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November 2021

December 2021

Overbuilding?

ACC Chairwoman Lea Marquez Peterson is concerned that the utilities will overbuild renewable capacity in an effort to inflate their rate base.

When regulators sneeze, utilities get pneumonia.  APS listed the Chairwoman's letter  on the "Risks and Opportunities" slide in the recent Resource Planning Advisory Committee (RPAC) presentation.

APS Headline slide

She has a point.  Utilities earn a return on rate base and they are severely penalized if they are short on capacity,  so they have multiple incentives to either overbuild or gold plate the system.  Regulators work to ensure that utilities don't keep reserve margins too high and that utility investments are used and useful.  

I would argue however, that western capacity markets are tight.  Here is another slide from the APS RPAC deck.  

APS short term peak slide

APS certainly isn't currently overbuilt.  In fact,  I would argue that reliance on the short-term market for hundreds of MW of peak capacity is evidence that APS is short of capacity.  

So the Chairwoman's point is well taken--regulators need to watch procurement over the next decade.  It is more likely that APS and TEP will struggle to obtain the resources they need in order to keep the AC units running.