Shock Treatment

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Never in its history has the Commission seen so many proposals being filed so quickly.

"The dam broke," says Dennis Sundie, an official with the Arizona Department of Water Resources who sits on the Commission's Power Plant and Transmission Line Sighting Committee, which, like a planning and zoning board, evaluates proposals before passing them on to the three corporation commissioners for a vote. "We hadn't seen a new power plant since the early 1980s. Then boom."

As the permit applications arrived at the Commission's office in Phoenix, plant supporters began pushing their projects through local public hearing processes. They needed the megawatts to get in on the California boom, which they knew government regulators would eventually stop. And the first companies to get plants approved and operated would have the best arguments that they were offering a much-needed product.

Last spring, Hogan and other consumer advocates began to ask questions about the power plants. Hogan's group sued the Corporation Commission, alleging it was not following Arizona law that required the Commission to balance the need for a power plant against the plant's environmental impact.

The power companies intervened in the case, and a settlement was reached.

As part of the settlement, power plant owners had to guarantee that power would be available to Arizona customers during peak periods over the next two years. Subsequent plants will also have to prove they are needed.

Hogan and others also want a comprehensive study of the cumulative impact of these new plants, particularly the cumulative effect of the four plants locating themselves just upwind of the Valley near the Palo Verde Nuclear Plant, about 30 miles west of Phoenix.

"I'm not denying these things are cleaner than coal or nuclear plants," Hogan says. "But nobody has answered what the cumulative effects of all these plants really might be, if there is one. The utilities say there isn't one because they are highly mobile pollutants, but that's not always real comforting to only hear from a private utility company."

Steve Branoff, an engineer with the Environmental Protection Agency, says the plants are environmentally sound.

And since modern natural gas-fired plants are all nearly identical, Branoff says, the EPA can make projections of the plants' impact based on already existing plants.

"Despite the fact that these are very large plants, their emission specs really are very low," Branoff says.

Hogan has one other pending lawsuit, against Arizona Public Service. In that case, Hogan questions the legality of Arizona's plan to remove price caps in 2004.

The problem there, Hogan says, is almost the reverse of one of California's major problems. In Arizona, companies such as Pinnacle West didn't have to sell off their generation assets. They just had to separate their distribution and generation assets. One subsidiary will sell power to the wholesale market, the other will buy the power and sell it to customers.

That's dangerous territory for customers, Hogan says.

"The way the law sits now, APS is going to be able to charge whatever they want on the open market for wholesale power and then pass on any cost increases to their customers. I believe deciding now that we're going to let them pass costs on is not only illegal, but a really bad idea until we know what the situation is with deregulation in Arizona."

If an adequate supply is in place, others argue, the market will take care of itself. With lots of power out there, wholesale market prices will remain low.

That is, as long as there is enough inexpensive natural gas. Besides the cost of construction of the facility, paying for natural gas is the greatest expenditure in operating the new high-tech turbine plants. Natural gas prices, SRP officials and others argue, are higher than they should be right now. And that doesn't bode very well for the future.

"Natural gas prices have to rise to the $3 range, that's reasonable considering they have to get a new supply," says SRP's Mark Bonsall. "But we've been seeing six bucks, eight bucks, and that's just way, way too high."

"This is all unprecedented territory," Hogan says. "We better know what we're doing or it will be a disaster."

In 1999, representatives of Arizona's public-power utility, SRP, and two private utilities, Dynegy and NRG, approached Tempe and Gilbert officials with a plan.

Dynegy and NRG, two of the most aggressive and most profitable companies in the new power market, were going to help SRP enter into "the brave new world of deregulation," Gilbert councilman Mike Evans says he was told.

SRP proposed a new 825-megawatt plant. Dynegy and NRG would build and operate the plant. SRP would provide the land. SRP would use the power from the plant for its burgeoning Phoenix market. In return, SRP would give 500 megawatts to Dynegy and NRG for the companies to market in California.

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Robert Nelson