1111111111111111111111111 ORIGINAL Q aps August l, 2019 0000199276 400 North 5"' Street Phoenix, AZ 85004 RECEIVED AZ CORP COMHlSS§0N OUCKET Cf8H\ROL 2019 AUG -I p 8=5b Arizona Corporation Commission Docket Control Arizona Corporation Commission 1200 W. Washington Street Phoenix, AZ 85007 DOCKETED AUG 1 2019 DOCKE RE: ARIZONA PUBLIC SERVICE COMPANY 2019 Preliminary Integrated Resource Plan Docket No. E-00000V-I 9-0034 Arizona is at the forefront of exciting developments and innovation. Investment in our state is surging, bringing new people and new opportunities to our communities, including major data centers, electric transportation manufacturers arid other major manufacturers. As the state's longest-serving and largest electricity provider, we are proud of the role we play providing the infrastructure that supports this growth and looking ahead to what's next for Arizona's energy future. In partnership with many different stakeholders, we identify opportunities to sustain and expand clean, affordable and reliable service for our customers across Arizona. We are committed to setting high expectations and achieving great outcomes in collaboration with customers, suppliers, Arizona's policymakers and all of those with a stake in balancing ambitious goals with responsible approaches. As Arizona's clean-energy leader, we want to build on the carbon-free foundation that anchors our energy generation mix. From Palo Verde's vital role in supplying clean energy to four states in the Southwest, a diverse renewable energy portfolio that is on track to reach 2,500 megawatts by 202 l , to innovative concepts that combine solar, batteries and energy efficiency programs at customer homes and businesses, we believe APS is wellpositioned to deliver on the promise of a bright energy future. The preliminary Integrated Resource Plan (IRP) we are filing today was developed with input from stakeholders and describes a vision of the diverse clean-energy mix we think is possible over the next several years. Just before this filing, we announced additional actions we are taking toward achieving that vision: two requests for proposal that APS will issue soon for new solar and wind projects. There is much more to be done, of course. We are eager to roll up our sleeves and work with others to implement the near-term plan and chart the longer-term course we will submit next year with our final IRP. Together, we believe we will achieve APS's vision of creating a sustainable energy future for Arizona. 8 3 QMM/ Jeff uldner President Brad Albert Vice President, Resource Management ..T.11 2019 PRELIMINARY INTEGRATED RESOURCE PLAN . . 1 3 . ; f 4 < {; < . . * E . 1\§ 1$2" F" . ?Q:;g! .v» p . 4 . v ARZQQ ,r,,l * ... . 5 * M .1 . . / / AUGUST 1, 2019 / / / / . / " Q aps° /// Contents Executive Summary 4 InhoducHonmnmmmwwmmwwHmnmnwHwHwmwmmmnmnmmmmmmmmm 6 Increased Stokeholder 7 Considerotions.............................................................................................................................. 8 I RP O Preliminon/ IRP Approoch and 9 Regional 10 A Flexible Approach to Peak Reliability 11 Load 12 12 Growth 13 Populotlon and Economic 13 Elec1Tic Distributed Generotion/Rooftop Sources of Energy Growth 14 . 14 ............. .... Dote 15 . 15 . lO Existing Resources Resource Needs 16 Technology 18 Bottery Energy Storage Systems 18 Photovoltaic and Storoge (PVS) IO DSM and Distributed Energy Resources (non supply side resources) 19 Solor 20 20 Natural Gos . ... .. . . . 20 Combined Combustion 21 Biomass........................................................................................................................................................................... 21 Preliminory 22 Final RP 23 Sensitivities 23 Future Studies to Inform the Final lRP 26 DSM Opportunity Study Renewable lntegrdtion Cost Arizono Public Service Company 2019 Preliminary Integrated Resource Plan 26 . Poge 2 I l I RegionolVehicle NoturdlStudy Gos Electric 26 26 Action Plan 26 Continue Exponsion of Renewoble 27 lnvestmentln APS Soior Communities (formerly AZ Sun II) 27 I nnovation of Customer-Side Resources with Advanced Grid Technologies..................................... 27 Toke Chorge 27 DSM Implementdtion 27 APS Rewords Programs F uture 28 Request for Proposals (RFPs) 29 Short Term Summer Pedking Needs (DR and market purchases) Transmission Resources 20 MOD-030 Renobiiiiy Coordinator 30 Extended Doy Aheod Morket (EDAM) 30 CoolHeetmmnmmummmmmmmmnmumm m m m mum m m m m mnmnm mnm 31 Novdjo Generating Si Source of 31 32 AppendixA APS 15 Year Load Growth Plan 35 Appendix B E3 Presentation to Arizona Corporation 38 Appendix c RP Working Group Arizono public Service Company 2019 Prelimindry Integrated Resource Plon 49 Page 3 I I Execu tive Su mmary This Preliminary Integrated Resource Plan (Preliminary IRP) summarizes The issues trends and scenarios that will inform the final Integrated Resource Plan (IRP) to be filed by Arizona Public Service Company (APS) with the Arizona Corporation Commission (Commission) on April I 2020. APS continues to address accelerating technology and energy trends that are influencing the industry while maintaining clean reliable and affordable energy service for our l .25 million customers across Arizona. These trends include: The growth of clean energy resources and advancing technologies on the energy grid such as energy storage i Dynamic market conditions across the West driven primarily by growing renewable energy resources and energy policy direction l l l l Customer pref erences f or cleaner energy and choice in how and when they use energy in their homes and businesses These trends ore helping shape our near-term action plan for the next 2-8 years and ultimately our long-term resource planning and procurement strategy. Our top priorities include: In c r eas in g Clean En er g y Res o u r c es Our diverse energy mix Is already 50% carbon-free and we intend to further increase our investments in carbon-free resources. Our near-term actions include competitive solicitations to procure cleon e ne rg y re s o urc e s s uc h o s s o lar, wind . e ne rg y s to rag e d e mand re s p o ns e and d e mand -s id e management (DSM) resources including energy ef f iciency that enable renewable additions and lead to o cleaner grid. W e continue to reduce our carbon footprint and dt the end of 2018 we achieved o 32% reduction in our carbon-emissions intensity from our 2005 baseline. Reductions ore expected to continue os we odd additional clean energy to our resource mix. Initially, we plan to issue o request for proposals (RFP) for up to 150 megawatts (MW) of ApS-owned storage-reody solar resources to be in service by 2021 and another f or up to 250 MW of wind resources to be in service os soon os possible but no Inter thon 2022. Both RFPs will hove on option for commercial customer participation. W e e xp e c t to have mo re than 1 0 0 MW o f c le an e ne rg y ad d e d to o ur s ys te m e ac h ye ar f ro m ongoing private rooftop solar installations. We also have opportunities to develop flexible resources and absorb clean energy f rom the western energy market when the region is oversupplied with renewables. The continued operation of the Palo Verde Generating Station the nations largest carbon-f ree energy producer, is essential to any clean energy future for Arizona and the Southwest. W ith im p le m e ntatio n o f o ur ne ar-te rm ac tio n p lan we e xp e c t o ur e ne rg y m ix to inc re as e to approximately 54% clean with more than 20% of our generation coming from renewable resources by 2022. Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 4 l Reatfirmlng Our Commitment to 850 MW of Battery Energy Storage by 2025 In February. APS announced on initiative to odd 850 MW of battery energy storage to our portfolio by 2025. We remain committed to completing this initiative but the timing and sequence of resource additions will depend on findings following the April 19 equipment failure at the McMicken battery energy storage facility. We have advised bidders participating in the RFPs for 200 MW of AZ Sun energy storage retrofits and 100 MW of largescale solar with storage to stop work on their proposals until further notice. We are working diligently and methodically through an investigation to determine the root cause of the McMicken incident and identify potential lessons. The investigation results will lnfonm our next steps including any changes to design parameters that may be Implemented for future batteries. We will notify participants when we make adjustments to the RFP schedule. We plan to move forward with the battery energy storage projects to be sourced by Purchase Power Agreements (PPAs) totaling 150 MW selected through the 2018 RFP depending on the McMicken findings. With the revised battery project timelines we will seek short-term wholesale market purchases from neighboring utilities market participants and merchant-owned natural gas units and demand response projects in order to meet pecking capacity needs for the summers of 2020-2021. It is imperative that we follow this approach for reliability purposes but purchases will be structured to ovoid impacting longer-term resource planning strategies consistent with our approach to adding carbon-free resources. We are developing an RFP for up to 50 MW of demand response to be released in the near future. This will also support reliability and add flexibility during peak demand on the system. Enhancing Flexibility through Market Opportunities and Customer Participation The nearterm action plan was developed with flexibility in mind to best manage population growth and economic activity (and resulting energy use and demand) expected in our service territory. The plan is flexible enough to provide sufficient resources to meet anticipated growth in energy demand particularly from large, new sources such as data centers and rising transportation electrification, while minimizing the risk of adding capacity before it is required. We will focus on expanding the APS Rewards residential customer programs to manage peak demand on our system, encourage energy use when solar energy is abundant and provide savings to customers. The current Rewards programs cover smart thermostats connected water heaters and energy storage. Parlicipation in the western Energy imbalance Market (ElM) will continue to be on effective tool for integrating the regions growing clean energy resources while creating savings for customers. To date the ElM hos delivered more than $102 million in gross benefits to APS customers since we joined the voluntary real-time market in October 2016. We are in discussions with the ElM operator California Independent System Operator (CAISO) and other ElM participants about the feasibility of a day-ahead market to achieve more cost savings and more efficient renewables integration across the region. Overall, these steps will continue momentum toward o clean reliable and affordable energy future for Arizona. The action plan integrates more clean energy into our diverse energy mix through planned RFPs increasing our renewable energy resources to nearly 2500 MW by 2021 - and our major commitment to energy storage. Strategic short-term wholesale purchases of gas-fired power will support reliability and Arizona public Service Company 2019 Preliminary integrated Resource Plan Page 5 I ! i i flexibility on our system. We will pursue market opportunities that enable our customers 'to benefit from the lowest-cost power available; including the regions expanding clean energy resources. Continued reductions in carbon intensity throughout our generation fleet anchored by the nations leading carbonfree energy producer, Palo Verde and growing clean energy resources, augment our clean energy goals. Our stakeholders are important in helping us Identify