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Utility financing bill on Hobbs’ desk, some Democrats urge veto

Key Points:
  • A bill allowing public utility companies to securitize assets passed out of the Legislature
  • Republicans say the governor will sign the bill with new amendments
  • Some Democrats say the bill does not have enough safeguards for utility customers

A controversial public utility company financing measure goes to Gov. Katie Hobbs, and while Republicans say they are confident she’ll sign it, some Democrats are urging her not to.

House Bill 2679 passed a final vote in the House on May 7 after being amended in the Senate a day earlier. However, critics of the measure, which would allow utility companies to transfer debt into low-interest bonds that can be sold to recoup funding from aging or inefficient assets, say it still has significant issues.

The bill, sponsored by Rep. Gail Griffin, R-Hereford, has been hotly debated and sparked conflicts between lawmakers and the Arizona Corporation Commission. It split both the Republican and Democratic caucuses during different floor votes, but the Senate only gave it final approval on party lines. 

Two Senate Democrats who are cosponsors of the bill, Flavio Bravo and Catherine Miranda, ultimately voted against it. But in the House, several Democrats flipped from ‘no’ votes to ‘yes’ votes, with 10 voting alongside Republicans to pass the bill on May 7. 

If Hobbs signs the bill, she could be running afoul of members of her party, including Senate Minority Leader Priya Sundareshan. Hobbs’ office typically does not comment on pending legislation and has declined to comment on this specific bill in the past. 

Proponents of the bill, like Griffin and most Republicans, say it will help utility companies like Arizona Public Service and Salt River Project lower customer costs. The Arizona Chamber of Commerce and Industry has urged lawmakers to support it, saying it will also help attract businesses to the state.

Opponents, like Sundareshan, Attorney General Kris Mayes and environmental groups, say the bill lacks oversight and guardrails that will allow the Corporation Commission to ensure utility companies only use securitization when it is in the best interest of customers. Mayes has even said the bill might infringe upon the constitutionally-granted ratemaking authority of the ACC.

Sen. T.J. Shope, R-Coolidge, sponsored an amendment to the bill in consultation with the Governor’s Office, Senate President Warren Petersen and the Corporation Commission that he says addresses concerns raised by the commission, former commissioners and other stakeholders.

“It will be signed,” Shope said while discussing the bill on the Senate floor on May 6. 

Shope’s amendment did address some problems that Democrats and environmentalists said made the bill unworkable, including removing the ability to securitize unrecovered fuel costs and limiting securitization to current assets with a few exceptions. 

And Griffin said she believes the amendment addressed the constitutional concerns raised by Mayes.

“The Commission’s constitutional ratemaking authority is reinforced with explicit discretion for approval, modification and rejection of any plan that is not acceptable by the Commission,” Griffin said. 

Sundareshan, D-Tucson, and fellow Democratic Sen. Rosanna Gabaldon, D-Green Valley, introduced their own amendments to add more limits to the bill, but those amendments failed in the Senate. Sundareshan’s amendments would have limited securitization to retired assets and would have prevented utilities from securitizing power plants they plan to sell to another company that would keep the plant active.

Sen. Lauren Kuby, D-Tempe, speaking on behalf of Sundareshan as she was absent from the floor May 6, said the amendments were proposed in good faith. 

“These amendments that we’re moving here today, they are truly an attempt to make the bill better,” Kuby said. “We’re not opposed to the tool of securitization … In fact, it’s been used across the country, but not in the case where we don’t have these guard rails. It’s very concerning the way the utilities are pushing to use securitization in Arizona. Our ratepayers must be protected.”

Nevertheless, Republicans voted against all three amendments offered by Democrats. Shope also disagreed with Democrats, who said that not enough stakeholder input was sought to draft or amend the bill.

“I think my colleagues on both sides of the aisle know that this has been stakeholdered, this has been discussed, this has been worked out, and we all have come to this conclusion that — with the Shope floor amendment — the bill is what it is, and we have worked it out,” Shope said during his final comments on the amendment.

After the Senate passed the bill, Sundareshan told the Arizona Capitol Times that she and Democrats were not invited to participate in those stakeholder meetings.

“I’m not aware who exactly was being stakeholdered with, but certainly my caucus was not meaningfully involved,” Sundareshan said. “And I like to point out that I am the member of the Senate Democrats who is an energy and environmental lawyer, so I would think that I should be consulted and maybe engaged on some of this.”

