trending Market Intelligence /marketintelligence/en/news-insights/trending/slrJb3SPlEprZpdLFXZ-Ig2 content esgSubNav
In This List

Ariz. regulators take a fresh look at retail competition


Insight Weekly: Earnings learnings; Duke Energy hits back; PE activity surges


Q&A: Data That Delivers - Automating the Credit Risk Workflow


Insight Weekly: Banks' efficiency push; vacuuming carbon; Big Pharma diversity goals


Smart thermostats gain traction in US, point to modest electricity savings

Ariz. regulators take a fresh look at retail competition

SNL Image

Retail competition tends to make prices more volatile, but not necessarily raise them, according to the National Renewable Energy Laboratory.

Source: Associated Press

Arizona utility regulators have once again resolved to examine the pros and cons of opening the state's retail electric monopolies to retail competition, a proposal that has been periodically considered, and each time rejected, since they first opened proceedings in 1994.

More recently, it has been just over five years since the Arizona Corporation Commission last mulled and then decided against allowing electric customers to shop for power. Now, the commissioners will again hear from big electric users, sellers, utilities, cooperatives and consumer representatives supporting and opposing the move. In November, commissioners Robert Burns and Boyd Dunn agreed to co-chair a series of workshops on retail competition as part of a docket that was opened in August on possible modifications to the commission's energy rules on a broad range of issues. (Docket No. RU-00000A-18-0284)

The five commissioners unanimously agreed to examine retail electric competition. Outgoing Commission Chairman Tom Forese, whose term ends on Dec. 31, urged that the workshop series include the investor-owned utilities Pinnacle West Capital Corp. subsidiary Arizona Public Service Co., which is the state's largest utility, as well as Fortis Inc. subsidiaries Tucson Electric Power Co. and UNS Electric Inc.

This is the third time the commission has dealt with the retail competition issue, which has been referred to by various names, including customer choice, retail choice, direct access, deregulation and demonopolization.

The ACC adopted retail electric competition rules in the 1990s that included requiring utilities to divest their generation assets by 2001. The commission in 2002 suspended those rules in response to a lack of competition, and in 2004, after the Arizona Court of Appeals held that the ACC was essentially abdicating its constitutional responsibility to set rates, regulators abandoned their effort to deregulate the utilities.

Retail competition was again raised in May 2013, when one of the retail electricity providers that participated in a 2012 APS pilot for large customers sought to expand its service. Warning that the move could threaten electric service reliability, Pinnacle West and APS argued that retail choice was not in the best interest of its customers. CEO Donald Brandt told investment analysts in August 2013 the ACC would soon decide against retail competition. As he predicted, then-Commission Chairman Bob Stump a few weeks later called a closed session on Sept. 11, 2013, and abruptly ended the inquiry.

Utility opposition

As for the current inquiry, large energy users and marketers have expressed strong support for retail competition, but representatives of APS, the state's Residential Utility Consumer Office, or RUCO, and an association of cooperatives voiced opposition.

At the first workshop, on Dec. 3, Commissioners Justin Olson and Andy Tobin expressed reservations, asking how retail competition has affected rates in states that have allowed it and how it might affect access to competitive services in rural areas. Commissioner-elect Sandra Kennedy took a front-row seat. None of the current commissioners have stated their support for retail customer choice, although Kennedy, who lost a re-election race in 2012 despite backing from the solar industry, has championed retail competition for rooftop solar customers.

APS Vice President of Regulation Barbara Lockwood said her company welcomed the study but is confident the commission will again determine that retail competition is not in the best interest of customers. Experience in other states, she maintained, has repeatedly proven that it's more costly for residential customers to have alternative energy suppliers. Arizona has no independent system operator to manage a competitive market and organizing one would be expensive, she said.

SNL Image

Today, competitive markets account for about a third of U.S. power consumption. Retail competition is fully implemented in 13 states and the District of Columbia. The number of residential customers participating in retail choice programs peaked at 17.2 million customers or 13% of total residential customers, in 2014 and declined to 16.7 million customers in 2017.

In November, Nevada voters defeated a constitutional initiative to end Berkshire Hathaway Energy subsidiary NV Energy Inc.'s monopoly of the retail electric market in that state. Nevada regulators concluded that formation of an organized wholesale market would require an initial cost of about $100 million and $46 million annually to run it, Lockwood said.

Lockwood said experience in other states has repeatedly proven it is more costly for residential customers to have alternative energy suppliers. Lockwood said New York customers paid $820 million more under retail competition over a 30-month period than they would have if they had stayed with their utilities. Houston retail choice customers paid 15% more than municipal and cooperative customers in 2016.

The average retail price of electricity tends to be more volatile in states with full retail markets than in states where utility rates are regulated without retail competition, but there is little evidence that competition actually raises prices, according to a report from the National Renewable Energy Laboratory. Low natural gas prices and new technologies have had a far larger impact on the prices retail customers pay than retail competition, the report found.

A 'low-risk proposition'

Patrick Black, an attorney representing Arizonans for Electric Choice and Competition, which was formed in 1997 to promote electric competition in Arizona and is supported by industrial and large commercial customers, said retail choice would help businesses compete in the world market. Multiple buyers and sellers would exert downward pressure on prices due to competition, he continued.

In a Dec. 5 filing, the group said it was proposing a "low-risk proposition" in which customers would simply have an option for obtaining generation supply through direct access service from competitive providers. Utility service would remain intact and incumbent utilities would remain providers of last resort, the advocacy group said.

Direct access to competitive energy suppliers will give customers pricing options, environmental choices and innovative products that allow them to better manage their energy costs, said Black: "It means helping Arizona businesses compete in world market place, creating and preserving jobs … providing customers the ability to purchase a blend of renewable energy that is tailored to their choice."