opportunities and benefits of additional clean energy resources. Creating a sustainable energy future for our customers and Arizona takes collaboration and innovative thinking. The IRP is a public forum to outline our long-term planning process and near-term action plans and we have enhanced collaboration through the IRP process by forming an initial IRP working group. this group included a diverse range of stakeholders who are engaged in our IRP process. Monthly working group meetings began in December 2018 to increase transparency into the IRP process and to exchange information and ideas about our existing resource modeling assumptions and planning. Additional public stakeholder forums will be held through the April 2020 Final IRP filing. I We appreciate the robust discussions so for in the process, and we look forward to developing the details of the near-term action plan and long-ronge plan with our stakeholders leading up to the filing of our IRP in April. Introduction As o company of 6300 employees we have one mission of APS: safely and efficiently deliver reliable energy to meet the changing needs of our customers. APS developed this Preliminary IRP with the purpose of maintaining reliable and affordable service for the 1.25 million customers we serve and building on the 50% clean energy portfolio we have today. This commitment to clean energy will focus on developing a portfolio that includes renewables nuclear demand side management and energy efficiency clean imports fuel switching electrification and energy storage. As the nations largest producer of electricity all of it carbon free Palo Verde is the cornerstone of our current clean energy mix as well as a significant provider of clean energy to the Southwest. The plants continued operation is vital to a clean energy future for Arizona and the region, os a carbon-free and affordable resource and as a large economic contributor to the local economy. The uncertainty about our customers' changing energy needs only increases the further out we go in our planning horizon. That is why in this Preliminary IRP we concentrate on a near-term action plan of 2-3 years. This action plan is intended to be flexible enough to provide sufficient resources to meet the anticipated growth in energy demand particularly from new large sources while minimizing risk of adding too much capacity before if is required. We will also address our long-term forecast and resource planning in the IRP to be filed in April 2020 with flexibility In mind as the electric industry continues to change rapidly. APS continues to focus on The customer experience and developing programs that offer value and savings while addressing operational opportunities and challenges. These include reducing the amount of capacity that must be on hand to meet customers peak energy needs by lowering that peak and shifting energy use to times when customers can take advantage of low-cost, abundant energy. New and innovative programs like APS Rewards' continue to be developed to put technology to use invite customers to participate and realize bill savings for customers who make simple changes to their daily routine. Part of our responsibility to the state Is forecasting our customers future energy needs. This is becoming increasingly difficult due to uncertainty in many areas. Those areas include the Commissions deliberations about retail competition modernizing its energy rules and recent announcements of large data centers ! The APS Rewards programs offer residential customers options Io adopt home technologies and receive a bill credit for participating. Program descriptions can be found on page 28. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 6 i planning to locate in our service territory. Dota centers traditionally consume significant amounts of energy and they will drive additional resource needs over the next decode. We ore working with those customers to make sure we meet their expectations for clean, reliable and affordable energy. Additional uncertainty is created by potential energy rule updates; at times potential rules are in conflict with one another. Until APS has greater clarity on the future direction and timing of energy policy in the state we will plan and source to the continuing obligation to serve our customers and ensure resource adequacy. By retaining f lexibility in the sizing. timing and duration of new resource additions we are best situated to respond to our customers needs. In creased Stakeh older In pu t In preparation for filing this Prelimlnary IRP APS began meeting monthly in December 2018 with the IRP wo rking g ro up whic h was mad e up o f a d ive rs e g ro up o f s take ho ld e rs . T he g o als we re to inc re as e transparency into the resource planning process and enable an exchange of information and ideas about our existing resource modeling assumptions and planning process. To support discussions within the IRP working group APS retained Energy and Environmental Economics (E3) o consulting f irm with wide-ranging expertise in the electric sector to study how dif f erent clean energy policies and strategies impact our ability to maintain reliability and affordability. To facilitate this process E3 developed o scenario-planning model that provides results consistent with the more detailed models run by APS to create its resource plan. This tool designed to allow quick and iterative testing of a wide range of scenarios and sensitivities, has allowed APS and stakeholders to evaluate the potential implications of a variety of goals and policies. This process has yielded a number of valuable insights and we anticipate that these points will be shared with the Commission and other stakeholders in future workshops addressing contemplated updates of various energy rules: APS and Arizona are experiencing continued population and load growth which will drive significant investment needs across all scenarios analyzed All modeled scenarios show that significant investment in new clean energy resources would be needed to sustain and increase substantial carbon reductions Scenarios with broadlyaeflned policies to encourage clean energy and carbon reductions provide more affordable and flexible options than more prescriptive targets for specific technologies (e.g. RPS) that narrow utilities choices Polo Verde is critical to meeting f uture clean energy goals of low costs; replacing it with other resources would considerably increase customer costs and require substantial development time Scenarios with early retirement of Four Corners show significant carbon benefits, but would require large replacement investments in the next decade to maintain reliability Even in deep decarbonization scenarios firm gas resources play a crucial reliability role but operate infrequently and at low capacity factors APS thanks o ur wo rking g ro up p artic ip ants f o r the ir d e d ic atio n and c o ns truc tive inp ut to the p lanning p ro c e s s . T he ir f e e d b ac k and e ng ag e me nt have he lp e d id e ntif y ne ar-te rm c le an e ne rg y p ro c ure me nt opportunities the priorities defined in our near-term action plan and the next steps in preparing for the IRP. In addition to the IRP working group meetings we also held two publiclynoticed meetings with a broader group of stakeholders to share draft plans generate discussion and address questions about our resource planning process. We look forward to continuing engagement with our stakeholders as we develop the IRP. Arizona public Service Company 2019 Preliminary Integrated Resource plan Page 7 Reg u lat o ry Co n s id erat io n s The Commission opened o docket (RU-00000AT80284) in August 2018 to evaluate proposed modernization of its energy rules for subjects including the Renewable Energy Standard and Tariff (REST) energy efficiency standards net metering interconnection of distributed generation (DG) facilities, electric vehicles (EVs) retail electric competition forest bioenergy baseload security and resource planning and procurement. We welcome the opportunity to collaborate in this process and encourage the Commission to take a comprehensive holistic view of these policies so they may set the course for Arizona's affordable and sustainable energy future. One set of rules under consideration for retail electric competition stands in direct opposition to successful implementation of many other policies including the integrated resource planning and procurement process. A retail competitive electricity market in the state would undercut the ability of regulated utilities including APS to make longterm resource decisions which over time would very likely lead to reduced resource capacity shrinking diversity of resources and diminished reliability to meet customers energy needs. Any move toward retail electric competition must consider how benefits of the current system, current innovations and clean energy policy initiatives would be impacted. We join others in encouraging the Commission to take the necessary time to ensure a full understanding of how a different market structure may impact Arizona consumers and the states economy. Broad electrification policies are important in developing a balanced approach to both increasing and utilizing excess energy reducing greenhouse gas emissions and managing costs. With the continued cost reductions in battery storage technologies and increasing range of EVs including passenger cars trucks, buses airport equipment and others the forecast for EV adoption is growing. Electrification policies that support the growth of EVs are important to reducing overall greenhouse gas emissions and improving air quality in Arizona. lt will also be important for the policies to address infrastructure additions and upgrades required to enable the transition to electrification as well as effectively manage the charging profiles of EVs so that utilities and customers can optimize electrification benefits manage costs and take advantage of the overgeneration of renewable energy at certain times of day. Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 8 > l l i I l IRP Schedule IRP Schedule Pre-Flling Workshops (optional) Start Date End Date Responsibility 8/1/2018 1/31/2019 LSEs ACC 1 L LSEs Files Preliminary Resource Plcins (Preliminary IRP) 8/1/2019 APS 8/1/2019 4/1/2020 APS 8/1/2019 0/1/2019 Sfoff ACC Hosts Workshop on Preliminary IRPs 9/1/2019 10/1/2019 ACC ACC Open Meeting - Review Preliminary IRPs 10/1/2019 11/15/2019 ACC Pre-Filing Workshop on Final IRPs 12/1/2019 1/15/2020 Acc/ LSEs LSEs File Final IRPs 4/1/2020 4/1/2020 LSEs Stakeholder Comments Due 7/1/2020 7/1 /2020 Stokeholders LSEs Response to Stakeholders Comments Due 7/1/2020 8/ I5/2020 LSEs Stoff Assessment and Proposed Order 7/1/2020 11/2/2020 Stdff ACC Holds Open Meeting on Final IRPs 1/15/2021 2/15/2021 ACC 8/1/2019 APS Hosts Stakeholder Meetings Stoff Reviews Preliminary Rps . P r e l i m i n a r y IRP A p p r o a c h a n d A s s u m p t i o n s The resources that ore available To APS continue to change is do options to reduce customer energy costs T hro ug h o p p o rtunitie s s uc h c s p artic ip atio n in the we s te rn E lM and c o ntinue d ad o p tio n o f ad vanc e d technologies. W e remain proactive in developing innovative and flexible programs to meet customer needs as evidenced in the action-plan section of this document. APS c ontinues to take an alI 4>f -the-above approac h to meeting c us tomers needs , with an eye on the resources needed to meet anticipated population growth and increasing economic activity in Arizona. One example is the major clean energy initiative we announced in February to add 850 MW of battery storage and at least 100 MW of new solar generation by 2025. The initiative will take advantage of the abundance of solar energy in the region by storing excess solar production for later use when customer demand peaks in the late afternoon and early evening as solar production wanes. Energy storage is vital to Arizonas clean energy future. and we remain committed to the 2025 clean energy initiative. Yet guided by our priority on safety we are awaiting the results from the ongoing investigation into the equipment failure at the McMicken battery energy storage system in Surprise on April w. Findings from that investigation will help us learn what happened in this Incident and apply those lessons to battery projects moving forward. with battery project timelines facing adjustment we will seek short-term wholesale market purchases from neighboring utilities. market participants and merchant-owned natural gas units and demand response projects In order to meet peaking capacity needs for the summers of 2020-2021 . It is imperative that we follow this approach for reliability purposes during the period but purchases will be structured to not impact longerterm resource planning strategies consistent with our approach to adding carbon-free resources. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 1 1 Page 9 I l Regional Ov erv iew The Southwest and APS will increasingly alternate between two energy extremes: periods in nonsummer months characterized by overabundant energy supplies driven by increasing amounts of renewable energy resources; and tight capacity supply in the region during peak demand periods created by extreme summer heat and exacerbated by the limited role renewables can play in the late afternoon and early evening when energy use peaks. Energy overabundance in the Southwest largely results from extensive investment in renewable energy, required to meet renewable energy policy mandates. This investment has led to surplus energy production that exceeds customer demand in the non-summer months when temperatures are typically mild and electricity demand is low. These well-intended policies create operating challenges and may cause unintended impacts on carbon reduction. Producing clean energy when customers are unable to use it or replacing nuclear generation which is already carbon-free with renewables does not lead to a decrease in carbon emissions. Both resources must be recognized for their ability to lower carbon emissions rather than os individual resources that can be traded off in c porh'olio. The situation also has impacted operation of baseload power plants due to minimum load conditions and having flexible resources available to meet quick-starting and fast-ramping requirements as the sunrises and sets. Certain boseload units are necessary year-round to help manage system voltage and system stability. Quick-starting fast-ramping units are needed to meet customer demand as renewable resources fall off the system. As the region continues to increase renewable goals and by definition renewable generation the challenges placed on flexible and baseload resources will continue to intensify. The situation will improve somewhat as energy storage systems are deployed but the timing scale and efficacy of energy storage are yet to be determined. For a number of years. the Southwest has been in a capacity-long position meaning there has been more generation in the region than is required to meet typical reliability needs. However this position has changed dramatically in the past several years. Due to moderate load growth and retirement of generating resources in the region a rebalance is occurring and the region will require capacity additions and infrastructure or face shortfalls particularly in summer and highdemand scenarios as renewable generation falls off the system. I i I This challenge is quickly accelerating in California and has implications for the region. In the fallout from the 2000-2001 California energy crisis the state constructed a resource adequacy program to ensure oil loadserving entities provided sufficient resources to meet peak demand plus a planning reserve margin of 15%.2 For many years, the resource adequacy conversation was relatively straightforward but today it is changing due to policies that are focused more on energy than reliability. This has raised the alarm of system operators in California that recognize resource adequacy concerns are real and being challenged. To ovoid similar concerns it is important that Arizona address resource adequacy during all future planning scenarios. Planning for reliability is extremely important in Arizona and has broad implications for customers and economic development in the region. Merchant generators and more specifically. natural gas facilities have long served utilities as capacity providers. These facilities remain highly reliable sources of generation when the bulk electric system is facing high demand because they are available and dispatchable with high probability. Over the past several 2 APS currently manages system reliability through an industry-accepted methodology that establishes a lossof-load-probability (LOLP) for the system. The concept of the LOLP method establishes the resource needs to maintain 100% system reliability with no more than one (l) event every 10 years (1 in 10). Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 10 l l l E l years regional merchant generation has either been acquired (purchased) by regional utilities for capacity purposes or given the largescale development of regional renewable resources been displaced and removed from the market due to economics (reduced sales and corresponding margins). Simply put the portfolio of available merchant generation in the region is substantially less than it has been historically, and with no new merchant generation presently planned securing short~term peaking (i.e. natural gas) merchant generation resources is becoming increasingly difficult. Ultimately this condition has potential implications for reliability within the region, as well as limiting options for APS to replace retiring and expiring generation resources. This situation is creating challenges for APS and neighboring utilities that are required to maintain reliability through an appropriate planning reserve margin. Without existing generation or development of new replacement resources to meet peak system needs available reserves are diminishing and energy prices are poised to Increase dramatically during peak hours translating to higher costs for customers. The decline in available quick-starting and fast-ramping natural gos-fired capacity is a legitimate concern for resource adequacy in a region that experiences its highest system demand in the late afternoon and early evening during summer when renewable generation offers little capacity contribution. Natural gas serves an essential 'safety net" and bridge fuel to further the development of clean energy resources in the region. It will also support the development of a glide path out of coal generation as a reliable cleaner alternative (which is discussed In the Action Plan Update). For those concerned about its carbon footprint gas generation can be used sparingly and becomes the default generation resource when fully clean resources are not available to support the system and customer needs. It is also becoming commonplace for California to have a surplus of renewable energy which it either has to curtail or sell at negative prices. Californias focus on renewable energy mandates requires REC accounting mechanisms that lead to overproduction of renewable energy. whether or not customers can use it when such energy is produced. Nonetheless when APS purchases excess renewable energy that would otherwise be curtailed we are able to reduce fossil generation and its corresponding carbon emissions. The ability to count those market purchases toward our clean energy goals provides a meaningful way to reduce our costs of achieving those goals. We ore in o unique position to benefit from solar overproduction in California and with thoughtful and appropriate policy adoption our customers con continue to benefit from the low and negative prices that California solar often produces. A Flexible Approach to Peak Reliability One of the primary resource planning needs for APS is having sufficient peaking capacity to reliably meet customer Iood requirements during the summer. Wifh the states projected population growth and increased economic activity coupled with contract rolloffs and plant retirements there Is o significant need for flexible resource additions. Flexibility to meet varying system conditions. like those seen in the nonsummer daily loads graph will not benefit from a one-size-fits-all approach. A complementary suite of solutions combining clean energy resources with storage and firm resources such as natural gas will create the flexibility needed to maintain the reliability expected by our customers and regulators. Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page I I i I I l: i I Non-Summer Dolly Loads I 4500 4000 Locd befor e renewo blew 3500 3000 3 E 2500 2,000 Load after r enewables 1,500 Ovemenaulsn re: Minimum bosew od gener at ion 1000 1 2 3 4 5 6 7 8 9 10 11 12 1314 1516 1718 19 2021 22 2324 HOUR These solutions will be Influenced by the way customers manage their energy use through technology rote and pricing signals increasing transportation electrification the types of resources implemented by utilities and regional market initiatives. For example energy storage can b e viewed as complementary to solar to absorb the excess energy produced midday and meet ramping requirements os the system peaks In the evening. Other forms of flexibility must be evaluated as well such as renewables curtailment from utility and customer resources demand response and natural gas. The supply of natural gas is abundant and gas prices are low by historical standards. Through the IRP planning horizon, natural gos prices are expected to stay low. This will lead to continued costeffective operation of our existing gas fleet and offer costeffective opportunities for future peaking resources to help keep customer rates low. while APS will be diligently moving toward c clean future energy mix natural gas resources will be essential to provide highly reliable service under any future scenario. In the case of cool retirements the loss of firm generation con be partially replaced by natural gos which will maintain reliability while significantly reducing carbon emissions. Additionally. having natural gas capacity in reserve will provide o cost-effective way to meet reliability requirements during the periods of limited renewable generation. For instance when generation from renewable resources is limited due to consecutive days of cloudy weather, these units may operate at very low annual capacity factors and have little impocf on our overall carbon emissions but they are vitally important for reliability and affordability. Load Forecast Ov erv iew APS projects that annual peak demand and energy needs will both increase at a compounded annual growth rate of 2.3% during the IRP planning period of 2020-2035. The growth over the planning period equates to approximately 3000 MW of capacity needs and 12800 GWh of energy requirements. The projected growth is primarily driven by three factors: population growth economic growth and changing customer trends related to EVs and distributed generation. Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page i2 This estimate Includes the effects of distributed generation and DsM/energy efficiency. We have engaged a third party to analyze DSM/energy efficiency impacts and we will update the Final IRP to Incorporate the results of the study. Additional details regarding the study are provided in the Final IRP section of this report. Growth Driv ers Population and Economic Activity Population growth is the most influential variable in developing a load forecast providing the basis for several other forecast components such as growth in households and residential customers. Population growth is also a key driver of Increased economic activity in the state and the APS service territory. Figure I: Arizona Population Growth, 1991 - 2035 10M 5.0% 9M 4.5% 8M 4.0% 7M 3.5% 3 s et 3.0% xi o 1: lu 's a. o °- 5M 2.5% 5 4M 2.0% 8 3M 1.5% 2M 1. 