor, at this point of grid penetration, well under 5 percent.   

            What TEP and UNS Electric ignore, in this “solar costs non-solar customers argument,” is that all the other options of electricity generation expansion are more expensive than customer-installed rooftop solar. Centralized solar built by the utilities costs non-solar customers far more than rooftop solar. Fossil-fuel generation is even more expensive, as well as polluting and climate-changing. In addition, the 0.5¢/kilowatt-hour cost that is purported to be shifted to non-solar customers, is actually returned to customers numerous times, by diversification of the grid, reduction in peak gas-generated electricity, and by many other benefits that solar provides to all families and businesses.

            Consequently, it is in the best interest of our families and business-owners that customer-owned rooftop solar continues to be installed, under the current net-metering system. This is not best for the utilities only under the current business models that are now outdated. These models need to change. The Commission needs to require that TEP and UNS update their business models to mesh with the new technologies, the new ways in which people are living, and the improving costs of options customers did not have until recently. Additionally, the business models need to be changed to reflect the far lower impact the newer technologies have on the environment and on human health.

            When a rooftop-solar customer invests in solar, that family or business pays all of the construction cost, all of the interest and all of the maintenance costs. These costs add up to about 11¢ per kilowatt-hour if financed through a home equity loan, or a business loan. When a utility builds solar, it pays for these three categories and more (land acquisition, transmission lines, etc.), but then passes it on to the ratepayers. Similarly, when TEP acquires more natural & fracked gas capacity, it pays for these components of overall cost and passes them on to the ratepayers.

            TEP and UNS should not be allowed to ignore the fact that if solar rooftop is not invested in by families and businesses, the utilities will have to invest in other more expensive power-generation options and pass those costs on to their customers. To ignore this is deceitful and only works to further undermine the trust of ratepayers in the TEP and UNS Electric monopolies.

>>>      Action to take! For anyone wanting to comment before these cases close, you could address your comment as follows. Nobody knows when these two rate cases will close, but it will probably be open through July or August of 2016.

Re: Rate Cases E-04204A-15, E01933A-15-0322 and E-00000J-14-0023

Dear Commissioners Little, Burns, Stump, Forese and Tobin,

——————-

Methodology and References  

  1. a) This is calculated based on typical sale price of $3000/kilowatt of D/C electrical capacity, .8431 conversion rate to A/C electricity, a lifetime average degradation rate of 13.2% over the 30 year minimum life span, with a capacity factor (average output, compared to A/C rating) of 20.85% with 5% APR financing for a home equity line of credit (HELOC).
  2. b) Based on reviews of leases for solar homes in Tucson, Arizona, by one of the authors, Russell Lowes.
  3. c) Based on lower cost per kilowatt installed but higher loan rate, 6% APR.
  4. d) Based on $2800/kW D/C, 0.8431 conversion rate to A/C, a 13.2% average degradation rate for a 30 years, with a capacity factor of 20.85%, with 9% average financing, per Tucson Electric Power Integrated Resource Plan, which lists 8% as the average corporate bond rate, 10% as the average rate of return on equity and a typical 50/50% blend of the two financing options.
  5. e) Based on $2200/kW D/C, 0.86 conversion rate to A/C, a lower 9.5% average degradation rate for a 30 years, with a lower capacity factor of 18.3%, with X% average financing, based on the Tucson Electric Power Integrated Resource Plan, which lists X% as the average corporate bond rate, X% as the average rate of return on equity and a typical 50/50% blend of the two financing options.
  6. f) Based on what TEP is typically getting for Power Purchase Agreements and what it uses as the basis for its proposal to reimburse solar rooftop owners.
  7. g) Gas-produced power from Lazard’s Levelized Cost of Energy Analysis—Version 9.0, at: https://www.lazard.com/perspective/levelized-cost-of-energy-analysis-90/, p. 2 (click on “View the Study”). This is at the lower end of the two combined Gas Peaking and IGCC (more toward baseload) options. The average of these two is 16.6¢/kWhe. Additionally, see table below for similar approach to gas-generated electricity costs. This has to take into consideration more peaking energy costs for electricity that rooftop solar would displace. These costs can be as high as 21.8¢/kWh, according to Lazard, p. 2.
  8. h) , p. 2, energy efficiency is taken from the top of the range from Lazard’s (see g).