On April 29, Sundareshan joined former Corporation Commissioners Bob Burns and Sandra Kennedy in urging a veto of the bill if Republican amendments did not assuage their concerns. She hopes the Democratic opposition will encourage the governor to consider a veto. 

“I hope that the governor will take notice of the concerns that our caucuses are raising, and that the environmental communities are raising, that the ratepayer communities are raising, that the attorney general is raising, and so even though (Shope’s) communication with (the Governor’s Office) may have indicated that she is willing to sign it, I think that this is additional knowledge that may not have been made public before that they should take into account,” Sundareshan said.

APS is playing both sides on securitization bill

House Bill 2679 is being sold as a financing mechanism that is a win-win for utilities and their ratepayers. And yet, there is overwhelming opposition to the bill from both sides of the aisle. The Arizona Corporation Commission (a 5-0 Republican body), the Arizona attorney general, and former Republican legislator and chair of the Arizona Corporation Commission, Bob Burns, have all sent letters to the Legislature highlighting serious concerns with the bill.

Yet the bill has received bipartisan support, even from legislators who are typically very concerned about writing a blank check to monopoly utilities.  Arizona Public Service (APS) has been playing both sides. They have led Democrats to believe this bill is actually about tribal sovereignty even though nothing in the bill applies to tribes at all. The bill applies to public power entities, public service corporations and municipal utilities. How could the bill be about tribal sovereignty? 

In 2021, the Public Service Company of New Mexico (PNM) attempted to “sell” their share of Four Corners power plant to the Navajo Transitional Energy Company (NTEC) for $1. In addition, the utility was going to pay NTEC an additional $75 million to take the plant off its hands. Even with paying NTEC to take the plant off its hands, the utility still argued to New Mexico regulators that offloading the plant would save its ratepayers $30 million to 300 million dollars; that’s how uneconomic the plant is. 

The elephant in the room is that APS wants to do the same. They want to offload their share of this wildly uneconomic plant and then securitize the loss from that “sale” on the backs of ratepayers. Ironically, this arrangement has Democrats in the curious position of supporting a bill that will almost certainly keep uneconomic coal plants online even longer; plants that use more water than their alternatives and emit significant amounts of air pollution. Governor Hobbs has said she is “analyzing how various proposals may deliver on lowering energy bills while advancing a clean energy economy in Arizona.” Unfortunately, that is the opposite of what HB2679 does.

APS simultaneously has convinced Republican lawmakers that the bill is good because it does the very thing Democrats would normally oppose. But it does that by subsidizing the “sale” of uneconomic power plants, resulting in a massive cost shift from NTEC on to the backs of ratepayers. We would all be paying for APS to pay NTEC to take Four Corners off its hands. As someone who spends a very significant amount of time at the Arizona Corporation Commission, I was under the impression that subsidies were antithetical to Republican principles.

Securitization can be an important tool in the toolbox when it comes to innovation in the electric grid. However, this bill is not that. This bill will keep coal online longer on the backs of Arizona ratepayers via a huge subsidy to the Navajo Transitional Energy Company. Lawmakers should vote no on HB2679 or the bill should be amended to remove the option to sell AND securitize an asset. The bill, as drafted, solely benefits the APS parent company’s shareholders.

Autumn Johnson is a public interest policy advocate and CEO of Tierra Strategy.

Wildfire liability bill amended to be less protective of Arizona utility companies

Key Points:
  • A bill to reduce liability for utility companies that start wildfires has been amended
  • The amendments remove many of the sweeping protections for utilities
  • The new bill is tolerable for utilities and received far more approval from opponents

A deal has been reached on a measure that proposed sweeping and arguably unconstitutional liability protections for the state’s electric utilities for wildfires caused by their equipment. 

The agreement eliminates major opposition from insurance companies and trial lawyers who had fought the proposal being pushed by Arizona Public Service Co., Tucson Electric Power and other utilities. While giving utilities new protection, it still allows some lawsuits against them if their equipment sparks a major blaze. 

The Senate approved the changes negotiated between lawmakers, utilities, opponents and the governor’s office on April 22. It now needs a formal vote before returning to the House, which had OK’d a much more robust liability shield for power companies in February.

