Martin L. Shultz Frames Arizona’s VerdeXchange: Net Metering Issue Not Settled, More Investment in Infrastructure Needed

Issue: 

VerdeXchange News: Marty, we talk to you about two months before the VerdeXchange Conference in Arizona. I want to begin with your perspective on the recent decision of the Arizona Corporation Commission about net metering and charging a small fee for installed solar rooftops. How did that contest between the utilities and the solar industry end?

Martin L. Shultz: Actually, it hasn’t ended. For that particular Arizona Corporation Commission decision, which was a modest increase, both sides sort of declared victory. But instead it was just a stop along the way. 

I think the real issue here is that Arizona is a key state for the production of solar energy because of the intensity of the sun. Historically, because there’s been a pro-solar Corporation Commission—that’s our public utility commission—the utilities have worked closely on several fronts. One, how to facilitate the development of rooftop solar and other solar applications, and two, something in Arizona we call utility-scale solar. This gets utilities into solar in a more efficient manner by creating larger plants. Arizona Public Service Company did this with a $1.3 billion commitment to create the Solano power plant in west Maricopa County. It is 280 megawatts, by the way. 

Having said that, the Corporation Commission was challenged by the Arizona utilities because they said, “We’re getting 20,000 plus customers, a big enough group that we need to assess what the actual cost to the existing and future electric system will be.” In other words, the solar power produced goes on the grid. The grid has not been set up for solar exclusively. Now, you’ve got a fairly sizeable group of customers, and with aggressive solar marketing, more customers to come. The utilities were saying, “There needs to be a charge.” This, by the way, is not just an Arizona issue. It’s a national issue. SolarCity, which is owned by Elon Musk and others, aggressively pushed back and said, “No, we don’t want to have any additional charges through net metering,” which is really a charge on the cost of using the company’s infrastructure, specifically the distribution system. 

There was a lot of controversy. It was highly visible and highly political. To me, that was a disappointment, because this is really more of a business decision that should be made by energy producers, customers, and the regulators by focusing on the finances. Unfortunately, it was so politically charged that it didn’t occur like that. The answer to your question is that the commission did put in a small charge and declared, “That’ll take care of this for the time being.” The utilities on the one hand said, “We’re done with it for now.” Frankly,  that’s not enough in the way of additional charges or apportionment by the regulators for support of the electric system, which is the distribution system. Of course, the solar providers—be that SolarCity or SunRun, or many of the others, said “We don’t want to have the net metering charge added,” but they haven’t challenged it so far.

VerdeXchange News: Marty, I remember that debate at last year’s VerdeXchange with senior people from SolarCity and the Arizona Corporation Commissioner. Months later, California had a decision on AB 327, which was also an attempt to settle the dispute and encourage support of the grid while also supporting the rooftop solar industry. Susan Bitter Smith was out at the VerdeXchange in LA in late January talking about the evolution of this policy on a panel called, “Are American Utilities Now in a Death Spiral?” Is that a topic that would be relevant in Arizona? Are utilities facing a death spiral if they don’t come to grips with the changes in the energy market?

Martin L. Shultz: I would say that’s a little dramatic. Other industries face disruptive technologies, rather than traditional technologies—telecommunications being one, healthcare being another. If they don’t adjust to it and the market doesn’t adjust to it, then whether it’s a death spiral or just a depression cycle, it is in fact a legitimate issue. It is the big thing that should be considered in a public policy arena like VerdeXchange.

VerdeXchange News: Mike Peevey—the current chair of the California Public Utilities Commission and a former president of Southern California Edison—commented that the energy industry needs bright and adaptive leadership, which it doesn’t have a lot of. What would you say to his comment?

Martin L. Shultz: I would say that he’s progressive, he’s out there, and his comment is in the context of California policy, where the regulators and the tone they set insists on embracing these technologies because California clearly rejected coal and nuclear for the future. I would say that Mike probably doesn’t demonstrate the balance that we ultimately should have. I would say the utilities should embrace solar, solar research, and technology—both rooftop or community solar, where you install it in a neighborhood, or what is called utility scale, where you can come up with 280 megawatts in one location like APS did at the Solano station, near Gila Bend, Arizona. 