Cost for Conventional Combustion Turbine Gas Electrical Generating Plant

Using O&M & Fuel Costs from Table 8.4*, 2012 Dollars

   

1

kWe capacity scenario

$973

cost per kWe**

12%

Capitalization Rate (including principal, interest, taxes and fees)

$117

Cost Per kWe Per Year

   

50%

Cost Per kWhe for Capital

8760

Hours Per Year

4380

kWhe/Yr Generated

   

$0.02666

Cost Per kWhe for Capital

$0.00263

  Operation

$0.00290

  Maintenance

$0.03706

  Fuel

$0.04259

Subtotal O&M & Fuel

$0.06925

Total Cost Per kWhe

$0.06000

Non-Generation Utility Costs (incl. transmission, distribution, etc.)

$0.12925

Total Cost Per kWhe Delivered

   

*

www.eia.gov/electricity/annual/html/epa_08_04.html

**

http://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf

It is Time to Nuke the Nuclear Option!

Nuclear Electricity Makes No Sense.

By Russell Lowes, 11/18/2014

The Obama administration is already doing all it can realistically do. Despite its “all-of-the-above” façade, it favors nuclear power. To start with, the Energy Department is essentially a nuclear department. Professor Moniz is [was] Secretary because of his nuclear ties. DOE’s national laboratories are basically nuclear labs. It organizes international nuclear R&D groupings to encourage worldwide commitment to nuclear power. The Obama administration has created an inter-departmental Team USA, including State and Commerce, specifically to encourage domestic nuclear industry by promoting nuclear exports. The White House dedicates a staffer to this task. Secretary Moniz emphasizes his commitment to “jumpstart” the U.S. nuclear power industry. DOE subsidizes new domestic nuclear plants through loan guarantees. The nuclear Navy provides government-trained operating personnel. And to facilitate the licensing of new plants, and extend licenses for existing ones, the administration’s appointments to the Nuclear Regulatory Commission have ensured that it remains industry-friendly.

–Victor Galinsky, ex-NRC Commissioner, National Journal, February 2014

We keep hearing from certain people that nukes are essential to solve energy and global warming problems. They say that nuclear energy is carbon-free, or some say low-carbon. They are neither. They say that nuclear is low-cost. They say building another round of nuclear reactors is essential for the U.S. and the world. It is neither low-cost nor essential. To build more megawatts of nuclear energy would be a mega-distraction.

Such an emphasis would weaken our response and ability to stem future climate chaos. I will take on the mission here of showing how the horrendous costs of nuclear energy makes this source an unpractical one. It is especially unpractical now, during our quest to truly course-correct on climate change.

The bottom line is that electricity generated from new nuclear reactors is about 24 cents per kilowatt-hour. About this 24 cents per kilowatt-hour:

1)    This is double the electricity price for the U.S. on average .

2)    The cost of 24¢ for nuclear electricity is more than twice the 10¢ cost of solar electricity in Arizona, about twice the national average for solar.

3)    It is more than twice the cost of wind-generated and delivered electricity.

4)    Most important, nuclear electricity is 8 times the 3¢ national average cost of energy efficiency.

5)    It is about twice the cost of new coal and gas-generated electricity.

You might ask, well how do we know how expensive a reactor will be? We have nuclear plants scattered across the nation, so how much did these plants cost in the last round?

First, I have been using empirical analysis of the cost of nuclear energy since 1977. We used regression analysis in a book released in 1979. This book was instrumental in convincing investors to pull out of the Palo Verde Generating Station Units 4 & 5, America's largest nuclear plant, west of Phoenix. Our analysis projected the cost of the Palo Verde to be $6.1 billion in 1986 actual completion dollars. The managing utility company, Arizona Public Service Co. (APS), projected $2.8 billion at the same time, and they never waivering on its projection until construction was well under way. 

That down-graded plant of 3 reactors was finished for $5.9 billion. The APS projection was overrun in costs by 111%, while our projection was slightly over the final cost by less than 4%. Of all the reactor projections done across the land that we could find, ours was the most accurate nuclear reactor projection in the nation.

We used empirical approach to costing reactors, with regression and other modeling techniques. Apparently APS used the tried and true method of sales pitch estimation.

So how do we jump from then, when the final reactor at PVNGS was completed in 1986 to now? The method I use is four-fold.

