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Energy and Irony: HB2789 will cost Arizona dearly

The Arizona Legislature is considering HB2789, which significantly increases government regulation by requiring every rule the Arizona Corporation Commission (ACC) makes that affects “public service corporations” (a.k.a. utilities) go before the full House, the Senate and the governor for approval prior to the rule taking effect. This bill will cause unnecessary delays in the rules process and create an unsustainable business and regulatory climate that will damage the state for years to come.

The problem, we’re told, is an “out-of-control, energy policy-making’ ACC that is “thwarting the will of the people” by imposing upon ratepayers the “Renewable Energy Standard and Tariff” (REST) to support an industry that “can’t stand on its own.” No one who works with the commission believes they’re “out-of-control” and the industry is very close to standing on its own, but these debatable opinions are being used to justify breaking a fairly stable and responsive system.

The ACC is a constitutional body made up of five individuals elected by the voters for staggered four-year terms. Article 15 of the Arizona Constitution says the commission may “make reasonable rules, regulations, and orders” governing public service corporations. Using this authority, the ACC instituted the REST, which has created more than 16,000 jobs and billions of dollars of investment in Arizona. Unhappy with this innovative use of its authority, the Goldwater Institute challenged the REST as inappropriate ACC “policymaking” in the courts five times — and lost.

In September 2011, the Arizona Supreme Court rejected Goldwater’s argument, ruling the ACC has the authority to create and implement the REST through its constitutional ratemaking process. Unable to take no for an answer five times, the Goldwater Institute turned to the Legislature to introduce HB2789, using the same arguments that failed before the courts, but hoping for a better outcome.

In the Feb. 29 House Rules Committee meeting, staff counsel told the committee that the Legislative Council and the Corporation Commission attorneys both believe the bill is unconstitutional, and if the case went to court, the Legislature would lose. Ignoring what they had just heard, committee members voted 5-1 that the measure “was constitutional and in proper form.”

No. Really.

We hear people complain about how government shouldn’t “pick winners and losers.” This ignores reality. No other state in the U.S. has more sunlight hitting it than Arizona and it’s free. In the business world, we call this a competitive advantage. You don’t hear Texans arguing against adopting policies or incentives that encourage the growth of their wind or shale gas industries. The state knows a competitive advantage when it sees one.

Not here.

Let’s not forget the utility companies employ thousands of people and purchase goods and services from office supply companies, automobile and truck dealers, construction firms, electricians, landowners, architects, health insurance companies and others. It is not just the solar companies that will feel the effects of HB2789; it will be hundreds of related businesses, their employees and their investors.

By the governor’s own account, renewable energy is the top new job-creating industry in Arizona. Yet despite this success, HB2789 threatens to turn the governor’s winner into a loser and send tens of millions, if not billions, in past and future investments and jobs to neighboring states. Just like HB2701 did two years ago, HB2789 could become the tiebreaker in corporate investment and location decisions.

Just debating HB2789 harms Arizona’s reputation. A local land developer told me he recently lost a contract worth upwards of $50 million because his clients worried about our unstable legislative and regulatory climate. A client of mine took $300 million elsewhere last year for the same reason. Arizona company owners are worried our energy market will dry up, taking investment and contracts with it, putting their businesses at risk. Investors are hearing our Legislature say “stay out” and they will — much to the delight of our competitors in California, Nevada, New Mexico and Texas.

The irony is those pushing HB2789 are the same people who otherwise argue for smaller government and less regulation. Do Republicans really favor creating constitutional crises, increasing regulation, killing jobs and creating market and regulatory instability? Maybe it’s because HB2789’s supporters are not job creators. Only one self-identified business owner signed in to support HB2789 compared to 41 who signed in against it when the bill was before the House Government Committee.

The Legislature should be attracting, not attacking business. Arizona needs sensible energy policies that demonstrate regulatory stability, take into account our competitive advantages, our needs and our future job creators. HB2789 contributes to none of that.

HB2789 is a bad idea that will cost Arizona dearly.

— Todd Landfried is a partner with Southwest Policy Advisors, LLC.

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