Who should pay to help coal communities in the energy transition?

Staff at Arizona’s utility regulator say customers shouldn’t be charged more to fund a $144 million just transition package for the Navajo Nation, Hopi Tribe and other coal communities.

A large black cliff near a valley with excavating equipment under a blue sky with white fluffy clouds
The Black Mesa mine complex near Kayenta, Arizona (Gail Fisher/Los Angeles Times/Getty Images)
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Arizona’s utility regulators are debating whether to approve parts of a just transition package that Arizona Public Service, the state’s largest electric utility, has proposed for rural and Indigenous communities affected by the ahead-of-schedule shutdowns of its coal plants. The main sticking point is that a big chunk of that money would come from an estimated 0.3 percent rate hike on customers.

Late last month, the staff of the Arizona Corporation Commission, the state’s public utility commission, issued a much-anticipated report recommending against imposing rate increases on Arizona Public Service customers to fund the package. At stake is not only the fate of this funding but also the broader question of what utilities and their customers owe to communities whose lifeblood and livelihoods have long been wrapped up with fossil fuels.

The report disappointed advocates who’ve argued for years that Arizona Public Service (and by extension, its customer base) should bear some financial burden to help communities that have supplied the utility and the state at large with cheap power for decades. 

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The recommendations dodge the commission’s responsibility” for helping affected communities, said Kris Mayes, co-director of the Just Energy Transition Center at Arizona State University and a former ACC commissioner herself. These communities have been the backbone of Arizona’s growth and prosperity for the last 50 years. They made cities like Phoenix and Tucson possible by producing low-cost electricity for all of us,” she said. We cannot abandon them.”

A landmark package for a just transition thrown into limbo

In 2020, investor-owned utility Arizona Public Service and the Navajo Nation negotiated a historic $144.45 million package to support a just transition for communities affected by the early closures of coal plants co-owned by APS, including Navajo Generating Station, Cholla Generating Station (slated to close by 2025) and the Four Corners Power Plant (slated to close by 2031). Mayes worked with the Navajo Nation on the transition package.

Those communities, which have depended on the privately owned coal mines and utility-owned power plants for jobs and income, include the rural towns of Page, Holbrook and Joseph City in Arizona, as well as the Navajo Nation and the Hopi Tribe. (The Navajo Nation stretches for more than 27,000 square miles; it surrounds the Hopi Tribe lands in the northeast corner of Arizona, extending into New Mexico and Utah.) The Page, Navajo and Hopi communities have already been hit hard by the 2019 closures of the Navajo Generating Station and the Kayenta coal mine that fed it, which were located within the Nation. 

The package was set to provide $128.75 million to the Navajo Nation, $12 million to the Navajo County communities around the Cholla Coal Plant and $3.7 million to the Hopi Tribe, to be paid out over five to 10 years.

A chart showing the exact dollar breakdown of settlement between APS and Arizona coal communities
The transition package negotiated between APS and the Navajo Nation includes funds from shareholders and funds provided by customers through electricity rates. (APS)

APS calculated these amounts to equal approximately two years of taxes, royalties and lease payments generated by the coal plants, proportional to the utility’s share of ownership of the facilities. 

APS also pledged to re-deploy coal workers, build 600 megawatts of renewable power in the Nation or neighboring communities to serve APS customers, and extend power lines within the Navajo Nation, where an estimated 14,000 households don’t have electricity.

The terms of the package dictate that the majority of the funds (82.5 percent or just over $119 million) must come from APS customers (known as ratepayers” in industry parlance), with the rest coming from APS shareholders. 

APS estimated the package would raise customers’ bills by 0.3 percent, or an additional $0.58 per month on average, an amount that Mike Eisenfeld, energy and climate program manager at the San Juan Citizens Alliance, called negligible.

The plan does have precedent. Ratepayer dollars have been used to fund just transitions away from coal elsewhere, including the communities of Colstrip, Montana and Centralia, Washington.

But so far, the Arizona Corporation Commission, which regulates APS, has only partially endorsed the plan. In November 2021, it approved customer funds of $10 million to the Navajo Nation, $500,000 to the Navajo County communities and $1 million to the Hopi Tribe, as well as $2.5 million to electrify buildings in the tribal communities.