1)    First, find out what the average cost of the last rush of reactors, which happened around 1987;

2)    Then apply general inflation to that cost to bring it up to today’s cost;

3)    Third, apply a projected inflation to the year that a new reactor might be completed; and

4)    Finally, weigh a series of factors that might increase or decrease this figure.

For step 1, a low/conservative estimate on reactor average cost for 1988 was $3100 per kilowatt of net plant size.

Putting that $3100 into 1987 dollars at the U.S. Bureau of Labor Standards inflation calculator yields $6105 per kilowatt of electrical capacity in 2013 dollars.

For Step 3, I project a common 4% inflation rate through 2022, the first year it is likely for the next small group of reactors in the U.S. to be completed. This yields a completion cost in 2022 of $8689/kWe.

For Step 4, I have come up with a survey of 27 reactor construction cost factors. This is the most varied and numerous list of items I have seen, so far, from all my reading on reactor costs. I estimate that the reactors of the early 2020s will cost about 20% more than the reactors finished in the last big wave of the mid-late 1980s.

In this 4th step, I have considered factors that would make nukes cheaper than in the real (inflation adjusted) dollars of the past, like labor cost declines in America. I have also taken into consideration factors that would increase the costs like certain material cost increases, and increases in plant robustness requiring more cement, copper, steel, etc.

After comparing the changing conditions since the time the last reactors were completed, I have come to what I consider a fairly accurate projection.  It probably won’t be as accurate as our PVNGS <4% accuracy level, but I am fairly sure it will be in the ball park.

After going through this process, the final figure I project for the next round of nukes built in 2022 is $9149/kilowatt of plant size. This is in sharp contrast to most sales pitches from utilities today, where they project more like $4000 per kWe. It would be good to remember that the average overrun was 220% in the last round. They sell these plants by unrealistically lowballing the construction cost.

What does that come out to in cost per kilowatt-hour? Just like with solar and wind, you can break this down to the kilowatt-hour of electrical capacity (kWe) level, and then apply production time (hours) to it to get kilowatt-hours of electricity delivered (kWhe). You can also multiply these kWe units to the typical sizes of the wind turbines, solar panels, or coal or nuclear plants.

Here are the calculations.

This is what it would cost roughly, to install 100 reactors in the U.S., a figure being brought up from time to time by members of Congress.

$9149/kWe

X 1,350,000 kWe plant size

= $12.351 billion

X 100 reactors occasionally proposed

= $1.2351 trillion total construction cost for 100 reactors

X 14% loan payback per year (capitalization rate)

= $172.9 billion per year for 30 years

X 30 years

= $5.187 trillion paid just for construction and loan and tax expenses, not counting fuel or operation & maintenance, nor transmission and distribution.

That $172.9 billion/year will cost the average person in the U.S. (assuming an average of 350 million people into the future):

$494/person/year for 30 years if we have a 350 million population, or

$988/taxpayer/year if we have 175 million taxpayers.

 

So, how do we get to cost per kilowatt-hour? For each kilowatt of plant capacity, you can calculate the cost to construct, the capital cost and then calculate the electricity the plant produces over a typical 40 years (before major costs of renovation add to the equation). Then simply divide the capitalization cost by the kWhe. Here we go (simply). . .

——————

Cost Portion of the Equation:

$9,149/kWe

X 14% capitalization rate =

$1,281 in capital cost/year

X 30 years

= $38,426 capital payback over 30 years for each kWe of size – This is just the total capital cost over 30 years.

——————

Electrical Output Portion of the Equation:

1 kWhe

X 8766 hours/year on average

X 85% average capacity factor (electrical performance) over the life of the reactor

X 40 years

= 298,044 kWhe over 40 years – THIS is the e output over 40 years. Note that the capital payback is 30 years and the plant runs for a projected 40 years (before major capital upgrade, if it runs longer).

——————

The Final Capital Cost/kWhe Calculation:

$38,426 Capital cost over 30 years per kilowatt of installed electrical capacity

/ 298,044 kWhe e output over 40 years

= 12.9¢ per kilowatt-hour of electricity.

——————-

There was a multi-disciplinary report put together by the nuclear industry, along with governmental and non-governmental entities called the Keystone Report.

This report projected fuel and operations and maintenance costs at:

4.3¢ per kWhe for fuel and O&M. That, plus. . .

