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Ariz. regulator takes reins with quest to end 'regulatory capture' by APS

Arizona's new top energy regulator has taken the reins of an agency blighted by a string of recent controversies, including alleged ethics violations and claims of undue influence by regulated entities, with a mission to end the "regulatory capture" of the state's largest electric utility, Arizona Public Service Co.

"To me, regulatory capture is a significant risk to the ratepayers and I think we are seeing it here," Arizona Corporation Commission member Bob Burns said in a recent interview before fellow commissioners on Jan. 7 elected him chairman. "There is, I believe, a problem that needs to be addressed."

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Arizona Corporation Commission Chairman Bob Burns.
Source: Associated Press

Burns, the commission's senior member and a Republican, now wields power to set the energy regulatory agenda, which could include reconsideration of the commission's controversial 2017 rate increase for APS. While Burns cast the sole dissenting vote, both he and Commissioner Boyd Dunn, in a Dec. 24, 2018, filing, said they would ask regulatory staff to undertake a "rate review" as one of their "top priorities" to assess whether APS is overearning, based on customer complaints.

The request, which calls on staff to complete the review by May 3, is on the commission's agenda for its Jan. 9 open meeting, its first to be led by Burns.

Burns' ascent comes after a state court in December 2018 dealt a blow to his legal bid to expose the influence of APS and its parent company, Pinnacle West Capital Corp., on the commission. Through his lawsuit, which named APS and fellow commissioners as defendants, Burns sought to force APS to disclose campaign finance records and to investigate his colleagues' potential biases in favor of APS during the 2017 rate case.

'Culture of corruption'

Burns appears to have backing to end APS's alleged "regulatory capture" from Sandra Kennedy, a former commission member and Democrat who in November 2018 was again elected to the commission, and reassert the agency's independence.

"I am here to deliver on my campaign promises to stop the corruption, to stop unjustified rate increases and to lower rates that were unjustly raised, and to make Arizona the solar capitol of the world," Kennedy said at a Jan. 7 swearing-in ceremony. Calling the rate increases for APS part of a "culture of corruption" that had taken root at the commission since she left in 2013, Kennedy applauded Burns' and Dunn's request for a rate review as "a great first step." Going further, Kennedy said she would request a full reopening of the rate case.

As one of her first steps toward "improving transparency," Kennedy plans to ask commission staff to prepare a subpoena to force Pinnacle West and APS "to disclose their dark money spending" in recent election cycles. She also plans to propose an increase in the state's renewable energy standard to 50% by 2028, even after voters soundly rejected a ballot measure to establish that threshold by 2030 with a constitutional amendment. Increasing distributed solar and storage are also "on the table," she added.

At the special meeting on Jan. 7, commissioners also voted to readopt their code of ethics while pushing consideration of proposed amendments to a future meeting. Before the November 2018 elections, Kennedy called for Commissioner Andy Tobin to resign over "a definite breach of commission ethical standards," citing "inappropriate contacts" revealed in text messages with APS lobbyists, first published by the watchdog group the Energy and Policy Institute and obtained through a public records request.

Tobin did not address Kennedy's call for his resignation during a short discussion over ethics, but said he would propose amendments to the code.

In his farewell, outgoing commission Chairman Tom Forese advised commissioners, "Stop texting, just stop." While he said the controversies surrounding the commission had been "sensationalized," he also voiced regrets, especially in his dealings with Burns. "In the last six months, I have gotten to know Commissioner Burns very well, and it has made me regret the time that was wasted as we sparred together," Forese said.

APS, in an emailed statement, said it is committed to "working productively with Chairman Burns and all of the ACC Commissioners to deliver clean, affordable and reliable power." The utility is "ready to roll up our sleeves and work with stakeholders on setting responsible energy plans and policies for our state."