PHOENIX - The Arizona Corporation Commission voted 4-1 Tuesday to initiate rulemaking proceedings to end two expensive energy rules that have cost Arizona ratepayers nearly $3.4 Billion dollars since 2006.  

Chairman Jim O’Connor provided the motion to repeal the Renewable Energy Standard and Tariff (REST) Rules, while Commissioner Kevin Thompson made the motions to repeal the gas and electric Energy Efficiency Standards (EE) Rules, also known as Demand Side Management (DSM). They were joined by Commissioners Márquez Peterson and Myers in supporting the repeals. 

REST Rules

The current REST rules have been in place since 2006 when the then Commissioners sought to aggressively reduce Arizona’s carbon footprint by requiring regulated electric utilities to meet a 15 percent minimum of renewable resource generation in their portfolios by 2025. Arizona electric utilities have met or exceeded these mandated thresholds, often at prices exceeding the market price.  

“In 1998 when then well-intentioned Commissioners directed the development of an Environmental Portfolio Standard (EPS), they did so through aspirational goals but worried about the impact to the ratepayer nonetheless,” said Chairman Jim O’Connor. “In 2006 when the REST rules supplanted the EPS rule, concerns by the dissenting Commissioner cited the lack of cost control measure that would negatively impact ratepayers, and the then-Chairman Hatch-Miller intended that the Commission review annually whether it was in the best interest of the ratepayers. Those reviews never occurred and costs were never considered.” 

O’Connor continued, “We began the steps needed to repeal a rule that has cost ratepayers billions of dollars in out of market priced contracts. Mandates distort market signals and are not protective of ratepayers.” 

The rules required Arizona utilities to file proposals describing how they will comply with REST, which typically involves offering incentives for renewable energy projects and services. The programs are funded by monthly surcharges collected from ratepayers. Collectively, REST surcharges have cost Arizona ratepayers nearly $2.3 Billion dollars since 2006. 

EE / DSM Rules

The EE /DSM rules were originally adopted by the Commission in 2010, and require regulated electric and gas utilities to meet energy efficiency requirements by 2020. These requirements were based on “societal costs” to ratepayers. To date, the EE rules have cost Arizona ratepayers nearly $1.1 Billion dollars in surcharges on their monthly utility bills.  

Commissioner Thompson championed the motions as victories for ratepayers, stating: “Arizona utilities have collected over a billion dollars in ratepayer surcharges for efficiency initiatives that have done little to avoid the need for new generation and have benefitted a select few. Energy efficiency programs are routinely pushed by vocal special interest groups where the economic benefits favor a small group of customers, and the large majority of ratepayers foot the bill.” 

Commissioner Thompson continued, “Living in Arizona, we all should be mindful to practice energy efficiency. But too much focus has been placed on societal metrics and costly feel good programs that don’t prioritize ratepayer affordability and grid reliability. Once the mandates are removed, it will be incumbent upon Arizona’s utilities to propose programs that actually work to benefit ratepayers and protect the integrity of our grid.” 

Arizona’s regulated utilities have met the efficiency threshold of the rules, and despite the effective date expiring December 31, 2020, previous Commission’s have neglected to repeal the rule, choosing instead to leave the mandate and standards in place and the unnecessary reporting and approvals required annually by the Commission.

Additional Background

As part of a comprehensive 5-Year Review of existing Commission rule packages, the Commission voted 4-1 to initiate proceedings to direct staff to formally end the REST and EE mandates and all associated rules and reporting requirements moving forward.  

Staff will now begin the administrative process to officially sunset the rules, and thus remove the mandates. The entire rulemaking process can take upwards of a year due to reviews by other agencies and extensive public comment. Tuesday’s vote was the necessary first step to unwind the longstanding mandates, and ultimately saving ratepayers money on their monthly utility bills. 

The associated REST and EE/DSM surcharges show up on ratepayer monthly electric and gas bills as line item surcharges, typically using terms such as “Environmental benefits surcharge,” “Systems benefits charge,” “REST surcharge,” or “DSM surcharge.” 

The total amount collected in REST surcharges from Arizona ratepayers to date is $2,277,403,877. The total amount collected in EE / DSM surcharges from Arizona ratepayers to date is $1,093,579,815.