In a third effort over the last 25 years to consider opening utility monopolies to retail competition in Arizona, state regulators heard utilities and cooperatives say the idea is still a bad one that would harm electric service reliability, drive up rates and threaten progress in renewable energy and efficiency.
Still, the Arizona Corporation Commission continued to pursue its inquiry in a two-day workshop July 30-31 to examine whether utility customers would benefit from retail electric restructuring. The five-member commission plans to continue holding a series of workshops before drawing up a proposed order for the purpose of deciding whether to open utility service areas to competing energy suppliers.
An association of industrial and commercial electricity customers called the Arizonans for Electric Choice and Competition has spent many years promoting the restructuring of retail electric choice so its members could pick nonutility energy providers in pursuit of cheaper power and a greater selection of energy services. The National Energy Marketers Association, representing suppliers and major energy consumers, also offered support for an open retail market.
Most of the commissioners expressed support for investigating costs and benefits of retail competition but took no position. However, Commissioner Justin Olson spoke enthusiastically of the savings that customers in 14 other states have experienced through retail competition. He cited U.S. Energy Information Administration figures showing that since 2008, there has been a 7% decrease in utility rates across customer classes in states with retail choice, compared to a 22.3% increase across remaining states. "This evidence is quite convincing," Olson said. "This data to me indicates it is certainly something Arizona should pursue."
Arizona's residential electric rates average 11.72 cents/kWh and commercial rates are 9.97 cents/kWh, according to a staff report. Texas, which has full retail competition, has slightly lower rates.
Brad Albert, vice president of resource management at the state's largest investor-owned utility, Arizona Public Service Co., said a move to retail choice would be an expensive and perilous undertaking, especially since Arizona has no regional transmission organization to run a central energy market, provide reliability services and assure operating reserves to prevent power blackouts.
"Pursuing retail competition as proposed would not be simple, quick or inexpensive, nor would it be without substantial risk," Albert said. "It would also imperil many of the significant benefits of the current Arizona model."
Those benefits include growth in resources to meet the state's renewable energy standard and energy efficiency improvements, Albert said.
APS says Arizona needs more generation
Arizona will soon face generation capacity shortages, Albert said, noting that Pinnacle West Capital Corp. subsidiary APS, which serves 1.2 million customers, will release its draft resources plan Aug. 1 calling for substantial amounts of flexible peaking capacity to meet increased evening needs.
Fearing stranded costs, retail competition proponents do not want utilities to add new generation that competitive suppliers would provide instead.
Arizonans for Electric Choice and Competition representative Kevin Higgins said divesting utility generation assets and forming an RTO are not steps that need to be taken yet, and his group favors taking "small steps" such as the commission staff has proposed to open a market for customers with loads of 400 kW as an initial threshold size and allow local governments to aggregate smaller customers and procure power for them.
Salt River Project Manager of Regulatory Policy Josh Robertson said customer choice would bring far more complexity and problems than benefits. While Olson pointed to Texas as having a competitive market that Arizona should emulate, Robertson said Texans went from having rates below the national average to paying rates well above that average. He pointed out capacity reserve margins in Texas are at a historical low because generation is not being built to serve peak load.
Phoenix-area utility Salt River Project serves about 1 million customers. Arizona's other major investor-owned electric utilities are Fortis Inc. subsidiaries Tucson Electric Power Co. and UNS Electric Inc.
Dave Lock of the Grand Canyon State Electric Cooperative Association, which represents rural electric cooperatives in Arizona, said the co-ops' main concern is that sophisticated marketers will "cherry pick" large-demand customers such as big-box stores, supermarkets and hotels and leave remaining customers to pay higher costs of service. "In deregulated states, residential customers consistently pay more than in regulated states. Arizona co-ops are opposed to any retail competition," Lock concluded.