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Talks of electric retail dereg begin again in Arizona

Energy towers on an electric sky background. 3D rendered image.

Energy towers on an electric sky background. 3D rendered image.

The Arizona Corporation Commission has restarted talks of electric retail competition five years after a similar effort fell flat.

Much has been said about what this could mean for the state’s publicly regulated utilities, like Arizona Public Service, but it is customers who stand to gain – or lose – the most.

Electric retail competition is more commonly known as deregulation, though few who are familiar with the concept are fond of that term. Others have suggested re-regulation, restructuring or even de-monopolization.

Whatever it’s called, even the most basic definition can be convoluted.

Residential Utility Consumer Office Deputy Director Jordy Fuentes gave it a try in an email to the Arizona Capitol Times: “Deregulation generally means the removal or relaxation of regulations or controls governing the generation portion of the electricity service,” he said, adding that transmission and distribution would remain regulated. “The theoretical goal of deregulation is to reduce consumers’ electricity bills.”

But Fuentes is not convinced deregulation would accomplish that goal in Arizona, least of all for residential customers. He made his case against deregulation before the Corporation Commission on December 3, speaking during the first workshop on the topic since debates stalled out in 2013.

“Residential ratepayers have the most to lose when it comes to deregulation,” he said. “Large customers, such as those at the workshop advocating for deregulation, have buying power and will be able to command the best deals on the market.”

Fuentes told the commissioners that even the best model for deregulation, which many at the workshop said comes from Texas, will not work in Arizona.

Pat Wood, one of the architects of the Texas model under then-Gov. George W. Bush, disagreed. He offered a more simplistic view of deregulation and predicted significant benefits to customers in Arizona.

“When you think about how you can do better than the monopoly model, it’s pretty clear,” he said. “When it’s your own dollar at risk, you run a plant a whole lot more thoughtfully and efficiently.”

Wood said Bush’s directive to him was: “We’re not here to rape and pillage, we’re just here to get to a competitive market.” It wasn’t a smooth transition from the start, but the result was an online portal on which customers across Texas have the ability to shop around for the best rate.

Fuentes said the Texas model won’t work in Arizona for a few reasons, namely its use of an independent service operator, or ISO, which manages the flow of electricity.

Fuentes said Arizona does not currently have an ISO, and the logical physical and geographical choice would be California ISO, or CAISO, which is regulated by the California state Legislature.

“Arizona’s participation in CAISO at this time is not wise and politically not likely,” Fuentes said.

And Arizona’s market would fall under federal jurisdiction, removing control from state regulators, he said. That’s because the state’s size and need for access to outside markets would require Arizona to be interconnected with other states whether it chose to join another regional ISO or develop its own.

Conversely, the Electric Reliability Council of Texas, or ERCOT, is located solely within the state of Texas and is not subject to the Federal Energy Regulatory Commission’s jurisdiction under the Federal Power Act. Rather, he said ERCOT is governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the state Legislature.

Wood, who went with Bush to Washington D.C. to run the Federal Energy Regulatory Commission in 2002, said change in jurisdiction may not be so bad. He said he was once a pretty good state regulator, but he couldn’t do the work of the competitive market on his best day.

Fuentes said the state’s energy policy simply needs to be modernized, something RUCO has advocated for several years.

If the Corporation Commission opted to go ahead with deregulation, he said mandating forward-looking energy policy would become less effective and more difficult to implement and track.

Instead, he encouraged the commissioners to use tools already at their disposal. Those might include additional rate options for customers, like free nights and weekends or subscription-based rates, and a variety of potential rule changes governing rates and energy policy.

But Wood said Arizona is in a sweet spot now, maybe even sweeter than Texas was when it opened up its market.

The thing that makes the state so attractive for deregulation is that it hasn’t done “any nutty things like California” by discouraging natural gas plants and because it has easy access to solar energy at home and wind from its neighbors.

“Why would you just leave that in the hands of a single company?” he said. “Why would you not let that be spread across the whole state and let whoever is the most clever and efficient provider be out there making money?”

Arizona will need a transition period just like Texas, he said, but that just means this process will take time.

2 comments

  1. Arizona Eagletarian

    Mr. Fuentes is absolutely correct about how large industrial/commercial customers are certain to win in electric utility deregulation. The math is easy. A utility that has to bill 50 total customers can do that with a lower cost than the utility that has to bill 500,000 customers for the same amount of kWh.

    Mr. Wood, OTOH, did not seem to make a cogent argument for how residential customers would get lower costs under a deregulation proposal. Until he can demonstrate with tangible (credible) numbers how it WOULD (not just could) happen, this is just a rehash of a specious two decades old claim (myth) that deregulation would benefit customers.

  2. Industrial customers have already “won” under regulation. US EIA data shows average residential rates in AZ of 13.26 cents/kWh. Industrial rates in AZ average 6.7 cents/kWh. The residential rate is a bit above the national average, the industrial rate is just below.

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