I would also hope that an energy plan would be robust enough to accept nuclear, to the extent it’s possible. Arizona has been successful with the Palo Verde nuclear power plant. On coal, I think that rejecting it and saying “no more” is a narrow view. I would say a phasing issue—a real effort to get to cleaner burning emissions—is definitely, from an economic standpoint, something that we should pursue. Interestingly enough, I happen to have a client that has come to us to help them with a piece of legislation. They actually are developing what we call refined coal. That is, they are spraying on top of a traditional coal pile a chemical compound that burns coal but with fewer emissions and fewer harmful toxic waste problems. This is a step forward. 

I don’t think that Peevey, when he’s talking about this, demonstrates to me enough breadth of acceptance of other technologies that should be part of a balanced portfolio of the utilities of California, Arizona, and around the country. 

VerdeXchange News: Marty, you spent a good part of your career on nuclear and advancing the plant you just talked about. You’re probably also well aware that we’ve decommissioned San Onofre, the nuclear plant here in Southern California. What is the future of nuclear in the United States and in the Southwest, in your opinion?

Martin L. Shultz: I’ll divide my opinion into two phases. Objectively, I see clearly that there’s a lot of pushback and resistance in our country, even though we do have one nuclear power plant being built in the southern part of the United States. I also have got to point out from an Arizona perspective—and that’s the VerdeXchange coming up—that we enjoy the Palo Verde nuclear power plant’s output of 4,000 megawatts on an annual basis. It produces more power than absolutely any other power plant in the United States. When we have that kind of technology that is safe, people don’t die, and it just keeps plugging along year after year in a cost-effective manner. I would say that there are definitely possibilities where people are tolerant enough to consider that because it is a safe and proven technology.

Having said that, in the United States we’ve come to a stopping point with about 103 plants, some of which are being taken offline. You mentioned one of them in California. California seems to have this aversion to coal and nuclear and an embracing of technologies that are acceptable to Californians, solar being one. Maybe natural gas, because it’s more plentiful, but frankly natural gas produces half of the emissions of a coal-fired plant, and coal-fired plant emissions are being reduced. 

There are some consequences and some risks to taking a too-narrow approach to an energy portfolio. I would say on the nuclear question that we’re making a long-term mistake in America. They don’t seem to be turning their back on nuclear in China or in India, but in America we have pretty much slowed the process over storage and other issues. Frankly, it’s the wrong decision. But, in reality, I can’t say it’s got a robust future anywhere else outside of Arizona.

VerdeXchange News: Let’s pivot a little bit to infrastructure, which you’ve also spent a great deal of time on in your career.  What we have at the federal level seems like a stalemate on investment in infrastructure. What’s the state of Arizona done to beef up its infrastructure—transportation, water, and technology?  

Martin L. Shultz: Our history of infrastructure in Arizona over the last 40 years is pretty good from this standpoint. We knew that we needed water in this desert in central Arizona. We did ultimately create, and the federal government and the state funded, the Central Arizona Project, which has really been a boon to Arizona in terms of water. 

In order to do that, we had to pass the 1980 Groundwater Management Code, which demonstrated to Secretary of the Interior Cecil Andrus that we had our act together here in Arizona. I was proud to represent the utility industry in 1980. That groundwater management code is one of the finest in the country. It’s been judged by many of the experts. However, it now needs tweaking—upgrading and modification. We’re a little slow in the policy area, but there’s attention to it by the governors and the state leaders.

