Competitive markets are at the heart of American economic prosperity and stability. Unfortunately, this hasn’t been true of the monopoly-led, scandal-prone Arizona electricity industry.
Conservatives should welcome new technologies and regulatory reforms that allow consumer choice and make it possible to compete with monopoly utilities. The Arizona Corporation Commission currently has a big opportunity to do exactly that.
The monopoly model has stifled new product development and consumer choice. Arizonans deserve better, and evolving technologies and consumer preferences merely enhance the value of electricity competition and choice. One such technology is rooftop solar, which allows customers to meet some of their own power needs and, at times, provide excess power to the grid.
Self-generation should be a right for all consumers, who should receive fair compensation for what they put back on the grid, while paying their fair share of grid upkeep costs. Some legitimate concerns have been voiced on these points. But utilities see the current debate as an opportunity to shutter the competition and guarantee the stability of their own revenues. The pending case before the ACC on the value of rooftop solar could either set this situation straight or set the cause of competition and choice back many years.
After a series of battles over rooftop solar, the ACC has deferred judgment to address the issue comprehensively. That’s a good sign, as it avoids knee-jerk reactions to a complex, high-stakes issue. Abrupt responses have already led to disruptive policies in other states, such as Nevada.
It’s critical for the ACC to consider not just the short-term benefits of solar, like the savings from having to operate power plants less, but also the long-term benefits, like reducing the need to build or maintain power plants. Distributed resources like rooftop solar also can make the grid more resilient. This should not be overlooked in a world that faces increased threats from cyber and physical attacks on critical infrastructure.
Not only must the ACC determine the value of solar comprehensively, but how this value is reflected in electricity rates will have a huge impact for customer incentives. Rates should reflect the extent to which customers cause future utility costs. Fixed customer charges send the wrong signal. Utilities prefer them, because they stifle competition and stabilize revenues. But in the long term, they provide no incentive for customers to avoid creating costs for the utility – costs that ultimately are borne by ratepayers. Simply put, if you pay a set amount to be a customer, there’s no value to reduce your demand or to invest in self-generation, despite the money that would save.
The value of solar fluctuates over time and by location. It’s important that the ACC balance this fact against the importance of rate stability. Unpredictable rates increase investment risk and deter innovation and deployment. This stands in contrast to the minimal risk facing utilities, where the monopoly model guarantees they can recover the cost of any investments Arizona regulators deemed prudent. This asymmetric treatment favors utility investment over customer investments.
Ultimately, mounting customer, economic and technological pressures warrant a holistic revision of the monopoly model. While Arizona explored full adoption of a competitive electricity model in 2013, it’s time to re-examine it more seriously. Until then, the ACC’s pending decision will be critical to whether the state moves in the direction of competition and consumer choice.
Competition and choice are fundamental tenants of economic success. This platform serves to benefit all customers, and should especially catch the eye of conservatives. May the ACC act boldly and lead Arizona out of the shadow of monopoly control and into the light of the marketplace.
Devin Hartman is electricity policy manager and senior fellow, R Street Institute.
The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.