0% .,, c o o on c as is 1M llllllllll I `99\ '89 ' !Po p u l at i o n 0.596 0.0% \` »§>*°" ~¢>"" ¢<>'°` AnnualChange.96 Prior to 2008, Arizona experienced strong population growth driven by high migration rates. Population growth slowed during the recession but has steadily risen since 2011 due to a return to higher levels of migration. We project that migration will remain near the current level through the planning period resulting in on average annual population growth rote of l.5%. While the projected growth is foster than the lost decode, we do not expect that population growth will return to levels seen prior to the latest recession (Figure 1). As a result of the population growth and higher levels of economic activity we expect to odd about 20.00025000 residential customers annually in the near term. For the 2020-2035 planning period we anticipate adding 400000 residential customers (2.0% annual growth on average) and Metro Phoenix to add 250 million square feet of commercial and industrial (C&l) floor space (2.l% annual growth on average). Growth in residential customers and C8 30 Customer-Based 1,947 Energy Efficiency 1 .032 Distributed Energy 876 Demand Response 39 I I. Total Resources ! 10,609 l Resour ce Needs Future resources needed ore developed by examining the difference between our current generating portfolio and the load forecast plus reserves as shown in Figure 3. Resource additions generally fall between two categories: clean resources that increase our carbon-free generation and peaking resources that meet peak demand and maintain reliability of the system. The IRP will further identify these resources based on the portfolio being evaluated. Figure 3 and Tables 3a-3c demonstrate a quickly growing need for resources in the 2020-2024 window for the nearterm action plan. This window is the focus because decisions will be required to maintain system reliability. The T5-year resource needs and associated figures can be found in Appendix A. 4 Does not include smallscale solar (Bagdad schools and government APS Solar Partner Program/Flagstaff Community Project and legacy solar). Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 16 l W \ Flgure 3: Supply/Demand Gap (2020- 2024) l 1 ,000 3 E 900 800 700 600 500 400 300 200 100 0 734~ 329 196 I -.T . 2020 " "1" I 525 2021 I 2023 2022 2024 Table 3a. Preliminary IRP Load Growth Plan 2020 2021 2022 2023 2024 APS Peak Demand After DSM & After DE 7A03 7551 7721 7891 8055 Reserve Requirements 1 040 1135 1.162 1188 1213 Total Load Requirements 8, 444 8687 8, 883 9,079 9, 268 Total Existing Resources 8247 8358 8 ,358 8 345 8 345 Total Future Resources 196 329 Load Requlrements Resources Total Resources a,444 8,687 525 734 922 8,883 9,079 9,268 Action Plan Window Table 3b. Preliminary IRP 0.9% Load Growth Plan 2020 2021 2022 2023 2024 APS Peak Demand After DSM & After DE 7257 7323 7388 7A55 7522 Reserve Requirements 1018 1101 1112 1123 1133 Total Load Requirements 8,276 8,423 Load Requirements 8,501 8,578 8,655 Resources 1 Total Existing Resources 8247 8358 8358 Total Future Resources 28 65 1412 Total Resources 8345 8345 232 310 i 8,276 8,423 8,501 8,578 8,655 i Action Plan Window Arizona Public Service Company 2019 Preliminary Integrated Resource Plan l Page 17 I l T ab le 3c . Pr elimin ar y IRP 0% L o ad Gr o w th Plan 2020 2021 2022 2023 2024 APS Peak Demand After DSM 8< After DE 7192 7192 7192 7192 7,192 Reserve Requirements 1009 1 081 1083 1083 1084 Total Load Requirements a,201 8,274 8,275 8276 8,276 Total Existing Resources 8247 8358 8358 8345 8345 Total Future Resources (46) (84) (83) (70) (69) 8,201 8,274 8,275 8,276 8,276 Load Requlrements Resources Total Resources Action Plan Window Technology Options APS considers on expansive list of technologies during the planning process. These technologies fall within two buckets: currently deployed technology and deployment-reody technology. Currently deployed technology consists of generation that we currently utilize for future planning purposes. This includes renewable energy resources DSM microgrids and gas-fired generation. Existing technologies have the benefit of proven reliability and performance on our system. Deployment-ready technologies are defined as technologies that are both feasible for us to integrate and those that have reached o level of maturity and proven reliability to be considered for planning purposes. Battery Energy Storage Systems Since the 2017 IRP battery storage hos both matured and declined in cost to be competitive with other peak capacity resources on a large scale. We view battery storage os critical in integrating renewable resources on our system. All portfolios presented in the IRP will include stand-alone battery energy storage. Benefits • Shift energy to when it is needed the most Shave peak energy needs, potentially displacing gas bums Store negative-priced energy to maximize customer value Provide frequency regulation and other ancillary sewlces Absorb excess energy on APS system from non-curtailable rooftop solar Reduce need for additional gas transportation and/or gas storage Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 18 i I Challenges • Technology is still rapidly developing Minimal utilityscale operating experience Minimal utility-scale safety record Limited performance history Future decommissioning disposal and recycling obligations costs and prospective liabilities Ph o to v o ltaic an d Sto r ag e (PVS) PVS will also benefit from lower battery prices. PVS facilities provide an opportunity to expand the solar footprint in Arizona by shifting solar energy to the peak energy use hours maximizing value for our customers. Benefits • Allows peak needs fo be met with renewable energy Increases the potential for additional renewables without creating overgeneration challenges in the nonsummer months Potential to provide ancillary services Necessary in order to develop and execute a robust carbon-free future Challenges » Ancillary services standard not yet developed Some challenges os battery energy storage systems DSM an d Dis tr ib u ted En er g y Res o u r c es (n o n -s u p p ly s id e r es o u r c es ) Private rooftop solar battery storage smart inverters DSM home energy management and smart appliances continue to evolve and ore becoming increasingly compatible. \Mth the new technology landscape rapidly changing APS hos enlisted Navigant to perform o DSM Opportunity Study that will ensure on accurate modeling and depiction of DSM for future portfolios and will include d discussion of the following topics: Increasing penetration of connected/smart devices that provide increased potential for real-time energy management load shifting and automated demand response Increased baseline efficiency levels due to increased building codes. appliance standards and other market effects New emerging energy technologies such as customer-sited battery storage that provide new opportunities for storage shifting and managing loads increased value in strategic electrification technologies that can help balance loads on the grid, reduce air emissions and take advantage of excess midday solar generation The need to manage new loads on the grid from increased adoption of EVs and other electric transportation Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page lO A forecast of future potential DSM costs and energy savings/load management opportunities including total technical potential cost-effective economic potential and likely achievable market potential Solar Solar configurations will be evaluated for the lRP based on economics and regulatory requirements. These may include solar PV fixed and single-axls tracking technologies. Benefits Clean energy generation Ideal technology for Arizona Development costs continue fo decline No fuel costs Challenges • Limited to daytime production Limited capacity value Requires quick-ramping resources to balance as sun sets Wind Wind turbines convert the winds energy into electricity by using rotating blades to capture its kinetic energy. Older turbine technologies and Arizonas comparatively mild wind conditions limited deployment of largescale wind systems in the past, but modernized technology is increasing winds viability here and across the region. Turbines built today are generally taller have larger rotor blades and use more advanced materials than previous models increasing their capacity and efficiency. The planned RFP for up to 250 MW of wind resources gives APS an opportunity to evaluate the advanced technologies their potential role in our cleaner energy mix and how Arizona wind now compares to neighboring states. Benefits • Clean energy generation Strategic siting may provide ability to better match peak needs Challenges • Variability and intermittency In production Limited wind opportunities in Arizona inefficient use of transmission capacity Natural Gas while APS is diligently moving toward a clean energy future natural gas resources are essential to providing reliable service under any future scenario. In the case of coal retirements fuel switching, i.e. replacing coal energy with natural gas energy. will contribute to a cleaner future. Additionally having natural gas capacity in reserve will provide a costeffective way to meet reliability requirements during the periods of high demand I. Arizona public Service Company 2019 Preliminary integrated Resource Plon page 20 l I I I i i ! and limited renewable generation capacity contributions discussed above. These units may operate at very low annual capacity factors which limits carbon emissions but contributes greatly to our reliability needs. Benefits ¢ Flexible firm generation Provides system capacity and reliability Complements renewable generation Less carbon-intensive than coal and necessary for a transition from coal Low-cost fuel supply Challenges » Pipeline limitations Carbon emissions Co mb in ed Cy c le Combined cycle natural gas-fired power plants deliver higher fuel efficiency by using residual heat in the gas turbine's exhaust stream. while less flexible than other resources, this technology is suitable for managing summertime peak demand and overall energy needs. Combustion Turbine Combustion turbine natural gos-fired power plants are composed of a compressor combustion system (fuel injectors) and turbine. This flexible technology is well suited for managing peak demand and lost-ramping requirements. Biomass5 Biomass facilities burn organic material that ore plant- and animal-based and are considered a renewable source of energy. While there ore many forms of biomass energy, APS will specifically consider forest biomass in the IRP os part of the ongoing Arizona wildfire conversation per Commission direction. Benefits » Considered carbon neutral Supports sustainable forest health 5 In the two years since the Commission opened o docket to explore the role forest bioenergy could play in Arizona a growing interest in managing forest resources has emerged throughout the state. To address wildfires impact on the loss of human life, personal properly, forest acres. electric infrastructure and economic wellbeing the Commission has held workshops and solicited stakeholder commentary to determine the feasibility of Arizonas regulated electric utilities developing an energy solution to this issue. To achieve the objective of improving forest health and safety of Arizona residents while utilizing the state's natural resources APS continues to collaborate with a number of stakeholders and is actively participating in developing strategies to address forest biomass challenges. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 21 l l Challenges » More expensive than other renewable technologies Dependent upon o reliable long-term fuel supply l Pr elimin ar y Po r t f o lio s l APS evaluated o wide range of preliminary portfolios based on ongoing discussion with stakeholders and feedback from the Commission. W ith the majority of discussions centered on clean technology integration we will select portfolios for the IRP that represent different paths to achieve a low-corbon future for our customers and Arizona. While the portfolios maintain similar objectives, the cost implications of each portfolio vary significantly for customers. The IRP will begin with a reference case that fills the resource needs identified in Figure 3 using the least-cost method while meeting oil current reliability (e.g. a 15% reserve requirement) and current regulatory requirements (e.g. the 15% Renewable Energy Standard and Tariff by 2025). This will serve as a reference point from which to measure all other portfolios and will provide cost implications of other resource portfolios. In developing the framework for initial discussion for the IRP we evaluated at a high level a wide range of portfolios using the model provided by E3 with input from the IRP working group. More specifically we explored the following portfolios with focus on directional implications: Resource additions that meet current rules and regulations Resource additions that meet o 50% renewable portfolio standard target by 2030 Resource additions that meet o 70% clean resource portfolio target by 2035 Resource additions that reduce carbon by the some level os the 50% RPS case by 2035 but doing so by focusing on affordability Whlle the results of exploring the portfolios mentioned above were directional in nature they were extremely useful ds part of the ongoing stakeholder workshop and will allow for more-focused portfolio discussions in the IRP. While the IRP will develop detailed results and implications several themes resulted from the work developed in the workshop. More specifically the key takeaways are: The more prescriptive/restrictive a portfolio is made the more expensive that portfolio is for customers Clean energy technology will naturally be selected when portfolios focus on key objectives rather than providing parameters in which to achieve those objectives Decisions made in the nearterm action plan window provide for future optionality, if properly designed. This maximizes planning and regulatory flexibility to adapt to the increasingly dynamic future of energy. i l l I Arizona public Service Company 2019 Preliminory integrated Resource Plan Page 22 Final IRP As required in Decision No. 76632, the additional portfolios will consider but not be limited to. the following list: Portfolios Analysis of o reasonable range of storage technologies and chemistries Include storage technologies os alternatives when considering upgrades to T&D new build or capacity upgrades for existing resources The addition of fossil-fuel resources is no more than 20% of all resource additions At least one portfolio with 1000 MW of energy storage technology At least 50% of clean energy resources including at least 25 MW of biomass running at no less than 60% capacity factor At least 20% demand side management Sensitivlties The ultimate list of portfolios presented in the IRP will be stressed by a set of key sensitivities. the purpose of the sensitivities is to evaluate the robustness of each portfolio and inform any final key considerations. Load Growth High Load Growth No Load Growth Less than 1% Load Growth Natural Gas Prices Natural gas futures prices are based on the Henry Hub market in Louisiana. Due to fundamental shifts in natural gas exploration and excess gas produced as a byproduct of oil exploration regional gas prices have been at very low levels. APS is uniquely positioned to take advantage of those low prices because of pipeline connections to west Texas (Permian) oil and gas fields which provide a source of long-term low-priced natural gas. In 2019 APS had the unique opportunity to purchase gas ot negative prices similar to the phenomenon seen in ElM midday, seasonal shoulder-period energy prices. With Permian Basin natural gos trading ot discount to Henry Hub and to ensure a wide range of gas price sensitivities we will apply the Energy information Administration (ElA) annual outlook high and low natural gas case sensitivities to the APS forward gas curve. Additionally due to our hedging program the additional reduction in potential volatility is applied to the forward curve for the first five years. The resulting forward curve with a range of sensitivities is shown in Figure 4. Arizono public Service Company 2019 Preliminary integrated Resource Plan Page 23 Figure 4: Henry Hub Natural Gas Forward Price $6.00 v J Q ss.so f $5.00 8 $4.50 I 2 I 2 $4.00 8 ss.s0 1 I I v i / $3.00 s2.so Q s2.00 1°* - I 1°1X -Base Case 1 _ _ _ - I815 * * 189 o Low Case(w/Haige) an in - - an 1°* _ 1.°" 13 1°'"° ¢Hih Caselw/Hedee) One of The issues APS will need to address regarding natural gos Is that the interstate pipeline capacity is becoming increasingly constrained. Patterns of natural gas use are also changing both here and in California. California hos recently enacted legislation that is expected to significantly reduce natural gas usage over the next couple of decades. The timing of any such reductions could have implications for future natural gos infrastructure needs in the region os the same pipelines serve both Arizona and California. Absent any such regional legislation gas pipeline capacity will evolve os a natural limiting factor on the future use of gas generation. Carbon Prices : Carbon price sensitivities will include: Low: S0 Bose: California market price escalated at inflation beginning 2025 High: Carbon price escalation of 7.5% annually beginning 2025 Technology Cost The capitol cost of technologies is based on information obtained through RFP and RFI solicitations industry and vendor publications and utility announcements. For technologies that are still eligible for the production tax credit (PTC) and investment tax credit (ITC) these benefits are captured in any modeling while applicable. while capitol costs are given many factors contribute to the value a resource applies to the overall system. These include themes such as flexibility fixed and variable O&M (including fuel costs) and capacity values. Capital cost assumptions are shown In Table 4. Any additional information available from internal or industry sources or RFPs will be incorporated as updates to the following estimates in the lRP. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 24 Table 4: Resource Cost Assumptions° Generation Resource Options Capacity Cap ital Cost (5/kW ) Book Life Fixed O&M (S/kW-Yr .) Var iable O8¢M ($/MW h) Typical Cap ac ity Factor % Renewables 81 Energy Storage PV - Single Axis Tracking IOOMW $1200 30 years $17.43 Up To 35% Boftery Energy Storage System (4-hour Ll-ion) ]00 MW S1200 20 years $24.00 Up to 16% PVS - Single Axis Tracking + Boh'ery Energy Storage System (3hour Li-ion) 100 MW $2175 30 years S3650 Up to 34% Wind 150 MW Sl 350 25 years $34.73 UDtO50% Geothermal 50 MW $4A48 25 years $131.68 80% Nuclear AP 1000 Hybrid 2234 MW $6453 40 years $111.25 $2.55 92% Smczll Modular Reactor (SMR) - 12 Units 600 MW $5A68 40 years S76.72 $10.34 95% Two 7FA.05 Evoke. Inlet 431 MW $696 32 years $10.34 $2.16 10% 2X1 7F.05 CC Evoke. Inlet Air Cooled Condenser 7IOMW $1341 32 years S6.70 $1.78 35-50% 5X0 LMS100PA+ Chilled Inlet Hybrid Cooled 521 MW $1475 32 years $8.65 $2.62 10% 5X0 LMS100PA+ Chilled Inlet Dry Cooled 431 MW $1778 32 years $8.65 $2.62 10% 277 MW $1 ,634 32 years $11.95 S223 10% iI0 MW s1100 32 years $25.08 $2.76 10% Nuclear Nuiurcl Gas Six LM6000PC Sprint, chined Inlet Six Unit Wortsilo I8V5O I i I o Volues provided in 2021 dollars. I Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 25 Future Studies to Inform the Final IRP Integrated resource planning is o dynamic process that continuously assesses trends in customer preference Iood growth technology markets fuels and state and federal energy policy objectives. There is o body of work currently in progress regarding policy considerations that are not yet fully factored into the Preliminary IRP but may be addressed in the IRP. DSM Opportunity Study APS has been actively engaged in offering energy efficiency programs to our customers for decodes and has achieved over 5000 GWh of energy savings since the Commissions Energy Efficiency Standard was approved in 2010. A Market Potential Study performed for APS by ICE International In 2007 guided much of the program design. Although much of the savings identified in that study have been achieved new technologies have emerged and represent a new potential for energy savings. We engaged Navigant Consulting to perform a new market opportunity study to help guide future energy efficiency planning after the current standard expires at the end of 2020. Navigant plans to complete this study in the fall of 2019 and Its results will be factored into the IRP. Renewable Integration Cost We have utilized third~parly consultants in the past to assess the costs of integrating wind and solar energy into our system. Significant changes in the industry have occurred since those studies were performed. and we ore in the process of scoping o new study and enlisting on energy consulting firm to update the costs. We ore currently in the process of defining the parameters and identifying consultants to perform the study. It will Incorporate new information regarding renewable dispotchability (or curtailment) to meet flexible needs energy storage technologies improved renewable forecast techniques. impacts of the western ElM and updated natural gos prices. Electric Vehicle Study As noted in the Load Forecast section on electric vehicle forecast is included in the Iood forecast. vvith the current momentum and excitement surrounding the outlook for EV adoption the critical role they may ploy In achieving o clean energy future for Arizona and the significant impact EV charging con potentially hove on loads APS hos retained Novigont Consulting to perform on electric vehicle study. This study will provide insight into EV adoption in our service territory and evaluate some of the infrastructure improvements required to support EV adoption. Findings from this study will be factored into the IRP I I Regional Natural Gas Eyaluotion Renewable generation in particular is causing utilities to change the way they consume natural gas. While some utilities On California for example) may end up reducing their annual gas consumption they may not be reducing their peak hourly consumption due to ramping requirements in the evening when solar is in decline and the sun is setting but loads are still high. Energy storage also will shift daily gas consumption patterns. APS expects to continue adding renewable generation energy storage and will ultimately retire coal units. Given these changes. we have retained a consultant to review regional trends to include in our future evaluations. The results of the study will be summarized and included in the lRP. I A c t io n Plan Up d at e APS provides this update to the 2020-2024 action plan. which focuses on near-term developments and has higher certainty over the next 2-3 years. It also offers a view into potential resources needs and decisions through 2024. As more information becomes available the action plan will be updated. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 26 l Co n t in u e Ex p an s io n o f Ren ewab le Res o u rc es l Inv estment In APS Solar Communities (formerly AZ Sun II) Our proposal to expand rooftop solar installations for limited- and moderateIncome Arlzonans was approved by the Commission in August 2017. The program under which APS owns and controls the generation renewable energy credits and other program attributes. requires APS to Invest from $10 million to $15 million annually from 2018-2020 in rooftop solar for singlefamily and multifamily homes allocating at least 65% of annual program expenditures to residential Installations. Although the program focuses primarily on singlefamily homes it is also available to multifamily housing Title I schools nonprofits aiding limited-income groups and government entities sewing rural communities located in our service territory. APS is collaborating with Arizona-based solar installers to equip qualifying customer homes with solar systems. Participating residential customers will receive a monthly credit on their energy bill for 20 years. The solar systems will be installed primarily on single-family homes with west- and southwest-facing roofs which offer the greatest potential to generate energy during the late afternoon and early evening hours when customers use the most electricity. In n o v at io n o f Cu s t o m er-Sid e Res o u rc es wit h Ad v an c ed Grid Tec h n o lo g ies Resource needs have changed dramatically and APS is offering programs that help customers enjoy energy savings when Those savings have the greatest resource value with emphasis on load shifting and reducing peak load. The following programs focus on customer participation and simplicity by aligning technologies rates and operational needs of the grid. Take Charge AZ EVs can help Arizona achieve an increasingly clean energy mix-and cleaner air. Drivers are expected to have over T30 EV models to choose from by 2022 but barriers to adoption still exist. APS seeks to make driving EVs convenient for participating customers by reducing range anxiety through access to more charging infrastructure. The APS Take Charge AZ pilot programs offer free EV charging equipment including installation and maintenance to businesses government agencies nonprofits and multifamily communities. Participants pay electric costs that come from using the equipment and are encouraged to charge EVs when solar energy is abundant and energy prices are lower. Take Charge AZ comprises several new EV pilot programs that include charging infrastructure programs for fleets workplaces, highways and multifamily housing and boosts Level 3 DC fast-charging Infrastructure. We are exploring innovative strategies to own and operate the DC fast-charging stations while collaborating with local business customers to provide the best possible location siting and to encourage off-peok charging with varied per-minute rates. DSM Implementation Plan The 2018 and 2019 DSM plans continue APSs plan to reshape DSM to better align with changing resource needs based on the time of day when energy savings have the greatest resource value and greater emphasis on load shifting and reducing peak load. Among other measures the plans propose to continue the 2017 Demand Response, Energy Storage Load Management (DRESLM) program (see APS Rewards Programs) designed to support the deployment of residential load management demand response and energy storage technologies that help residential customers shift energy use and manage peak demand while reducing their energy costs at the same time. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 27 l l l l i APS Rewards Programs In 2017, the Commission approved Decision Nos. 76314 and 76313 which authorized APS to implement demand response and Iood management programs that facilitate emerging energy storage technologies throughout our service territory. The increasing market penetration of rooftop solar is creating rapidly changing system load shapes and a need for more flexible resources os a backup for intermittent solar generation. Distributed energy resource opportunities that support load management demand response and load shifting through the use of energy storage can help meet these flexible resource needs by limiting peak demand and shifting energy use away from peak periods and toward midday when rooftop solar production is highest. This provides both DSM benefits and allows better integration of unmanaged distributed solar generation on the grid. Some Rewards programs target feeders experiencing voltage issues or thermal constraints. APS operates all of the technologies deployed as part of the Rewards initiative to shift energy use, manage local peak demand. reduce system peaks. act as on excess solar energy sponge and achieve other grid operational benefits. The Rewards Programs includes the following technologies plus o platform to manage the devices: Storage Rewards and IFES (battery storage) - Residential and commercial-scale batteries (Storage Rewards). and intermediate feeder energy storage (IFES) deployed on targeted distribution feeders: APS can manage these devices as a fleet to reduce system peak provide feeder congestion relief and support DR integration. Currently, the IFES program is on hold pending results from the McMicken Investigation. Reserve Rewards (thermal storage) - Connected heat pump water heaters with 50- 65- or 80-gallon capacity tanks are installed in homes on targeted distribution feeders; APS can operate devices as a fleet to reduce system peak and provide solar sponging (load management benefits) by shifting water heating demand into the midday peak solar production period. Cool Rewards (demand response) - APS has enrolled more than 12000 connected residential smart thermostats in Cool Rewards and operates them to provide demand response load reductions during summer system peak events. Demand response events ore typically paired with home precooling prior to peak demand periods to maximize comfort and load shift/capacity reduction. Additionally these smart thermostats assist customers yearround in optimizing energy and bill savings. Future Resources Request for Proposals (RFPs) APS is pursuing a clean energy mlx and the Integration of renewables together with new technologies including energy storage that enhance the ability to meet peaking needs and manage excess energy production in midday. By utilizing energy storage to absorb over-generation or negatively priced energy in midday we con odd clean energy to the mix and meet customer peak energy needs in the evening. In February APS announced on initiative to add 850 MW of battery energy storage by 2025. We remain committed to completing this initiative but the timing and sequence of resource additions will vary following the April 19 equipment failure at the McMicken battery energy storage facility. We have advised bidders participating in the RFPs for 200 MW of AZ Sun energy storage retrofits and 100 MW of large-scale solar with storage to stop work on their proposals until further notice. Results of the McMicken investigation results will inform our next steps including any changes to design parameters that may be implemented for future batteries. We will notify participants when we make adjustments to the RFP schedule. Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 28 l l ll We plan To move forward with the battery energy storage projects totaling 150 MW selected through the 2018 RFP depending on the McMicken findings.7 We also announced plans to issue RFPs for up to 150 MW of ApS-owned storage-ready solar resources to be in service by 2021 and another for up to 250 MW of wind resources to be in semce as soon os possible. but no later than 2022. Both RFPs have an option for commercial customer participation. Short -Term Summer Peaking Needs (DR and market purchases) with the revised battery project timelines APS plans to use existing generation in the region as a bridging strategy to meet the projected Iood plus reserve margin.These shortterm purchases will ensure that we can meet summer reliability requirements and will be structured to not impact longer-term resource planning strategies. Currently, we expect the shortterm needs will be met with wholesale market purchases from a combination of existing merchant natural gas units neighboring utilities wholesale market participants and an RFP for up to 50 MW of demand response that is being developed and will be released in the near future. Tr an s mis s io n Res o u r c es with 1.25 million customers across the state depending on APS for reliable and affordable electric service APS relies on its network of transmission and distribution lines to safely deliver power. In planning the future development of our transmission infrastructure we consider a broad range of technologies including generation transmission and distribution resources and non-transmission alternatives to address the challenges of an increasing array of resource types and geographies. The 2019-2028 Tenyear Transmission System Plant* includes approximately 25 miles of 230 kV transmission lines 1 mile of 115 kV transmission lines 30 bulk transformers and five banks of 50 kV bus reactors. The total Investment for the projects is estimated at approximately $390 million. Annual updates to the Ten-Year Transmission System Plan will address future needs as they develop. MOD-030 APS recently announced on its OASIS website that it will use o new methodology for transmission system utilization. We will transition from o Rated System Path Methodology (MOD-029) to a Flowgate Methodology (MOD-030) for the calculation of Available Transfer Capability (ATC). This transition process will take approximately two years to complete and will result in more efficient use of and greater capacities for our transmission system, and may provide more flexibility in siting generation resources www. 7 APS July 29 2019 News Release h re est- r osals-for-new-solor-and-win -r s.com en ourcom r an n w I tn w P es s-to- X 8 Arizona Public Service Company 20192028 Tenyear Transmission System Plan Docket No. E00000D-190007. Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 29 I I I I T ab le 5. Selec t Pr o jec t Ad d itio n s fr o m APS 2019-2028 T en -y ear T r an s mis s io n Plan Construction Start Date Conshuction End Date Project will provide back-up service for AEPCO member loads In case of the loss of the Parker source. Additionally, the project will provide bock-up sewlce for APS to serve the Town of Bagdad Ioods In case of Q loss of the I 15 kV Ilne from Prescott. 2019 20lO Freedom 230/69 kV Substation The Iood demands in Goodyear and Buckeye areas ore increasing and this substation will provide o new transmission source to maintain reliability of the local 69 kV system sewing the Oreo. 2019 2020 North Gilo-Orchord 230 kV Line Circuit # l Increases ability to Import resources into the Yuma load pocket. The project will also be used to improve reliability, serve the need for electric energy and provide continuity of service for the greater Yuma area by adding d transmission source In o new area of the Yuma system. 