The Arizona Corporation Commission has approved new “Renewable Energy Standard” rules (“RES Rules”). Decision No. 69127, Docket No. RE-00000C-05-0030 (November 14, 2006) (designating the new rules as A.C.C. R14-2-1801 through -1815) (the “Decision”). The new RES Rules substantially increase the renewable energy requirement under the commission’s existing “Environmental Portfolio Standard” (“EPS Rule”). A.C.C. R14-2-1618; see Decision No. 63364, Docket No. RE-00000C-00-0377 (February 8, 2001). Enacted in 2001, the EPS Rule required a renewable energy portfolio percentage of .2% in 2001, with a maximum requirement of 1.1% by 2007. The RES Rules extend the existing requirement to result in a maximum requirement of 15% by 2025. The RES Rules also add a new requirement that a portion of the renewable energy portfolio be obtained from “Distributed Renewable Energy Resources.”

Under the basic renewable energy portfolio requirement, an “Affected Utility” is annually required to obtain an amount of renewable energy credits representing kilowatts of electricity generated from an “Eligible Renewable Energy Resource.” The Affected Utility may acquire renewable energy credits from other parties. The required amount of credits is expressed as a percentage of the retail kilowatt hours sold by the Affected Utility during the calendar year. The RES Rules establish an “Annual Renewable Energy Resource Requirement” of 1.5% for 2007, increasing by .25% increments annually through 2009, for a 2009 requirement of 2.0%. The amount then increases by .5% increments annually through 2015, for a 2015 requirement of 5.0%. The amount then increases by 1.0% increments annually for a maximum requirement of 15.0% in 2025.

The RES Rules contain a much more detailed statement  of what constitutes an Eligible Renewable Energy Resource than does the EPS Rule. To qualify for renewable energy credits, power must (1) be generated using a designated technology, (2) displace conventional energy resources that would otherwise be used to provide electricity to an Affected Utility’s Arizona customers and, (3) must be generated by a facility installed on or after January 1, 1997, with the exception of certain hydro facilities.

The list of designated technologies includes generators  using the following energy sources: biomass, landfill gas, geothermal, wind, hydropower, and certain forms of solar power. The list also includes “Fuel Cells that Use Only Renewable Fuels,” specifically defined to exclude hydrogen created from natural gas or petroleum products. The list also includes an expanded list of qualifying solar technologies if installed so as to qualify as a “Distributed Renewable Energy Resource.” These include the following: commercial solar pool heaters; solar heating, ventilation and air conditioning; solar industrial process heating and cooling; solar space cooling; solar space heating; and solar water heating.

“Distributed Renewable Energy Resource” is defined as designated technologies located at a customer’s premises that displace conventional energy resources that would otherwise be used to provide electricity to Arizona customers. The designated technologies include the previously enumerated solar technologies as well as most of the other technologies that qualify for treatment as an Eligible Renewable Energy Resource.

The RPS Rules differ from the EPS Rule in requiring that Affected Utilities also satisfy a “Distributed Renewable Energy Requirement.” That requirement is expressed as a percentage of the Affected Utility’s Annual Renewable Energy Resource Requirement. The Distributed Renewable Energy Requirement for 2007 is 5%. The amount then increases by 5% annually, resulting in a maximum requirement of 30% for 2012. The RPS Rules specify that an Affected Utility must meet one-half of the Distributed Renewable Energy Requirement from residential applications and onehalf from non-residential, non-utility applications. Because “Eligible Renewable Energy Resource” is defined to include “Distributed Renewable Energy Resource,” a renewable energy credit that originates from a Distributed Renewable Energy Resource would ordinarily apply toward both the Annual Renewable Energy Resource Requirement and the Distributed Renewable Energy Requirement.

Although approved by the commission, the RPS Rules are still subject to review and endorsement by the Office of the Arizona Attorney General. Once the RPS Rules are in effect, the commission is expected to take separate action to explicitly rescind the EPS Rule. The issue is not explicitly addressed in the Decision.