For the second time, Arizonans are being asked to abandon the longstanding and straightforward structure for provision of universal and fairly priced electric service — rate-of-return regulation of utility companies — for a “de-regulated” structure that would involve multiple sellers of the same electricity. They should once again politely decline.
More than a decade ago, the Arizona Corporation Commission abandoned a plan to impose electric “deregulation” on Arizona’s citizens and public utilities in recognition of the great risks and problems it posed. Now, the ACC is revisiting that decision, at the urging of those who wish to market electricity directly to large users and some of those large users themselves. Recently, representatives of the commission have said they envision a decision in September or October.
Just as before, there are significant problems with this proposal.
The aspiring power sellers in a deregulation scenario certainly wish to profit selling electricity, and profit honestly earned is a good thing. But in states that have tried this system, those sellers have targeted the large customers from whom profit is easily gained. They bear no responsibility for delivering affordable power to all customers — such as residents or small businesses — or for ensuring adequate generation and reliable transmission to meet future needs.
There are numerous things about the generation, transmission, distribution and servicing of electricity to all citizens and sectors that make creation and operation of a true market extraordinarily difficult, if not impossible, given present technologies, demands and operating fundamentals. That is why such a market has never existed anywhere in America. And the path urged on the commission today, operative details for which are unknown to anyone, is not really a competitive market at all. There would be continuing heavy regulatory apparatus around all phases (largely federal apparatus) except the price consumers would pay for the energy. Residential and small business customers will pay more, and get a less reliable grid in the bargain.
In light of California’s disastrous experience with so-called electric deregulation — rolling blackouts and roiling price spikes — the ACC wisely abandoned its efforts to create a similar system here back around the turn of the century. Other states pressed on despite the risks and structural deficiencies. They have reaped volatile rates, increased customer complaints and dwindling energy reserves.
Texas, which once enjoyed a healthy surplus of energy resources, is now struggling to maintain enough capacity to avoid outages. And while rates are presently reasonable, recent analysis concluded residential customers in deregulated areas of Texas likely would have saved more than $10 billion had rates remained regulated. When combined with the legacy of California’s rolling blackouts and the Enron price manipulation scandal, such results prove the slogan-driven theory of electric “deregulation” a dismal failure.
The current longstanding structure — regulated electric utilities earning a limited rate of return for serving everyone in a safe and reliable system — is not perfect. In fact, an actual competitive market, with differentiated energy sources (and not merely differentiated vendors) from which consumers could choose, might deliver some efficiency and pricing benefit over time without putting grid reliability at risk. But source and storage technology has not yet advanced to the point where such a market is possible.
Years after the ACC recognized the failings of electric “deregulation,” proponents are counting on faded memories and inattention to broad-based experience to win support for their flawed proposal. I have more faith in our current commissioners. The interests seeking to resuscitate this dead policy in Arizona have just suffered an unfortunate bit of timing; banking giant JP Morgan, which formed an energy “venture” unit to play in electric service, has just paid a record fine for manipulation of power “markets” in California and the Midwest. The fine is expected to approach or exceed the $435 million fine imposed on another banking giant, British concern Barclays, for its alleged manipulation of California power prices from 2006 to 2008.
We need only look beyond self-serving slogans and consider real-world results from so-called deregulated electricity markets to see that this is an idea best left in the past.
In Arizona, the current system is delivering rates more stable and lower than those in the surrounding region, and it has continued to join with our ingenious system of water storage to make our beautiful but sometimes harsh desert home inhabitable. We are a growing state, with significant load planning and transmission build-out requirements yet ahead of us, and a climate that makes failures at the wrong time a safety hazard and not an irritation. Experiments with Arizona’s power grid are unwise, especially when they have so clearly failed elsewhere.
— Jay Heiler, chairman, Arizona Power Consumers Coalition; lobbyist, Arizona Public Service.