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AARP wrong: Only restructuring can save Arizona’s ratepayers

Personal income in Arizona rose 3 percent from 2014 to 2015, to an average of $39,156 – slower than the national 3.7 percent growth rate and below the U.S. average of $48,112. (Photo by Hamed Al-Raisi/Creative Commons)

Arizona is already ranked the 10th worst state for residential electricity burden. And with every major monopoly lined up hat in hand for a rate increase, things are bound to get worse. But for AARP somehow, nothing is broken! AARP’s cavalier attitude is hurting Arizonans and harming the state’s economic development.

Utilities charge for electricity via rates, but bills are what households pay every month. Low-income households are especially vulnerable as they face three times higher energy burden because they spend a larger percentage of income on energy costs. Arizona, a top retirement destination, has many seniors — and likely AARP members — on a fixed income or with medical conditions. For them, the electricity bill determines how much money is left for food and medicines. If not, there is a price to pay like Stephanie Pullman did.

Worse yet, climate change will only exacerbate the energy burden in a large swath of Arizona. Besides, many are already on the best rate plan, so the captive ratepayers are powerless to do anything. So why is AARP advocating that they remain beholden to the monopolies and not have a choice in deciding their electricity provider?

America Is Built on Competition

Abhay Padgaonkar

Abhay Padgaonkar

America is built on the fundamental economic principle that competition and customer choices provide a win-win-win for the consumers, the companies, and for the U.S. economy. The reverse is equally true: Reduced competition leads to higher prices, lower quality goods or services, or less innovation.

Without any competition to keep them honest, the monopoly utilities live large on the ratepayers’ dime and pass through to them their exorbitant cost of service — with a hefty rate of return tacked on to it. In this broken and outdated system, ratepayers become sacrificial lambs to appease the monopoly’s shareholders.

The cash-strapped and understaffed regulators, like at the Arizona Corporation Commission, are either unable or unwilling to stem the tide of repeated rate increases. No wonder then that every one of the largest 25 electricity price increases over the last decade all occurred in the monopoly states, with Arizona being a prime example.

Wouldn’t it be better for the free market to determine reasonable rates rather than overwhelmed regulators rubberstamping monopoly requests?

Reversal of Fortunes: Sinking Arizona, Rising Texas

Arizona has been going in the wrong direction for a while now. And it is on track to be a Top-10 most expensive state for the all-sector electricity price, reflecting residential, commercial, and industrial sectors.

Arizona wasn’t doing so great in 2008 either. It was already in the bottom half — ranked only 31st cheapest among the 50 states. In 2013, Arizona slipped to the 34th rank and by 2018, it sank lower to be 37th, based on the Energy Information Administration data.

Texas was doing even worse than Arizona in 2008. But it restructured its electricity market and “unbundled” vertically integrated utilities into three separate entities: a power generation company, a transmission and distribution utility, and a retail electric provider.

In 2013, after market restructuring took effect, Texas leapfrogged Arizona to become the 15th cheapest state. By 2018, there was another jaw-dropping transformation: Texas jumped to the 8th cheapest spot while Arizona was now occupying the lowly 37th rank that Texas had held back in 2008!

While the electricity price dropped 23% in Texas over that time, it instead jumped by 19% in Arizona. Imagine the enormous economic stimulus Texas received compared to the economic albatross around Arizona’s neck of a paltry 3% increase in consumption that now cost a whopping 22% more.

Restructuring Has Resulted in Huge Savings

The average price in the U.S. increased by 8% during 2008-2018, but the price increase in Arizona was 19% — 2.4 times that of the U.S. average. On the other hand, every restructured state had a smaller price change than in Arizona.

Like Texas, as more and more states like New York, Pennsylvania, Maryland, and Illinois rejected the monopoly model and restructured their electricity markets to allow free-market competition, there was a complete turnaround.

Not just in Texas, but in several restructured states there was a price decrease over the decade: In Delaware, the price dropped by 15%, in Maryland and New York by 11%, and in New Jersey by 8%. States like Connecticut and Illinois saw a modest increase of only 4% — but considerably lower than the U.S. average. Researchers estimated that savings in Ohio would be around $3 billion per year as long as anti-competitive actions did not undermine the deregulated energy markets.

Restructuring is the Best Antidote

AARP is dreaming if it thinks that the broken monopoly system will improve and doing disservice to its own members with its misguided opposition to restructuring. It is hurting all Arizonans by burying its head in the sand.

Bureaucratic, regulatory mechanisms or other options at the commission’s disposal are incapable of changing longstanding economic principles. The regulators must follow the compelling evidence in support of restructuring, ignore the noise created by monopoly sympathizers like AARP, and unleash the free-market competition to improve lives of Arizonans through lower electricity rates and statewide economic growth.

Full restructuring of electricity markets in Arizona offers the best antidote for the outdated monopoly model.

Abhay Padgaonkar is a management consultant and prominent consumer advocate who served as an expert witness on behalf of the ratepayers in the Stacey Champion complaint.

 

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