Pandemic highlights opportunity for timely utility company reinvestment in Arizona’s coalfield communities

Arizona is losing its coal industry faster than anyone ever expected, and the state’s power-generation sector can and should be reinvesting heavily now in the towns, counties and communities hit hard by this sudden turn.

A report we published in February shows what’s happening in the industry across greater Arizona, where electricity generation is moving rapidly away from its historical roots in coal-fired power toward newer, cheaper, cleaner forms of production.

That was before COVID-19 arrived. The case for reinvestment is only made more urgent now by the coronavirus pandemic.

Coal plants have driven the growth of Arizona since the 1960s, electrifying cities, suburbs and small-town Arizona. Now, as the industry falls away, local economic disarray looms in a way that could affect the state’s overall financial health.

Navajo Generating Station — once the biggest coal-fired plant west of the Mississippi — closed last November; closure of Cholla Generating Station is imminent and Arizona’s three other coal-fired plants — Apache, Coronado and Springerville Generating Stations — are struggling to compete with gas-fired and renewable forms of generation.

Nothing about the issue is partisan. Communities of all political affiliations and stripes are affected. Nor is environmental regulation driving electricity-generation change, which comes instead from market forces that favor modernization. The shift isn’t just regional, either. Coal-fired power is disappearing nationally — and in fact utility companies nationwide should be reinvesting along the model we propose.

Arizona communities in the line of fire are concentrated in four counties: Apache, Cochise, Coconino and Navajo. And, while the coal industry collapse is hardly just a tribal problem, it is important to note that Hopi and Navajo communities are bearing much of the brunt of job losses and tax-base erosion. Arizona utility companies hold a substantial stake in coal-fired assets in northwestern New Mexico, too, part of the greater Arizona energy economy.

All of the places most immediately affected are ripe for utility-company reinvestment now. All still have skilled work forces and plentiful transmission infrastructure. All have abundant land, sunshine, or wind, making them potential regional clean-energy powerhouses.

Yet Arizona’s big three utility companies — Arizona Public Service Company (APS), Salt River Project (SRP) and Tucson Electric Power Company (TEP) — have done little in terms of coalfield reinvestment, even though detailed propositions have been put forth and major initiatives have been under way for years elsewhere, most notably perhaps in Colorado, Washington and Germany.

One model put forth by Jonathan Nez, the president of Navajo Nation, in a move affirmed by Timothy Nuvangyaoma, chairman of The Hopi Tribe in a TEP rate case, has the utility, as an initial reinvestment in the coalfield communities it has depended on for so long, committing $100,000 for every megawatt of coal-fired generation it owns in the Four Corners area. That would come to $61.2 million for the Navajo Nation and $16.8 million for the Hopi Tribe, divided evenly between TEP shareholders and ratepayers, a small opening price to pay for supporting economic transition in areas that have for so long powered so much of the rest of Arizona. The Nez formula ought to be applied across the board, as we proposed in a research brief we published in March.

TEP can and should embrace this proposal, and SRP and APS can and should follow suit by dedicating similar amounts of capital, proportionately speaking, that will serve not just as local stimulus but as a barrier against economic erosion that stands to affect the entire state. The return on utility-company reinvestment initiatives will accrue to anyone with a rooting interest in the wider Arizona economy.

That said, utility companies move slowly and sometimes not at all unless prodded emphatically and publicly to do so. Lucky for Arizona, the state has three mechanisms at its disposal by which it can drive utility-company reinvestment in coalfield communities:

• Through rate-case initiatives or rule-making by the Arizona Corporation Commission (ACC), which regulate APS and TEP in the public interest;

• Through unilateral action by SRP, which is run by a board accountable to its customers and to the greater good of Arizona;

• Through legislative action that would direct any of all of these utilities to set aside money for reinvestment or that would mandate a ballot initiative on this issue.

Use of any of these tools — or any in combination — would advance utility-company reinvestment where opportunity exists now.

If, on the other hand, utility-company reinvestment doesn’t happen on a momentous scale, the cost of public services in these areas will accrue to the state and the overarching result will be a needless delay in the buildout of a competitive, geographically diverse and modern power-generation industry in Arizona.

While the pace and impact of the coal industry collapse has been all certain for some time and is very likely being accelerated by the pandemic, discussion and decision-making on utility-company reinvestment is only just beginning. It is time to pick up the pace.  

Amanda Ormond is the former director of the Arizona Energy Office and principal of the Ormond Group. Karl Cates is an analyst at the Institute for Energy Economics and Financial Analysis.