Arizona’s largest electric provider sits on the precipice of shedding its longstanding practice of neutrality in electing the regulators who set its rates and decide its profitability.
And if Arizona Public Service embraces a more aggressive role as an election advocate, it would fundamentally alter the dynamics of what’s typically a low-key race for the five-member Corporation Commission. Some also worry that it would dramatically change APS’ relationship with the commission. And a commissioner is wary that electioneering activities by APS — or any other utility — would put his agency’s regulatory actions under a cloud of doubt.
The commission, a unique agency that acts as a quasi-judicial, legislative and executive body, has taken on some of the most profound policy debates in the past two years, including electric deregulation and net metering, the scheme that lets consumers of solar power sell excess energy back to the grid and save on electric bills.
Last year, the utilities and their allies successfully stopped the proposal to dismantle the electric monopolies, while APS also persuaded the commissioners to assess a fee on residential solar, arguing that it is their share of maintaining the electric grid. APS’ parent company, Pinnacle West, spent $3.7 million in the fight over net metering.
Against this backdrop, an APS executive indicated that his company is reserving the right to engage in the election of Corporation Commission members.
In a letter to candidates Lucy Mason and Vernon Parker, APS executive president and chief operating officer Mark Schiavoni said his company has not waded into races for the commission, even when nothing legally prohibits it from electioneering.
“But as you are undoubtedly aware, the political landscape is changing,” Schiavoni wrote. “Because of the tactics a number of organizations are employing to misrepresent important regulatory issues, we may need to respond in the future to set the record straight on issues of importance to Arizona, our customers.”
Schiavoni was responding to a set of pointed questions Mason and Parker posed to APS Chief Operating Officer Don Brandt. The two candidates are wary that APS might be secretly aiding their primary opponents in the race — Rep. Tom Forese, R-Chandler, and Doug Little of Scottsdale. They told Brandt it would be “highly inappropriate for APS or its parent company Pinnacle West to influence the elections of its regulators in any way.”
Parker said he views Schiavoni’s letter as a confirmation of their fear — that APS is now engaged in the race, Attorney Court Rich, who works for Solar City, said what Schiavoni wrote isn’t a disavowal of electioneering activity.
A troubling concept
Those who are knowledgeable about Arizona’s regulatory structure said utilities have refrained from spending for or against commission candidates because they view electioneering in this context as improper and ethically questionable. Some have likened it to litigants choosing their own judge.
Others, however, said APS faces difficult challenges in a different electoral landscape, where companies are allowed to engage in campaigns. More importantly, some opined that APS and the utilities are fighting for their very own survival amid rapid changes in how power is generated and delivered. Under this fast-evolving environment, an aggressive political response by the utilities is not only permissible but demanded, they said.
Kory Langhofer, an attorney with Brownstein Hyatt Farber Schreck, said the issue involves a deeper democratic tenet — the right of the governed to choose their government.
Langhofer said the distillation of Mason and Parker’s argument is those who are affected by elections cannot — must not — affect the outcome of those elections. Put another way, a regulated utility should not raise a finger to elect its regulators.
Langhofer said that concept is troubling: “It would be a very dangerous principle and undemocratic to conclude that people affected by elections cannot affect elections. The whole idea of democracy is that the governed choose the governors.”
By law, APS is not legally precluded from spending money for or against a candidate, although as a corporation, it may not contribute directly to a candidate’s campaign.
Langhofer said if APS doesn’t participate in elections, it is only because it is exercising self-restraint.
“It concerns me when I see someone shaming someone else for thinking about participating in elections,” he said.
But Pat Quinn, head of the Residential Utility Consumer Office, said backing candidates for any office always carries a risk, and that’s especially true for utilities that choose to wade into commission races.
“For me or for anybody, if you back a certain candidate in the election, and they don’t win, that probably doesn’t help you any. It’s one of those things. You’ve got to weigh the risks involved,” Quinn said.
Quinn, who was president of Qwest Arizona from 2002 to 2008, said this is a major factor in Qwest’s longstanding policy not to engage in those races.
“It’s hard to not just stay out of it — because it’s such a gamble,” he said, noting that utilities constantly do business before the commission. “It’s not like you’re going to the commission once and never worry about talking to them again.”
Utility vs. ratepayers
Meanwhile, Commissioner Bob Burns worries that any involvement by APS — or any other utility — in the race to elect the next set of regulators potentially puts the integrity of his agency under a cloud of suspicion. He is wary that actions by a utility-backed candidate who becomes a regulator would be perceived by the public as favoring the utility instead of the ratepayers.
“The Corporation Commission was created for the purpose of protecting the ratepayers from the monopolies. It’s the responsibility of the commissioner to represent the ratepayer,” Burns said. Referring to the dictum that perception becomes reality, he added: “So if there is this perception that there is undue influence by the regulated company, then I believe it creates a problem for the utility and possibly for those who end up in the category of being the utility candidate, either by reality or just by perception.”
Under such a scenario, it would be easy for ratepayers to “draw the wrong conclusions,” he said.
The regulator also raised another issue — the separation of ratepayer funds and investor-earned money. Burns doesn’t want to see ratepayer money being deployed for political ends — or for any purposes other than to pay for the identified costs of ensuring a reliable electric service.
“I’ve had some real problems with the way the labeling works,” he said. “If the ratepayers understand that the money that goes back to Pinnacle West is a repayment for their investment, then they would understand that’s money coming out of the pocket of investors.”