APS Customers Could Pay Hundreds of Millions to Maintain 50-Year-Old Coal Plant

Trucks carry coal from the Navajo Mine to the Four Corners Generating Station, which is mostly owned by Arizona Public Service, in New Mexico in 1973. Two units are still in use today.
Trucks carry coal from the Navajo Mine to the Four Corners Generating Station, which is mostly owned by Arizona Public Service, in New Mexico in 1973. Two units are still in use today. Wikimedia Commons
Last month, Unit 4 of the Four Corners Power Plant, the coal-powered generating station, celebrated its 50th birthday. Next July, Unit 5 will celebrate the same milestone.

Four Corners, located near Fruitland, New Mexico, is one of the country’s oldest, largest coal-fired power plants. It is majority-owned by utilities in Arizona, and largely (63 percent) by Arizona Public Service.

Like computers, cars, and most any other technology, these coal-fired units lose efficiency over time, but APS is pouring hundreds of millions of dollars into keeping them online. Would you spend $10,000 fixing an aging car when you could put that toward a more economical hybrid? Probably not.

Nonetheless, that’s what people in Arizona could be forced to do, should APS succeed in its requests to the Arizona Corporation Commission to pass on to customers the cost of pollution scrubbers, which were installed last year and in 2017, on the half-century-old power plants.

Depending on what regulators decide in the coming months, APS's residential and business customers could soon see an increase of anywhere from $2.47 to nearly $5,000 in their monthly bills solely to pay for $400 million of this required pollution control technology, according to the company's own projections, obtained by Phoenix New Times via public records request.

The range in amounts stems from the variety of APS customers and how much electricity they use. According to the company’s own calculations, residential residents would pay an average of $2.47 more each month to cover the cost of the scrubbers, which cull nitrogen oxides from the plant’s emissions. That amount translates to an increase of 1.69 percent, and customers would find themselves paying more in the summer (about $3 extra) than in the winter ($1.87).

That might not seem like a lot, but it adds up. Over the course of a year, it's a nearly $30 increase. Last September, 72-year-old APS customer Stephanie Pullman died, partly from heat-related causes, after the utility cut her power on a 107-degree day for $51 owed.
Tiny businesses, which barely use more electricity than households each month, would see a similar average increase — $3.93, or 1.68 percent, each month.

For small and midsize businesses, monthly bills would increase by an average of $16.66 and $128.54, respectively, and for large businesses, $491.78. Industrial facilities using an average of 3.7 million kilowatt hours per month can expect to pay — on average — $4,933 per month.

The actual cost to customers may be even higher than the projections.

Recently, a formal complaint against APS filed at the Corporation Commission alleged that although the utility promised in 2017 that customer bills would increase by an average of 4.5 percent, or $6, the reality turned out to be closer to 12 percent. In July, the five elected Commissioners voted to close the complaint, but ordered the utility to file a new rate case — in other words, launch the formal regulatory process for deciding rates — by the end of October.

APS first formally requested the increase to cover the cost of the scrubbers in April 2018, hoping that it could start charging customers in January of this year to collect another $67.5 million annually. In September, CorpComm staff recommended authorizing a lower amount of $58.5 million, but no formal decision has been made.

In an earnings call Thursday, APS President Jeff Guldner told investors that the company didn’t know when the CorpComm would decide on whether the utility could charge customers for the scrubbers. It could happen before October, after October, or it could be wrapped into the new rate case, he said.

“If APS were going to pay the cost themselves, they never would’ve done it. It’s easy to gamble and spend other people’s money.” — David Schlissel

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Holly Ward, a CorpComm spokesperson, confirmed that APS is currently paying for the cost of the scrubbers. She said the matter of making customers pay would likely be rolled into the October rate case.

In quarterly filings released Thursday, APS said that the utility might take a hit if the CorpComm decides that APS cannot force customers to foot the bill for these scrubbers. In other words, the company have to pay for the cost of its own $400 million investment to prop up Four Corners.

