Utility regulators tackle deregulation question

Would businesses and consumers in Arizona benefit from a competitive open market where they can buy electricity from different retailers like they do for cable television?

Industry experts and consumer advocates were asked that question at a special meeting on retail electric competition at the Arizona Corporation Commission last week co-chaired by commissioners Robert Burns and Boyd Dunn.

Commissioners want to know what the positive and negative impacts of restructuring the electrical market in Arizona would be. The workshop is a first step to explore the issue.

Currently, 17 states have some form of retail electric competition including Texas, Oregon, New York, Massachusetts, Georgia and California. Some are expanding competition. Others are moving away from it.   

Opponents said electric rates are higher in states with open competition, consumer and environmental protections are at risk without regulatory oversight, the cost to transition to competition is costly and politically charged, and few providers are willing to move into rural areas.

Speakers in favor of open market competition said it offers a mix of choices and pricing for communities and customers and is beneficial to large power users for cost savings.

Here are some of the key issues:

Barbara Lockwood, vice president of regulation, Arizona Public Service, said the current system in Arizona is working. Utilities are providing and expanding renewable options for customers, and there is oversight and regulation for the protection of ratepayers.

Transitioning to deregulation has proven complex and costly in other states, especially for customers who can least afford it, said Lockwood who cited three studies including a report from the American Public Power Association in 2017 that show energy rates have increased in deregulated states.

States are moving away from deregulation for those reasons, she said.

“Who are the winners and losers? I would suggest it has been proven it is more costly for customers,” she said.

Bill Malcolm, national utility coordinator, American Association of Retired Persons (AARP) said AARP opposes deregulation because it has failed to reduce electric rates for average citizens as promised. Arizona currently has electric bills that are at the national average. Messing with that places average retirees at risk.   

Open competition raises the question of who pays for the cost of transitioning from regulated utilities that have invested billions of dollars in infrastructure and have remaining debt. Called “stranded costs,” those are typically passed on to ratepayers, he said.

The loss of state control over electric providers and unethical marketing practices also have been a worry in some deregulated states like Illinois and New Jersey, Malcolm said.

Transition to open markets also is often costly and politically charged.

“Do you really want to turn over state control, turn over energy policy to politicos and bureaucracies?”

Adam Stafford, clean energy staff attorney, Western Resource Advocates, an organization committed to promoting clean energy and reducing pollution in the West, said it favors both deregulated and regulated energy as long as clean energy is in the mix.

“We are not opposed to retail competition. We are open to deregulation if it is implemented correctly. And by correctly, we mean that retail competition should not impede Arizona’s transition to a clean energy economy and ensures that electricity remains reliable and affordable.”

John Wallace, CEO, Grand Canyon State Electric Cooperative, said deregulation will most likely hurt his customers who live in the more remote areas of the state. Competitive suppliers are not interested in serving rural residential customers, Wallace said.

“The competitive suppliers can’t spend a lot of time and won’t spend a lot of time marketing to our customers. They will go after our largest commercial and industrial commercial customers.”

While competitors say they “just want a chunk” of the market, what they’re really after is the most profitable customers like large industry and retailers, he said.

“When you take the most profitable chunk how are rates for small commercial and residential not going to increase?”

To hear all comments, the meeting can be viewed at Retail Electric Competition Workshop.

Victoria Harker

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