The commission may still approve more customer funds for APS’ package. It gave itself a year to make a decision in APS’ current rate case, a proceeding in which the commission approves or denies rate changes requested by utilities. And in the meantime, it initiated an investigation into the impacts on coal communities when coal plants are retired early and what assistance they need. 

The investigation included hundreds of pages of filings from stakeholders including grassroots organizations, utilities and the ratepayer advocacy office; two substantive workshops; dozens of hours of testimony; and 15 town-hall meetings where affected community members had the chance to speak directly to the commission. 

In the Arizona Corporation Commission report, staff members recommend that commissioners not approve any more of APS’ transition package, in order to avoid imposing a surcharge on customers. Instead, they suggest that APS should look for grant opportunities” and seek assistance from the state legislature and the governor.

Dodging responsibility for decades of burning coal

Advocates for the transition package responded to the staff recommendations with dismay.

The report is a big fat nothing burger,” said Eric Frankowski, executive director of the Western Clean Energy Campaign. 

Honestly, it’s one of the most embarrassing staff reports I have ever seen in my 20 years of watching the corporation commission,” said ASU’s Mayes. If I were still a corporation commissioner, I’d be appalled,” she said.

Mayes endorses pursuing other sources of funding, but in addition to, rather than instead of, funds from customers. Of course, we should be seeking federal funds for these communities,” she said. Of course, it would be good for the state to step forward and use some of its $5 billion surplus to help these communities. But utilities and the corporation commission have a responsibility, as well.”

Commission staff members have missed a chance to set a standard for other utilities that co-own these coal plants, including Tucson Electric Power, to provide transition funds, Eisenfeld said. That could’ve been the progression, but it wasn’t.”

Advocates for the transition package argue that rate increases are justified because these coal communities, especially the Navajo Nation and the Hopi Tribe, have subsidized the costs of burning coal for decades, benefiting customers and utility alike. 

For example, agreements in the 1960s with Peabody Western Coal Company, which sold coal to utilities including Arizona Public Service, had the tribes subsidizing [operations] with rock-bottom coal prices” and nearly free water for coal transport, said Nicole Horseherder, executive director of grassroots group Tó Nizhóní Ání, which translates to sacred water speaks” in Diné (“Diné” is the word Navajo people use to refer to themselves and their language and culture).

When the tribes renegotiated their leases with Peabody Coal in 1987, the adjusted royalties made plain just how discounted water and coal had been. The royalty rate for coal more than tripled from 3.335 percent to 12.5 percent. For water, the rate rocketed from $1.67 per acre-foot to $300. In 1996 law article, Charles Wilkinson, an emeritus professor of law at the University of Colorado, called the original water rate laughable.”

How much more could you subsidize an operation?” said Horeseherder.

The communities should have watched their backs better,” she noted. But honestly, those contracts were negotiated at a time when the majority of the Navajo [and Hopi] leadership was still relying on white lawyers and interpreters to understand what was actually going into…these agreements,” she said. They were in this position where they were easily taken advantage of.”

The commission could help right those wrongs, but the report strongly suggests they aren’t going to, according to Horseherder.

The corporation commission is saying, That’s not our responsibility when the utilities that we regulate…totally rip off these communities,’” she said. Essentially they’re saying, We don’t think that we owe these communities anything.’”

In an email to Canary Media, commission staff said they have not seen any analysis that shows that the tribes subsidized the cost of [energy] generation.” 

Everyone is happy to take advantage of our land, coal and water for their economic gain and leave us with a legacy of pollution, then refuse to help after they have destroyed our economy,” said Ben Nuvamsa, a former chairman of the Hopi Tribe, in a statement. 

The recommendations provide no avenue of assistance for communities where plants have already closed, and they reject the notion that communities where plants will retire in the future deserve any assistance for starting to plan now,” he said.

Navajo Nation argues transition funds should be used to offset coal closures

The staff report aligns with the views expressed by Arizona’s ratepayer advocate, the Residential Utility Consumer Office. RUCO has come out against the use of customer dollars to aid transitioning coal communities, arguing in a July 15 filing that transition funding is not a cost of service — it is a social type of cost that has nothing to do with a customer’s service.”