Joe Barrios, a spokesperson for Tucson Electric Power, which owns 7 percent of the plant, was not able to provide information by deadline about how much of the cost of the scrubbers, if any, had been or could be passed on to TEP customers.

Scott Harelson, a spokesperson for the Salt River Project, which owns 10 percent of the plant, said that the expense of the scrubbers had been accounted for prior to the last price change, which was a decrease. He said SRP had no current plans to change base prices further. SRP's own latest financial statements show that its share of the costs of the scrubbers was about $60.6 million.

For nearly a decade, environmentalists and renewable energy advocates have been pushing back against APS’s efforts to invest in the Four Corners plant. The utility announced aims in 2010 to purchase interests in Units 4 and 5 of the plant, which Southern California Edison had put up for sale.

One of those people was David Schlissel, a consultant who testified back then on behalf of the Sierra Club in a hearing before the CorpComm, which ultimately allowed the deal to go forward.

“Putting scrubbers on those old units was a terrible mistake,” he told New Times. “It’s really unfortunate that APS is stuck on this expensive and CO2-emitting energy power source.”

In 2016, Arizona ranked seventh-highest in the nation for carbon dioxide emissions from its electricity sector.

According to the federal Energy Information Administration, electricity production from renewable sources — much of that from either hydroelectric or solar — in Arizona is far behind other sources. In 2017, more than 30 percent of the state's electricity came from nuclear sources, just under 30 percent from coal, and just under 28 percent from natural gas. Hydroelectric power contributed 6.4 percent and solar just 4.6 percent, even though the state has 300 sunny days a year.

Last year, Schlissel published an analysis with the Institute for Energy Economics and Financial Analysis, a Cleveland-based research group whose mission is to "accelerat[e] the transition to a diverse, sustainable, and profitable energy economy," calling Four Corners “a losing bet” that was senseless to invest in. Not only was the plant less and less efficient as time wore on, but it was also increasingly expensive in comparison with other sources of electricity, he found.

Schlissel’s analysis, for which he combed through federal data and regulatory filings, showed that the amount of time the aging Four Corners units were physically capable of operating had dropped from around 90 percent of the time, in 2009, to barely 50 percent in 2017. Old plants often have unexpected problems and have to be shut down, he explained.

Citing projections by TEP, he noted, too, that in seven years, producing electricity will cost $80 per megawatt hour at Four Corners, about $36 at the Palo Verde Nuclear Generating Station, and $24 for solar energy in a power-purchasing agreement.

In 2012, the EPA issued new rules that required the installation of scrubbers, a.k.a. selective catalytic reduction systems, on Units 4 and 5 at Four Corners — Units 1, 2, and 3 were shut down — in order to reduce the amount of nitrogen oxides spewed into the air.

The other reason APS, which is notoriously anti-solar energy, would bother putting new scrubbers on an ancient plant, Schlissel explained, is because utilities profit by earning a 10 percent rate of return on its rate base, which includes the value of all the power plants, transmission lines, and other infrastructure — like scrubbers — that APS owns (minus depreciation of those assets and expenses for operations and maintenance).

“Why would you put on an expensive piece of equipment and burden your ratepayers? That's a rhetorical question,” Schlissel said. “APS earns on a return on their investment, so the more they spend, the more ratepayers pay, and the bigger profits APS earns,” he said.

“If they were going to pay the cost themselves, they never would’ve done it,” he added. “It’s easy to gamble and spend other people’s money.”

Asked how APS justified this investment, whoever ends up paying, spokesperson Suzanne Trevino said that Four Corners provides power for half a million homes and that the scrubbers were reducing nitrogen oxide emissions. She said coal comprises about 20 percent of the utility's energy mix today, an amount that should drop to 11 percent by 2032.
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Elizabeth Whitman was a staff writer for Phoenix New Times from March 2019 to April 2020.