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Eyeing retail choice, Ariz. regulators may renew gas plant moratorium


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Eyeing retail choice, Ariz. regulators may renew gas plant moratorium

As they decide whether to open the state's monopoly utilities to retail competition, Arizona regulators will consider renewing a moratorium that prohibited utilities from building new gas-fired plants.

Those two issues are related because new generation would create more stranded costs that utilities would have to cover even as they no longer serve customers who defect to competitive energy suppliers, if the commission decides to allow customers to choose their own providers.

The Arizona Corporation Commission in March 2018 rejected the integrated resource plans filed by the state's investor-owned utilities, citing a disproportionate reliance on large gas plants to the exclusion of more renewable energy and energy efficiency measures. The commission decreed a moratorium on construction of new gas plants 150 MW or larger and early this year imposed a new moratorium through Aug. 1.

Now the commissioners are considering imposing a third gas-fired plant moratorium because of stranded cost concerns. Commissioner Justin Olson wrote a July 23 letter to fellow commissioners asking them to consider extending the moratorium on self-built utility generation until Jan. 1, 2020, in light of the commission's ongoing consideration of competition and other "energy modernization" policies.

"The moratorium that I propose the Commission consider would continue to allow utilities to purchase energy through competitively acquired power purchase agreements but would prohibit utilities from acquiring or constructing any generating facilities of 150 MW or more without Commission approval," Olson wrote.

The moratoriums were placed on Pinnacle West Capital Corp. subsidiary Arizona Public Service Co., or APS, and Fortis Inc. subsidiaries Tucson Electric Power Co. and UNS Electric Inc. In a preliminary 2019 integrated resource plan filed Aug. 1, APS continued to assert that it needs more gas-fired plants to meet future customer demand, though the company said in the near term it can meet its needs through short-term contracts with existing gas-fired merchant plants.

During an Aug. 7 commission meeting, Olson said new plant construction could lead to stranded costs in a restructured marketplace, but utilities should be allowed to contract for new plant capacity for up to seven years. Commissioner Sandra Kennedy said the moratorium should be extended to power purchase agreements as well.

Retail customer choice investigation to continue

Following the commission's July 30-31 stakeholder meeting to examine opening up the state's electric utility industry, the commissioners directed staff to start organizing working groups and find out whether the commission has enough money to hire an independent consultant to study the issue.

One question is whether a regional transmission organization should be set up to enable customer choice. Kennedy pointed to a 2004 decision by the Maricopa County Superior Court, which ruled that the commission lacks the authority to create an RTO. Saying that he thinks such an independent transmission control entity is unnecessary, Commissioner Boyd Dunn opposed any move that would surrender local control of the energy market to the Federal Energy Regulatory Commission or other out-of-state entity such as the California ISO.

Still during the staff meeting, all commissioners, except Kennedy, voiced support for a vigorous and expeditious examination of retail competition. The commission is revisiting the issue for the third time in the past 25 years, Burns pointed out. "If we investigate this too long, it has the potential for dying on the vine. We need to keep things moving," he said.