+ 12.9¢ capitalization cost

= 17.2¢ production cost (pre transmission & distribution)

+ 7.0¢ per kWhe for transmission & distribution

= 24.2¢ per kilowatt-hour to your meter

—————–

What are the implications of such a high cost to your household, and to the larger society, the U.S. in this case?

I’ll leave that up to your imagination, as you ponder that solar is currently less than half the cost, while it continues its cost plunge, energy efficiency is about one eighth the cost and wind is also about half the cost. Getting back to Victor Galinsky’s quote from the beginning, the only way in which nuclear energy can compete in the market is in a skewed way, with the U.S. Government favoring it all the way along. That in fact is how nukes have gotten as far as they have. It’s time to nuke the nuclear option!

SunZia: The Making of a Slave State, First Power then Transmission

Why does Arizona tolerate it? Why do its citizens tolerate it? Who benefits by creating a slave-state status for Arizona?

by Russell Lowes, http://www.SafeEnergyAnalyst.org and

Energy Chair for the Sierra Club Rincon Group, August 9, 2012

Some states in this fine nation export goods in such a way as to benefit all or many within the state. Let’s take the examples of maple syrup from Vermont, fish catch from Alaska, honey from Utah, or high-technology solutions from California. All of these examples incur some handsome benefits for many or all of the state population in export revenue. That revenue can come in the form of tax revenue or in the form of business income, and perhaps high numbers of jobs provided or even more intangible benefits, like crop pollination.

Not so with energy exports of Arizona. With more than a third of our electricity being exported, there is very little benefit to any significant population of this state. Sure there are some construction jobs that actually don’t go to out-of-state construction workers, and really do go to in-state residents. Sure there are some maintenance jobs for running these plants that also go to in-state residents of Arizona.

However, there are a scant number of jobs in coal, gas or nuclear power production. For every million invested in coal production, only 6 jobs are produced. Fossil-fuel and nuclear plants are capital intensive industries, where the money goes largely for capital-intensive power plant and construction components, many of which are produced overseas.

In contrast to 6.9 jobs for coal and 4.2 jobs per million dollars spent on nuclear energy, solar energy installation produces about 13 jobs per million dollars spent.  Whenever you put money toward low job-producing options, you deplete funds for higher jobs-producing options. To put money into coal and nukes reduces overall employment, because that money would have gone to other projects, or perhaps even just into more discretionary spending, which has a much higher jobs output than 4.2 or 6.9 jobs per million dollars spent.

Energy exports from Arizona are not taxed in any significant way that would bring further benefits to the state, except for property taxes that benefit the local areas a bit.  We do not tax the payroll that goes for power plant components from out-of-state -– and mostly out-of-country -– workers who create these parts and machinery for the coal, nuclear and natural gas plants. We do not put a sales tax on the exported energy. We do not tax the income of the out-of-state corporations like Bechtel, GE-Hitashi, Toshiba-Westinghouse or others who build these plants.

Then comes SunZia, which some think of as Sunzilla, a monster transmission facility. This system would transport electricity from coal and natural gas producing plants right through Arizona. The company behind SunZia, SouthWestern Power Group, would have you believe that the 16-story high transmission lines would primarily transmit renewable energy. However, every one of their many options for routing their transmission lines goes by a planned fossil-fuel plant in southeastern Arizona and other potential gas plants in New Mexico.

The owners of the Bowie, AZ fossil-fuel plant and SunZia apparently own no renewable energy facilities to speak of. This is a good example of green-washing, where they promise renewables and then you actually deliver dirty energy. Explicitly put, they are using renewables as a cover to deliver their dirty fossil fuel plant.

It is SouthWestern Power Group that wants to build a large natural gas plant north of the Chiracauhua Mountains, near Bowie. It would pollute the air of Chiracauhua National Monument, the Coronado National Forest lands, the Wilcox Playa and the Wilcox area. This plant is east of Tucson, toward the New Mexico boundary line.

The wind from this facility would blow pollutants to Tucson during our hot summer months. This fossil-fuel plant would pollute a large region including parts of Arizona, New Mexico and Mexico.  Of course, winds don’t stop at boundary lines, so the pollution, like all pollution of fossil and nuclear plants, would thin out and spread globally.

There is no need for this huge transmission line. Instead, there is a large precedent for energy efficiency improvement in the U.S., in the Southwest and in Arizona. The Arizona Corporation Commission, which is a top regulator for electricity and its transmission in Arizona, has established a requirement for Arizona of 22% reduction in power production in Arizona by 2020. This large electricity reduction is going to make new transmission lines much less viable. On the other hand, to build transmission lines essentially refocuses attention on production, rather than reaching our energy efficiency potential.