2019 2021 Project Description Bagdad 1 15/69 kV Bac kup l Reliability Coordinator Pursuant to NERCs Rules of Procedure (ROP) NERC and the Regional Entities are required to ensure that all Balancing Authorities and Transmission Operator (TOP) entities each have the oversight of only one Reliability Coordinator (RC). The RC is responsible for maintaining the operating reliability of its area in real time and coordinating with its adjacent RCs wide-areo view, which includes being situationally aware of activities in neighboring RCs that may have an impact on or within its RC area. The current RC sewing APS Peak Reliability announced that it is winding down operations at the end of 2019. After assessing all options APS has chosen RC West as its new RC. RC West began operations on July l 2019 for California and northern Mexico entities and APS will transition to RC West on November I 2019. Exten ded Day Ah ead Market (EDAM) APS is currently participating in c feasibility assessment with the CAISO and other ElM participants to assess whether ElM participants can achieve net power cost savings and more efficient renewables integration through day-ahead unit commitment and scheduling. Once the assessment is complete, the discussion may transition to a broader EDAM public stakeholder process in the fall of 2019. Key principles contemplated in developing EDAM include: Each balancing authority retains control over its transmission assets and its BA reliability responsibilities States and public power entities maintain control over integrated resource planning Resource adequacy procurement decisions remain with local regulatory authority Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 30 l Coal Fleet We continue to execute our strategy to stop cool use ct our remaining Cholla units by spring 2025 and on overall commitment to exit cool by 2038. In assessing the exit strategy APS continues to pursue solutions that strike a balance between providing customers reliable reasonably priced power and managing coal generations costs of environmental regulations and production. Coal plants deliver full capacity value during peak load times and operate at high capacity factors that deliver large quantities of energy to our customers. Removing those units from service can leave large gaps to fill for both capacity and energy so the transition must be mindful and gradual. while some of the energy will likely be filled with renewables and natural gas to support the renewables' variability additional capacity resources will be needed to costeffectively meet peak load requirements. Those capacity needs are likely to be met with a combination of gas and energy storage. Navajo Gen eratin g Station On February 13 2017 the utility owners of the Novajo Generating Station voted to extend operation of the facility through the end of its lease in December 2019 provided an agreement was reached with the Novojo Nation. In November 2017 an agreement was finalized to allow the plant to remain operational until December 22 2019. The Navojo Generating Station and its coal resources will no longer be a part of the APS generation portfolio beyond December 2019. Source of Assumptions l l In p u t s Source of Assumptions Load Forecast: Bureau of Labor Statistics; U.S. Census Bureau; Bureau of Economic Analysis; National W eather Service Environmental Regulations: Environmental Protection Agency; Arizona Department of Environmental Quality Demand-Side Management: Navigant Consulting Energy Efficiency Standard Renewable Energy: Renewable Energy Standard Market Data Resource Costs: Major Equipment Vendors, Market Data Acquired Through RFP and/or RFI Solicitations Industry Organizations Customer Data from Field implementations Integration Costs: Consultant Integration Study (consultant to be identified) Fuel Forecast: Market Fuel Contracts EIA Carbon Pricing: Market l I Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 31 Acron yms AAC AC ACC ACI ADEQ ADMS ADWR AEO AF AFB AFUDC A MA AMI APP APS ASU ATC AZNMNV BACT BART BCF BESS BNEF BTA Btu CAA CAES CAFO CAIDI CAISO CAP CC CCR CCS CDA CEC CFI CFL CO Commission C o m p any CPP CPPRES CRA CSP CT CW A DA DAM DE DER DG DMS DR DRESLM DSCADA Arizona Administrative Code Air Conditioner Arizona Corporation Commission Activated Carbon Injection Arizona Department of Environmental Quality Advanced Distribution Management System Arizona Department of Water Resources Annual Energy Outlook Acre-Feet Air Force Base Allowance for Funds Used During Construction Active Management Area Advanced Metering Infrastructure Aquifer Protection Permit Arizono Public Service Arizono State University Available Tronsfer Capability Arizono-new Mexico-nevodo Best Avoiloble Control Technology Best Avoiloble Retrofit Technology Billion Cubic Feet Battery Energy Storage System Bloomberg New Energy Finonce Biennial Tronsmission Assessment British Thermol Unit Cleon Air Act Compressed Air Energy Storage Concentrating Animal Feeding Operation Customer Average Interruption Duration Index California Independent System Operator Central Arizona Project Combined Cycle Coal Combustion Residual Carbon Capture & Sequestration Conditional Demand Analysis Certificate of Environmental Compatibility Communicating Fault Indicators Compact Fluorescent Lamp Carbon Monoxide Arizona Corporation Commission Arizona public Service Clean Power Plan Critical Peak Pricing for Residential Customers Congressional Review Act Concentrating Solar Power Combustion Turbine Cleon W ater Act Distribution Automotion Distribution Asset Monitoring Distributed Energy Distributed Energy Resources Distributed Generators Distribution Monogement System Demand Response Demond Response E ne rg y S to rag e and L o ad Mo no g e m e nt Program Distribution Supervisory Control and Data Acquisition Arizono Public Service Company 2019 Preliminary Integrated Resource Plan Page 32 DSM EE EES EGU EIA ElM EIS ELG EMS EPA EPC EPRI ESA ESS ECT-I R ECT-2 ET-1 ET-2 ET-EV ET-SP EV FERC FIP FGD FM FONSI GHG GRI C G U AC GWh HAPS HQ HRSG HV A C IEEE IG C C IRP ITC I VVC kW kwh LAER LED Lion LNB LOLE MA C T MATS M C AQ D MC A S MER MMBtLI MW MW h NA A QS NGS NEI NEPA NERC NGS Demand Side Management Energy Efficiency Energy Efficiency Standard Electric Generating Units Energy information Administration Energy imbalance Market Environmental Impact Statement Effluent Limitations Guidelines Energy Management System Environmental Protection Agency Engineer-procure-Construct Electric Power Research Institute Endangered Species Act Energy Storage System Combined Advantage (9 am - 9 pm) Combined Advantage (Noon - 7 pm) Time Advantage (9 am - 9 pm) Time Advantage (Noon - 7 pm) Experimental Electric Vehicle Charging Rate Schedule Time Advantage Super Peak Electric Vehicle Federal Energy Regulatory Commission Federal Implementation Plan Flue Gas Desulfurization Fire Mitigation Finding of No Significant Impact Greenhouse Gas Gila River Indian Community Groundwater Users Advisory Council Gigawatt-Hours Hazardous Air Pollutants Mercury Heat Recovery Steam Generator Heating Ventilation and Air Conditioning Institute of Electrical and Electronics Engineers integrated Gosification Combined Cycle Integrated Resource Plon Investment Tax Credit Integrated Volt/VAR Control Kilowatt Kilowott-Hour Lowest Achievoble Emission Rate Light Emitting Diode Lithium-ion Low NOt Burners Loss of Load Expectation Maximum Achievoble Control Technology Mercury and Air Toxics Standard Maricopa County Air Quality Department Marine Corps Air Station Measurement and Evaluation Research Million British Thermol Units Megowatt MegawattHour National Ambient Air Quality Standards Sodium-sulfur Nuclear Energy Institute National Environmental Policy Act norm American Electric Reliability Corporation Navajo Generating Station Arizona Public Service Company 2019 Preliminary Integrated Resource Plan l Page 33 I NNSR NOx NP NPDES NPV NRC NSPS NSR O&M OMP OMS PAC PC PCB PM PMU5 PPA PPH PSD PTC PTR PV PVNGS PVS PVWRF PWR RCRA RE RES RFP RIM RMR RPS SAIDI SAIFI SAT SCE SCR SCT SHM SI p SIS SMR SO2 SPP SUP SRSG SWAT T&D TRC TOU USBR VAR VOC WECC WI I N ZLD Zn-Air Nonottoinment New Source Review nitrogen Oxide Network Protector National Pollution Discharge Eliminotion System Net Present Value Nuclear Regulatory Commission New Source Performance Standards New Source Review Operation & Maintenance Ocotillo Modernizotion Project Outage Management System Program Administrator Costs Test Participant Cost Test Polychlorinated Biphenyls Porticulote Matter Phosor Measurement Units Purchased Power Agreement People Per Household Prevention of Significont Deteriorotion Production Tox Credit Peak Time Rebote Photovoltaic Polo Verde Nuclear Generating Station Photovoltaic and Storoge Polo Verde Water Reclamation Focility Pressurized Woter Reactors Resource Consewotion & Recovery Act Renewoble Energy Renewable Energy Stondord Request for Proposal Rate Impact Measure Test Reliability Must Run Renewable Portfolio Standard System Average Interruption Duration Index System Average Interruption Frequency Index Single Axis Tracking Southern California Edison Company Selective Catalytic Reduction Societal BenefitCost Test Substation Health Monitoring State Implementation Plan Solar Innovation Study Small Modular Reactors Sulfur Dioxide Solar Partner Program Salt River Project Agricultural Improvement and Power District Southwest Reserve Sharing Group Southwest Area Transmission Transmission and Distribution Total Resource Cost Test Time of Use United States Bureau of Reclamation Volt-Ampere Reactive Volatile Organic Compounds Western Electricity Coordinating Council Water Infrastructure Improvements for the Nation Zero liquid discharge Zinc~Air Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 34 Appendix A - APS 15-year Load Growth Plan Table A-I. Preliminary IRP Load Growth Plan (15 Years) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Load Requirements APS peak Demand After DSM & After DE 7403 7.551 7721 7891 8.055 8248 8.453 8.620 8824 9032 9.214 9446 9.673 9920 10158 10.420 Reserve Requirements 1.040I.ia5 1162 1.188121a1124s 1.274 1300 1332 1364 1392 1428 I 4é3 I 501 1 538 1 578 l l 1 l Y 8444 8687 8883 9079 9268 9490 9728 9920 10156 10396 10606 10874 ILI36 11421 11696 11999 Total Load Requirements Resources Total Fun re Needs 8247 8.3%183%l8345 8.345 79M 7381 6793 6.330 6.316 I6.303 1 6.304 I6.304 6 3 w 6301 I 6.300 1 1 . 1 i 196 329 525 734 922 1545 2347 3.127 3826 1 0 4303 4570 4.832 1 5121 5396 5698 Total Resources 8444 8687 8883 9079 9268 9490 9728 9920 10156 10396 10606 10874 11136 11421 11696 11999 0101 Existing Resources 1 I 1 % I . i Figure A- 1. Preliminary IRP Load Growth Plan (15 Years) 14000 1 12000 ¢1\¢¥\'5 1onu°o¢"°°'°"° 10.000 2 E s-4 8000 Eo o Q. o o 6.W0 Future Resources Existing _ x 3 4o0o Existing Owned Resources 2.ooo 2020 2023 Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 2026 2029 2032 zoos Page 35 I I I Table A-2. Preliminary IRP 0.9% Load Growth Plan (15 Years) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Load Requirements "-"1 APS Peck Demand Afler DSM & After DE 17257 732a 7388 7455 7522 7590 7658 7727 7797 7867 7937 8009 8081 8154 8227 8301 1.01811.101 1.112 1123 11aa 1.144 1155 1166 1178 1189 1200 1212 1224 1236 1248 1260 Reserve Requirements + Told Lood Requirements 8276 8423 aso1 as7a 8655 8734 8813 8893 8974 9056 9138 9221 9305 9390 9475 9561 I Resources *8247 8358 8.358 8.345 8.345 7946 7.381 6793 6330 6316 6303 6.304 6.304 6.300 6301 P 6.300 llotal Existing Resources 9 i 1 28 Total Future Needs 65 142 232 310 788 1432 2.100 2.644 273932.834 2.917 3001 a.089 3175 3261 I 8.276 8423 a5o 1 8578 8655 8734 8813 8893 8.974 9056 9138 9221 9.305 9390 9475 9561 ._..L.. I 1 .! . Total Resources Figure A-2. Preliminary IRP 0.9% Load Growth Plan <15 Years) \20oo I o.ooo Idol load Requlremel\*5 8 a0oo il Future Resources £ u o 6000 D. o o 8 - 3 4000 Existing Owned Resources 2.000 2020 2023 Arizona public Service Company 2019 Preliminary Integrated Resource Plan 2026 2029 2032 2035 Page 36 Table A-3. Preliminary RP 0% Load Growth Plan (15 Years) 2020 2021 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7 2 0 2 8 2 0 2 9 2 0 3 0 2 0 3 1 2 0 3 2 2 0 3 3 2 0 3 4 2035 load Requirements . APS Peck Demand fter DSM 8< After DE . .. 1 .... r """ i 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 7 1 9 2 711 9 2 7 . 1 9 2 1 7 1 9 2 7192 7.192 i v I ] . 009 1081 1083 1083 1084 10a5 1085 1086 1087 1. 088 1. 08< ; 110< 70 1. 091 1 0 9 2 1 0 9 3 1 0 9 4 Reserve Requirements Total Load Requirements a2o 1 8274 8275 8276 8276 8277 8278 8279 8279 8280 8281 8282 8283 8284 a2as 8287 "*4k . 2 3 " ...l ; ».<. , .. . , . .. 1.,U pa ...\~ V. . 