The Navajo Nation disagrees. Though several other advocates have said that transition funds would help redress historical injustices, the Navajo Nation has made its case much more narrowly, arguing that the transition funds are only to address the direct impacts of early coal plant closures — such as supporting displaced workers — and that those clearly fall under the cost-of-service” category. 

In spite of this clear causation…RUCO characterizes displaced power plant workers as a social cause,” Todd Kimbrough, attorney for the Navajo Nation, contends in his July 29 rebuttal of RUCO’s assertion.

Kimbrough also argues that transition funds are needed to clean up the sites of closed power plants. Utilities already charge customers decommissioning funds to help restore sites, Kimbrough said in an Aug. 1 commission workshop.

But these funds aren’t enough to reuse sites for office parks or residences — uses that are now necessary because the plant’s not running,” he said.

The impacts of coal plant closures on communities should be included with other costs that utilities are allowed to recover from ratepayers, according to Kimbrough.

The commission has already approved a plan for Arizona Public Service to use rate hikes to cover costs it still owes for Navajo Generating Station and Cholla Power Plant, that is, to categorize those costs as regulatory assets.”

It’s appropriate. It’s something that other state utility commissions do,” Kimbrough told the commission in the Aug. 1 workshop. 

In fact, RUCO acknowledged APS’ right to receive compensation for the unrecovered costs caused by the early [coal plant] retirements and recommended that stranded costs should be eliminated as soon as practically possible,’” Kimbrough writes in the July 29 filing.

It strains logic to say [utilities] can have theirs, but then the Nation can’t have [transition funding] that’s triggered off of early closure of exactly the same plants,” he said at the workshop.

Casting recommendations in a positive light

Kimbrough is more optimistic than other advocates about what impact the staff recommendations will ultimately have. He pointed to the line of the report that states, Staff believes APS should honor the MOU” — referring to the memorandum of understanding between APS and the Navajo Nation that formally laid out the transition package and how it would be funded. 

Kimbrough argues that this statement implies support for the memorandum as described, including that four-fifths of the transition funds are to be paid by customers. 

While the staff report states that they do not recommend assessing a surcharge on ratepayers at this time,” Kimbrough and the Navajo Nation interpret this as leaving the door open for future rate changes.

We’re reading it as an endorsement of the whole [memorandum] with sort of a TBD in terms of the recovery mechanisms,” Kimbrough said. 

Kimbrough added that he doesn’t think the staff is suggesting that APS use shareholder dollars to pay for the package in full; those aren’t the terms of the memorandum, and the commission itself has stated that it has no power to tell APS what to do with shareholder funds. 

While APS awaits the commission’s final decision, the utility is already delivering the slice of shareholder funding promised in the agreement. It has issued payments to the Hopi Tribe and communities around the Cholla plant, and it has begun executing its plan for providing shareholder funds to the Navajo Nation,” said Eric Massey, APS director of sustainability, in an email. He declined to discuss the Arizona Corporation Commission staff recommendations. 

The earliest commissioners could vote on whether to adopt the staff’s recommendations would be at an open meeting slated for Nov. 2.

Even if the commissioners vote against further funding APS’ plan, that doesn’t mean APS will renege on its commitment. The utility will simply bring the issue before the commission the next time it needs to seek approval for rate increases, said Sandy Bahr, director of the Sierra Club’s Grand Canyon Chapter. That persistence is written into its agreement with the Navajo Nation.

How to fund an equitable transition for coal communities is not an issue that’s going away,” Bahr said.

We have a number of coal plants that are going to be retiring. And there are significant impacts in these communities, especially in the tribal nations who have borne a disproportionate burden,” Bahr said. The transition funding…is just part of the responsibility of the utilities for these facilities.”

Update: The corporation staff issued a clarification of its recommendations on Oct. 21, namely that APS should honor the package without ratepayer funds.”

This is symptomatic of how gallingly sloppy and uninformed the recommendations are,” WCEC’s Frankowski told Canary Media.

Alison F. Takemura is staff writer at Canary Media.