All the while, if Arizona were to use its energy as efficiently as California, which has focused on EE programs for a long time, it would reduce its overall electricity production by 52%!

Source: New Rules Project, Energy Self-Reliant States, October 2009, p. 25. http://www.newrules.org/sites/newrules.org/files/ESRS.pdf

With all this energy reduction going on, why would it be beneficial to build SunZia?  It is highly beneficial for out-of-state and overseas corporations. For typical Arizona residents, it is the opposite of beneficial.

Arizona stands to lose environmental quality, and the economic negatives that go along with these environmental quality reductions. The towers and lines themselves contribute to visual blight of the beautiful natural settings of Arizona, and New Mexico. The lines will contribute to transporting more electricity from natural gas – an absolute certainty, with the tie-in to the natural gas plant near Bowie.

Economically, this is not the way to go. Many studies have been done on the average cost of natural gas electricity, on coal electricity, on wind and on the cost of energy efficiency. Here are rough cost estimates for each of these delivered electricity options, or in the case of energy efficiency, saved electricity costs:
 

Costs Per Kilowatt-Hour of Newly Constructed Power Plant Electricity Delivered or Electricity Saved
Coal               13 cents per kilowatt-hour
Natural Gas    11 cents
Nuclear           24 cents
Solar PV          6-12 cents, depending upon solar gain for each area
Wind              11 cents
Energy Saved/Efficiency   3 cents (yes, as in one eighth the cost of nuclear energy or one fourth of coal)

We have enough base load electricity generators for our current use in Arizona, regionally and nationwide, on average, already. We will have even more than enough base load electricity generation with the reduction in load that will occur with nation-wide and state-wide energy efficiency portfolios.

The least-cost approach is energy efficiency. The next least-cost approach is EE mixed with renewables that are distributed generation, in other words, renewables that are generated and distributed locally.
The federal Bureau of Land Management is the agency that is controlling this environmental impact statement (EIS) process. The Draft EIS for SunZia has been done now. It is very biased. For example it makes the claim that this line is for renewable energy transmission, without any significant justification for this claim. The BLM is clearly in cahoots with the company promoting this highly profitable but destructive energy system.

I ask the BLM to clarify what the cost is of the “no-build” option for Arizona and New Mexico, compared to the cost of the SunZia project. I want the BLM to go back to the drawing board and get perspectives on what a no-build option would ultimately do to the total energy cost outlay from the citizens of Arizona and the region. The BLM should contract with reputable firms that do not have a hand in perpetuation of the 20th Century technologies of coal, nuclear and natural gas electricity production. They should consider companies like Synapse, the New Rules Project and others that are not enmeshed in the technologies of the past.

The BLM knows that this system has variable boundaries, as electricity marries electricity, once it gets on the western grid system. However, the BLM also knows that it can reasonably quantify what electricity will cost with a system that is unneeded versus what it will cost with a grid system that is not unnecessarily expanded. The BLM knows that if we put the energy dollars into energy efficiency and distributed generation renewables, the overall cost of energy to citizens in the West will be lower.

So, is Arizona headed to becoming a resource-depleted slave state, a third-world country-like state? Is this beautiful state going to be beholden to outside interests that profit from this potential deterioration? Or is Arizona going to start taking the reins in hand and steer away from this outside domination?

Do we want to go down the tired path of fossil and nuclear energy, or do we want to ramp up our energy efficiency and blend it with renewables, cleaning our environment and reaping economic benefits of cheaper energy costs and more jobs?

A deadline of August 22nd has been set for this important phase of opposition to this project.

To let the BLM know what you think about this project, you can go online to download a comment form at:  http://www.blm.gov/pgdata/etc/medialib/blm/nm/programs/more/lands_and_realty/sunzia/sunzia_docs.Par.1056.File.dat/SunZia-Comment_FINAL.pdf
This form has directions on where to send it, or you can e-mail your comments to: NMSunZiaProject@blm.com
You can also obtain a good perspective on this project at the website of the Cascabel Working Group, where you can obtain the Draft Environmental Impact Statement (in numerous pieces, several hundred pages of primary sections and addendums) at: http://cascabelworkinggroup.org/links.html