The deal ensures that utilities receive some new cover from lawsuits while still allowing people and businesses affected by wildfires to sue if utilities don’t abide by their own wildfire plans. It still has opposition from lawmakers, with two Democrats questioning it during debate, although they praised the work done to amend the measure. 

The amendments to House Bill 2201 authored by Sens. J.D. Mesnard, R-Chandler, and Brian Fernandez, D-Yuma, remove many of the liability protections remaining in the bill after earlier changes pushed by Mesnard stripped it of the most contentious and legally dubious provisions sought by the utilities. They also restore the ability of people to win punitive damage awards from utilities.

Those changes also ensure that the newly-mandated wildfire migration plans from utility companies are effective and are reviewed and approved by experts at the state Department of Forestry and Fire Protection. Earlier provisions had the Arizona Corporation Commission reviewing plans for regulated utilities and the boards of public power entities like Salt River Project approving their own plans. 

If utility providers follow the new plans, they will be assured that they cannot be sued for failing to take the necessary steps to limit the risk of sparking a wildfire. While far from the sweeping liability shield originally sought by the utilities, it’s still a major win for them if it is adopted.

“They’re still getting what they basically were looking for — a way that if they come up with a plan and they follow the plan that they don’t have to worry about that excess liability,” said Fernandez. “And that’s what this is all about.”

APS and the other utilities faced opposition from trial lawyers and national insurers, groups that normally are at odds but united to oppose the initial proposal. 

For insurers, the sweeping liability shield in the original proposal would have barred them from recovering payments from homeowners or businesses for property damage caused by at-fault utilities that resulted in fires. Trial lawyers were against the measure originally because it made it virtually impossible to sue a utility company on behalf of their clients.

Lobbyists for both groups told Capitol Media Services on April 22 that they no longer oppose the reworked bill.

“It went from one of the worst bills in the country to one of the better bills in the country,” said Marc Osborn, a lobbyist who represents Farmers, Geico, Nationwide and Allstate at the Capitol.

Sen. Lauren Kuby, D-Tempe, praised the work Fernandez and Mesnard did to come up with a deal, but still she ultimately opposed the measure.

“Whereas it was a terrible bill before, it’s simply now a bad bill as far as public policy because it amounts to a huge gift to the utilities,” Kuby said. “It allows them to be negligent but not liable as long as they have a plan.”

Utilities in California, Oregon and Colorado have faced massive lawsuits after their equipment was found or suspected to be the cause of forest fires that in some cases consumed whole communities. Pacific Gas & Electric Co. in California was forced to seek bankruptcy protection a year after its poorly maintained equipment sparked a 2018 fire that destroyed the northern California town of Paradise and killed 85 people. 

That’s what APS and the other utilities fear — a massive wildfire that bankrupts the company. 

APS, TEP, and the other utilities will still be sued if they fail to comply with the new wildfire mitigation plans they are required to create. However, if they do follow the plans, they can’t be sued for failing to follow “best practices.”

Gone from the initial bill that passed by the House in February are the far-reaching bans on punitive and other damages initially sought by utilities. 

Mesnard said during the floor debate on April 22 that utilities might be forced to take drastic action, such as shutting off power prematurely during high wind events if they didn’t get the new liability protections. 

That could leave lots of people without power just because the utility is trying to protect itself from a potential lawsuit. Or, he said, the utility could decide to spend “a boatload of money” to upgrade equipment to avoid a fire and subsequent lawsuit — money ultimately paid by their customers.

“So that was the genesis behind the bill, as we don’t want to be facing that kind of crappy choice,” Mesnard said. 

Mesnard acknowledged that the initial version of the bill drafted by APS was far too generous to the utilities, which led him and others to drastically amend it. 

“But it really comes down to the fundamental question: If they fulfill a plan, if they follow the rules and everyone knows in advance what the rules are going to be, should we give them a little bit of grace?” Mesnard asked. “Because otherwise the cost will ultimately be paid by the ratepayer.”

Wildfire regulation bill to be stripped of most contentious elements in Senate

A sweeping measure passed by the Arizona House giving utilities like Arizona Public Service and Tucson Electric Power major protections from lawsuits for wildfires sparked by their equipment will be stripped of the most contentious provisions in a state Senate committee hearing on Monday, the panel’s chairman said.