43" J. so 4 r Resources 4. Total Existing Resources 8247 8358 8358 8345 8.345 7946 7381 6.793 6330 6316 6303 6304 6.304 6300 6.301 6300 otol Future Needs (46) Total Resources . .. }; (84) I_~ (83) .;.~.. (70) (69) l 331 _ - 'x 1 . 4 897 1486 1949 1964 1978 . . 1978 1979 1984 1985 1986 l 8201 a274 8275 8276 8276 8277 8278 8279 8279 a2a0 8281 8282 a2aa 8284 8285 8287 l l Figure A-3. Preliminary RP 0% Load Growth Plan <15 Years) 9000 Total Load Requirements 8.000 S 5 E o Future Resources Existing/Signed Contracts 7.coo 6.000 s.ooo o o. o u 4ooo .a¢ z 4 Existing Owned Resources 3.000 2.ooo I 000 2020 2023 Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 2026 2029 2032 2035 Page 37 Ap p en d ix B - E3 Pres en t at io n t o Arizo n a Co rp o rat io n Co m m is s io n e Energy+Env ironmental Eclnomlc Ex plor ation of Ener gy Polic y Options for Arizona Presentation to Arizona Corporation Com m ission J uly 31,2019 I of .of I . » ,. , z 11 . '...4 . .,.. f . ¢ . * ..*..1 .5 ,v 4 , -.. / r al 5 r Ea Arizona Public Service Company 2019 Preliminary Integrated Resource Plan . X . , 44 " ..¢- 4 ,~ . .. - u rl _ I ¢ _,_..-.¢v" _ ,.---, .... '..' _,...;..-, .. . ,* r / Nick Schlag, Dir6Elor I I Page 38 I I /_ E8 About E3 + Founded in 1989, E3 is a leading energy consultancy with a unique 360-degree view of the industry + E3 operates at the nexus of energy, environment, and economics + Our team employs a unique combination of economic analysis, modeling acumen, and deep strategic insight to solve complex problems for a diverse client base ¢ ~ Asset Owners Flnanclers/Investors Project Developers Technology Companies e I Consumer Advocates 1 Envlronmental Interests Energy Consumers Energy+Environmental Economics Arizona public Service Company 2019 Preliminary Integrated Resource Plan v; Utllltles System Operators Flnanclal Institutions State Agencies Regulatory Authorities State Executive Branches Legislators . . 1 4 " z. sr.. r f a j... ...p a4 . ,.. . *¢.s944... . v1 .. 2 page 39 / / \ E8 Key E3 resource planning studies + E3's resource planning studies focus on questions of how to meet aggressive carbon reduction and clean energy goals in the electric sector while maintaining reliability and managing costs + 2016 Power Supply Improvement Plan (HECO, 2016) + Pacific Northwest Low Carbon Scenario Analysis (PGP, 2017) + Onqoinq IRP Support (CPUC, 2016-'19) + 2018 IRP Support (SMUD, 2018) + tionina i h e u re(CEC,2018) + U pper Midwest 2019 IRP Support (Xcel, 2018-'19) + s u he Pacific Northw (Various utilities, 2019) + Resource Adequacy under Deep Decarbonization(Calpine, 2019) Energy environmental Economics Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 3 Page 40 E8 Key findings common across E3 studies l l l 1. Achieving a low-carbon grid is technically feasible and can be affordable, but eliminating carbon from the electricity sector entirely appears challenging and cost-prohibitive with current technologies 2. A technology-neutral policy focused on carbon reductions will enable utilities to meet clean energy goals more affordably than policies that establish goals for specific technologies 3. Even in a deeply decarbonized grid, natural gas resources will continue to play a crucial role in meeting reliability needs as "firm" resources, dispatchable on demand but rarely called upon 4. Openness and transparency have become foundational characteristics of successful resource planning efforts, and collaboration between utilities and stakeholders is a key step to enabling a clean energy transition Energy»Envlronmental Economics Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 4 Page 41 E3 Building blocks for clean energy + A technology-neutral approach to establishing future goals will provide optionality as opportunities for carbon reductions evolve, enabling utilities to choose the most affordable "building blocks" Description l l Nuclear Maintain existing carbon-free generation l 9 Renewables Increase and diversifycarbon-freegeneration l lb Fuel switching Conversion from coal to gas (or other) generation 5 Clean imports Utilize excess low-carbon electricity Electrification Electrify transportation sector and select building end uses Energy storage Load shifting/absorbing excess solar via energy storage Demand management Energy efficiency and other demand-side measures Building Block all I Q i l Energy+ Envlronmemal Economics 'i 'll£8" I Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 42 Purpose of stakeholder engagement ET initiative / E3 has worked with APS to engage stakeholders in a transparent scenario analysis exercise based on detailed analytics, with the objective of enabling stakeholders to test the impacts of various resource portfolios and policies before APS files its preliminary 2019 IRP This initiative broadly encompassed three goals: 1 . Develop an Excel-based tool that balances complexities of electric system modeling with time limitations and is directionally consistent with industry standard optimization models 2. Provide stakeholders with a more active means to participate in the portfolio planning process i 3. Allow stakeholders to put forth a set of scenarios to study and directionally inform APS' development of its IRP Energy+Envlronmental Economics 6 9 Arizona Public Service Company 2019 Preliminary Integrated Resource Plan Page 43 ""\ E8 Four groups of scenarios explore different policy options \ + Scenarios modeled generally fall into four broad categories that affect the types of investments needed in each: 1. Renewable Portfolio Standard (RPS): portfolios designed to meet a kwh production quota for renewables, expressed as a percent of retail sales (30-50% RPS by 2030) 2. C le an E ne rq y S tand ard : portfolios designed to meet a kwh production quota for carbonfree resources (including nuclear & clean imports), expressed as a percent of retail sales (60-80% clean by 2030) 3. Carbon Tar et: portfolios designed to meet a specific carbon goal (40-60% reductions by 2030) 4. Natural Gas Prohibition: portfolios that prohibit investment in new natural gas infrastructure to meet future reliability needs + Stakeholders also designed a wide range of sensitivities to test assumptions on load growth, technology costs, and other key assumptions En¢rgy+Envlronmental Economics Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 7 Page 44 /._\ ea Model inputs and outputs Demand forecast Clean energy goals Exlstlng resources Customer resources New resource options Cost minimization Determine costs via hourly economic dispatch - Identify new build Installed capacity Annual generation resources - Satisfy planning reserve margin - Satisfy hourly energy needs . Satisfy clean energy goal(s) Renewable curtailment Carbon emissions Generatlon cost Hourly profiles Market prices Energy+Envlronmental Economics Key focus of scenario analysis: comparing Impacts of dlfferentpollcy & portfolio decisions on cost and carbon metrics 8 l l l Arizona Public Service Company 2019 Preliminary lnlegrczled Resource Plczn page 45 ./- Estimating a range of cost & carbon impacts for APS E_ 54.0 The same carbon savings achieved bya 50%RPS could be achieved bya "Clean" standard or carbon goal at considerably lower costs to APS customers ,kg$3.5 o m <5 $3.0 s ox by to s ox by '30 Q N / $2.5 P olic y approac hes 8 l 8 $2.0 " I 1/ wel by '30 RPS targets (96 of sales) . C l e a n targets 06 of sales) g 'g $1.5 I Carbon targets (96 below 2005 levels) D. 40% by 30 § ~ ; , $1. 0 o u > 8 $0. 5 70% by 'so sou bY "so Boselkre4 . $0.0 80 85 4 "A, d . s o s s b y s o 90 95 100 <--------------> Tro]ec¢o.rlesin line wi t h 80100% carbon 40% by '30 105 110 redhctiurts byzoso 115 120 125 130 135 140 145 150 Cumulative Carbon Reductions vs. 2005 Levels, 2020-'35 (MMT) The expected cost impacts of a longterm prohibition on investment in new natural gas resources would result in significantly higher costs than any other scenario investigated, with an estimated NPV cost of $20-30 billion Energy»Envlronmental Economics Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 9 Page 46 E8 Contrasting standards: renewables & carbon New Capacity Additions 202035 (MW) Both policies will encourage substantial investments in new clean energy resources... 5000 0 10000 .. 50% RPS Sto ra g e ~v1.: .I i 60% Carbon WIn:l 15000 ' _ I EE Customer Solar DR Annual Energy Mix 2035 (GWh) ...but a carbon-focused standard will lead to a more balanced & diverse generation mix... 10000 20,000 30000 40000 s0000 0 50% RPS 60% Carbon Coal Imports a . r$§i !< 1.4. ;.4 _ EE ..._. Customer Solar Cumulative Carbon Reductions', 2020-'35 (MMT) ...enabling ach ievement of greater carbon savings and a cleaner portfolio... 0 50% RPS 60% Carbon 10 20 30 40 50 60 _ _ Incremental NPV Cost°. 2020-50 (SB) ...while comparatively reducing costs forAPS' customers so 50% RPS 60% Carbon Sl $2 $3 _ _ Mnrlcsmo.uurod ldarivelo a Ins:cost porllolioofrcsourcss Energy+Envlronmental Economics Arizona Public Service Company 2019 Preliminary Integrated Resource Plan 10 Page 47 I I ET Key takeaways from analysis 1. APS and Arizona are experiencing continued population and load growth which could drive significant investment needs across all scenarios analyzed 2. All modeled scenarios show that significant investment in new clean resources would be needed to achieve substantial carbon reductions 3. Scenarios with broadly-defined policies to encourage clean energy and carbon reductions provide more affordable and flexible options than prescriptive targets for specific technologies that narrow utilities' choices (e.g., RPS) 4. Palo Verde is critical to meeting future clean energy goals at low costs, replacing it with other resources would considerably increase customer costs and require substantial development time 5. Scenarios with early retirement of Four Corners show significant carbon benefits, but would require large replacement investments in the next decade to maintain reliability 6. Even in deep decarbonization scenarios, firm gas resources play a crucial reliability role but operate infrequently and at low capacity factors Energy+Envlronmental Economics 11 l l l l l l l I . l l l Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 48 Appendix C - IRP Working Group Disclaimer Disclaimer / Context Language regarding IRP Working Group and E3's Work E3's model is one of many that can be used to conduct resource planning analysis and we acknowledge that other models could yield different results. The E3 model was designed to be consistent with industry standards and is sound in its technical functionality. 2. There are a wide range of inputs that can be used for any model and those that were used for this process while not necessarily endorsed by all members of the working team were generally considered reasonable by a majority of the group. While the process allowed for multiple Inputs (e.g. different technology prices) to be evaluated it is acknowledged that different input values would in most cases yield different results. 3. The results of the scenarios evaluated by E3 were approximated costs and carbon emission levels intended to show the relative comparison of scenarios to each other. Point data should not be considered absolute or precise. 4. There is more analysis and study underway that will inform APSs Final IRP in April 2020. This includes the following studies: O. Naturol gas market assessment b. Renewable integration cost assessment c . Electric vehicle penetration potential (APS service territory) d . DSM opportunity study e. Thirdparly evaluation of APS load forecasting methodology APS commits to a continued public and transparent process that includes the results from these studies, policy developments/direction from the Commission and continued input from stakeholders to inform our Final IRP. I i Arizona public Service Company 2019 Preliminary Integrated Resource Plan Page 49