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September 14, 2018

This letter explains APS’s opposition to Proposition 127, which is funded by billionaire political activist Tom Steyer and bears the deceptively voter-friendly name “Clean Energy for a Healthy Arizona.”

The Steyer initiative would amend the Arizona state constitution to mandate APS and other “nongovernmental” utilities (i.e., SRP would be exempt from the mandate) obtain 50 percent of the power they deliver to customers from renewable sources by 2030, a short time frame of less than 12 years.

By careful intent, the proposed amendment’s title makes the goal seem admirable. After all, who doesn’t want cleaner energy?

But the design of the initiative has deep and costly flaws. If passed by the electorate, the disruption to energy customers and Arizona’s economy will be so severe that I feel compelled to make certain we fully understand the range of repercussions.

Should the Steyer initiative pass, Arizonans will pay significantly more for electricity. Consumer advocates at the state-funded Residential Utility Consumer Office estimate an increase of $630 per year for the average customer. Our experts’ estimates surpass even these devastating costs. Limited-income customers and those living on fixed incomes will especially feel the burden, as will schools and local governments.

“We should discuss these critical issues within Arizona, with fellow Arizonans, and not through a hastily drafted initiative…”

Local businesses would feel the financial impact as well, because the Steyer initiative would have a chilling effect on economic growth and Arizona’s ability to draw new jobs and investment. The state’s success in attracting data centers, high-tech manufacturing, and other desirable employers because of our balanced mix of clean, reliable and affordable electricity would deteriorate. Supporters of Prop. 127 disingenuously claim their effort will cause electricity rates to decrease, citing generally declining prices for solar power. However, to meet the Steyer mandate, APS would have to invest billions of dollars in new solar power plants and transmission lines to deliver more renewable energy to Arizona’s urban centers. In addition, APS would have to invest billions more in new sources of back-up power necessary to keep the lights and air conditioners on when the sun doesn’t shine. Some of that back-up power would be provided by natural gas generation, which would actually increase emissions. And because solar energy fluctuates dramatically with weather conditions, APS would need to install massive amounts of battery storage capacity – far more than the total battery capacity that currently exists in all of the United States.

For a dark glimpse into a potential future shaped by Prop. 127, we need only look at California, which in 2017 reported obtaining 30 percent of its power from renewable sources – not even close to the 50 percent required by the Steyer initiative. California energy companies have made massive infrastructure investments just to reach that level, and the state today has electricity rates 54 percent higher than those in Arizona, increasing at a rate greater than 4 times the national average.

Or we could look abroad at Germany’s dismal example. A journalist for Politico, a progressive publication, recently described the country’s attempt at a rapid transition to renewables thusly: “Despite spending €150 billion and years of political effort to scrap nuclear and fossil fuels and switch to renewables like wind and solar, Germany is expected to fall short on pretty much all its national and EU emission reduction and clean energy targets for 2020.” The article quotes a leading German consumer advocate: “An average four-person household has to pay more than double for power in 2017 compared to 2000.” That doubling mirrors our estimate of the impact on Arizona electricity bills should the Steyer initiative pass.

The ballot language for Prop. 127 describes the constitutional mandate as “irrespective of cost to consumers”. Accordingly, if enacted the mandate will have no economic off ramps, safety valves, or other intervention mechanisms to protect consumers from runaway cost increases.

Supporters of Prop. 127 blissfully assure us that Arizona’s economy will not suffer. We view it as a dangerous bet considering the changes mandated by the Steyer initiative would, for all practical purposes, stand permanently. The detailed requirements of the initiative, which run four-pages of fine print drafted with no public input, would be incorporated into the Arizona constitution. Citing one example, our constitution would permanently specify the acceptable diameter of trees used for producing renewable energy from biomass.

“Today, we provide our customers with an energy mix that is more than 50 percent carbon-free...”

Wall Street has recognized the problem. One premier financial analyst wrote recently that the Steyer initiative would have “a material upward impact on rates” and that the initiative “while seemingly well-intentioned is not consumer friendly.” Analysts at Credit Suisse echoed the caution, noting that the initiative comes “without any financial guard rails to protect consumers.”

Many prominent environmentalists who once opposed nuclear energy have become passionate advocates, recognizing nuclear’s essential role in reducing carbon emissions. Inexplicably, the Steyer initiative specifically excludes nuclear energy from its list of acceptable generation sources. The Palo Verde Generating Station is the largest source of clean, carbon-free electricity in the United States. We simply cannot walk away from so valuable a source of clean power without crippling economic and environmental consequences.

If the Steyer initiative passes, Palo Verde would likely cease operating before 2025. Closing Palo Verde would have a devastating economic impact on Arizona – particularly the growing West Valley. The plant contributes more than $2.1 billion annually to Arizona’s economy, provides quality jobs for more than 2,500 Arizona families, and holds title of the state’s largest single taxpayer with a total annual bill exceeding $65 million.

Supporters of Prop. 127 claim that APS cries wolf when we predict that Palo Verde could close prematurely if the initiative passes. Rather, I assure you, we speak the truth.

The Steyer initiative would flood Arizona’s electricity grid with excess solar energy in the middle of the day, just when customer demand reaches its cyclical low. As a consequence, we would have to shut off Palo Verde. You might ask why?

“…the Steyer initiative would have a chilling effect on economic growth and Arizona’s ability to draw new jobs and investment.”

The answer lies in the nature of nuclear energy generation. Nuclear power plants are designed to run at 100% every day of the year. Maintaining the nation’s largest nuclear plant to the highest standards of safety and reliability while running only part-time makes for extreme operational and economic challenges. Lest anyone think I exaggerate, a similar situation in California energy markets contributed to the recently announced closing of California’s Diablo Canyon nuclear plant.

Furthermore, while encouraging energy research at Idaho and Lawrence Livermore National Laboratories, along with many entrepreneurial ventures, including Bill Gates’ TerraPower, offer the promise of advanced energy technologies to power the 21st century, a Prop. 127 constitutional commitment to a wind and solar-based energy standard forevermore, would essentially hitch Arizona to what could become a horse and buggy technology while the world moves on without us.

APS will draw much easy criticism for opposing Prop. 127. We will take that heat to defeat a measure which will harm both our customers and Arizona.

Our approach to solar leadership has never changed, even if our critics misconstrue and twist our words. We have always argued for balance. Today, we provide our customers with an energy mix that is more than 50 percent carbon-free, and we remain committed to a sustainable energy future for Arizona. We recognize the need for clean energy, but as Arizona’s largest electric utility, we have an unyielding obligation to provide reliability and affordability in equal measure.

Arizona’s energy future will power our state’s economic growth and cultural vitality. As always, we should discuss these critical issues within Arizona, with fellow Arizonans, and not through a hastily drafted initiative put forward by a California activist with no vested interest in our state.

I’ve cited a few news articles and analyst reports in this letter. We have posted these, and other resources you might find interesting, to the website PinnacleWest.com/Prop127. I encourage you to learn more about the initiative, and I urge you to speak out and vote no.

Thank you for the time and consideration.

Donald E Brant signature

Donald E. Brandt
Chairman of the Board, President and Chief Executive Officer

Paid for and approved by Pinnacle West Capital Corporation.