Finance Committee chairman Sen. J.D. Mesnard, R-Chandler, told Capitol Media Services on Friday that the amendment he crafted will remove provisions sought by the utilities requiring people or companies who sue over wildfire damages to prove by “clear and convincing” evidence that the utilities were at fault. That’s a much higher level of proof than what is normally required in lawsuits.

Also gone is a prohibition on recovering “consequential damages,” said Mesnard. Those include things like lost business income or compensation for renting a car if a person’s vehicle is destroyed by a fire and the owner awaits a replacement from the utility at fault.

Mesnard said that’s only fair.

Multiple drafts of the amendment, posted late Friday and still subject to change, also restore the ability to win punitive damages from a company whose negligence sparks a wildfire.

What utilities will still get in the legislation are hefty new protections from lawsuits if they follow new “wildfire mitigation plans” they will be required to create if HB2201 is enacted.

But Mesnard plans some changes there as well, one of which being the removal of a provision giving utilities a lawsuit shield if they only “substantially comply” with those plans. Also gone will be sections allowing the boards of public utilities like the Salt River Project to approve their own plans. 

Mesnard said that having a public utility approve its own plan that grants it lawsuit protections was problematic. Those company’s plans will instead have to be reviewed by the state Department of Forestry and Fire Protection. 

“That resonated with me, the idea of having your own board approve your plan, and that allowing for you to then have immunity or some degree of protection,” Mesnard said. “That did not make sense to me. I needed there to be some other authority.”

That “substantial compliance” provision that Mesnard found troubling could have awarded liability protections for utilities even if they didn’t follow parts of their plans, like failing to trim back vegetation along parts of their power lines’ route. Under the House-passed measure, someone who lost a home still had to prove by “clear and convincing” evidence the utility was at fault even if they didn’t follow their plans to the letter. 

“So it’s sort of like if we reach a lower bar it protects us to a higher bar, and I had a hard time going along with that,” he said.

The version that reached the Senate had legal issues as well, according to House lawyers who reviewed the proposal.

Most notably, they said it likely ran afoul of a provision in the state constitution that bars laws that limit the right of people to sue for compensation. The changes Mesnard is pushing should address those concerns.

Mesnard said he met with APS lobbyists and with opponents of the bill, most prominently lobbyists for the insurance industry and trial lawyers, to hammer out changes he would need before agreeing to put the measure on his committee’s agenda. Committee chairs can kill legislation by refusing to hear a bill, and Mesnard said he was prepared to do that if his concerns weren’t addressed.

An APS spokesman said the company, the largest power provider in the state, supports the measure and Mesnard’s proposed amendment. An SRP spokeswoman said her company still needs to review the final proposed changes but appreciated Mesnard’s attention and expects to be able to support the bill.

TEP spokesman Joe Barrios said his company welcomes the clear guidance it will give utilities for submitting wildfire mitigation plans that include procedures for things like cutting off power during high wind events to avoid triggering a fire and for cutting back trees and brush near power lines. 

“It will also provide protection for customers because wildfire liability costs and higher insurance costs are passed (on) through higher rates,” Barrios said in a written statement. 

“We have an obligation to continue serving customers, even in areas that may be risk-prone for wildfires,” he wrote. “The bill would reduce exposure to unfair financial risks only if we satisfy standards in our wildfire mitigation plans, thereby reducing real and potential costs for our customers.”

Opponents of the Arizona liability protection measure said Mesnard’s proposed changes will make the bill more palatable. Insurance companies and trial lawyers have strongly opposed the original measure because it stripped homeowners and insurers of much of their ability to recover damages from utilities responsible for starting a blaze.

“It is a lot, a lot better,” said Marc Osborn, a lobbyist who represents Farmers, Geico, Nationwide and Allstate at the Capitol.

Having the ability to hold a utility responsible is important, he said. PG&E, for example, is now burying its power lines to avoid sparking a wildfire – something that only happened after the company faced two multibillion dollar lawsuits. He called the bill much more reasonable with Mesnard’s changes. 

“Would we prefer no bill? Yes,” Osborn said. “But I think Mr. Mesnard did a pretty good job of grinding off the rough edges on it.”

If the changes are adopted in Mesnard’s committee, the measure will go to the full Senate for approval and then back to the House for them to sign off on the changes. 

Gov. Katie Hobbs will then have the final say.

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