In the transportation area, even though we started growing dramatically after the second World War, we didn’t have our freeway act together through the ’60s and the ’70s. It took us to the middle ’80s—in fact, 1985—to go to the voters with a campaign in which I was heavily involved to say, “We need a half-cent sales tax to fund the freeways that are necessary.” Prior to that time, believe it or not, we had a grand total of 13 miles of freeway in this metropolitan area. After 1985, we began the process of really building the freeways. 20 years later, which was 2005, I ran the campaign for the extension of that half-cent sales tax. 

Today, we have a very modern freeway system, and in Phoenix, Tempe, and Mesa, a very modern and model transit system that we call light rail and Metro light rail. 

Having said that, going forward, we’re making a huge mistake if we don’t move on additional transportation funding in our state and not depend on the federal government. What will it take? I know that there are the experts, and the government leaders in some of these states that don’t like me to throw out broad estimates because we haven’t really had all the people come together yet, but I’m going to throw out the broad estimate of $50 to $70 billion over the next 30 years in order to accomplish what we need at the local and at the state level. That would be about 13 new corridors, an expansion of rail where it is appropriate in the metropolitan areas, an expansion of bus service in the rural areas, and rail between Phoenix and Tucson. 

We also need to make investments in corridors like I-11, which is newly designated—a year-old federal corridor between the Las Vegas and Phoenix metropolitan areas. It is the last freeway connection between the two major cities within the United States. The I-11 clearly will be helpful, from Canada over the northern part of our country all the way through Nevada, through Arizona, and down to Mexico.

VerdeXchange News: Marty, I want to turn back to water for a second, because an Arizonan—Ben Grumbles—is president of the US Water Alliance. They held the first conference in the west on One Water here in LA a year ago. It was a subject at VerdeXchange this past January—the holistic idea of looking at water recycling and the reuse of storm and wastewater to get the most out of every drop. Does that play in Arizona as an initiative?  

Martin L. Shultz: More than play, it is an initiative of Governor Brewer. Mike Lacey is the new water czar—the “water buffalo,” shall we say. Let’s talk about things like reuse. Going back to Palo Verde, the largest power plant in the country also happens to be in the middle of the desert 55 miles west of Phoenix and is actually cooled by recycled water from five cities in the Phoenix area. That’s the granddaddy of recycling examples, but we have many others. On golf courses, we’re very good and very aggressive about using recycled water. 

We’re sophisticated players, as you are in California. But none of this is cheap. Well, I shouldn’t say none of it. Some of it is relatively cheap. Smart strategies like laser leveling in fields show that agriculture in Arizona has embraced the smart use of water. But then you have a growing population, and with that growing water needs. So we need not only recycle and reuse, but also conserve. 

These strategies are not as imposing on our populations as they will be in the future. I think there’s a realistic evaluation that we expect our leaders and our knowledgeable people to enforce policies that make sure we have adequate water supplies for the future.

VerdeXchange News: Let’s turn to another theme that’s been prevalent in VerdeXchange, and that’s foreign direct investment and trade. You’re on the boarder of Mexico. The President of Mexico has talked about privatizing their natural resources. How does Arizona look at that opportunity, their companies, and the relationship to prosper from such a decision?

Martin L. Shultz: Governor Brewer has developed strong ties with Mexican officials along with trade and commerce activities in Mexico. We’ve got people in the legislature, including our Speaker of the House, Andy Tobin, who has traveled to Mexico for just this purpose. Mexico is Arizona’s largest trading partner. That is something that we celebrate and don’t take for granted. Our Arizona Commerce Authority has been on that since they were created, and in their earlier iteration as the Department of Commerce.

From a private sector standpoint, there are many industries on the border. Border trade alliance organizations, such as our own Greater Phoenix Economic Council, are all very tuned in to developing relationships that ultimately produce business.

Mexico, California, and Arizona are very strategically aligned with the Pacific Rim, so this is a bigger deal than just two countries and two borders. The Pacific Rim is an ideal connection with Mexico, which ultimately brings trade up to Arizona. Of course, an ideal relationship occurs between the Pacific Rim activities and California—which then, by truck and by train, transports goods across the country through Arizona.

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