Jul 262013

By Nick Worth
Arizona Public Service Company (APS) officials have responded to a May 23 letter issued by the Arizona Corporation Commission (ACC) in which the commission “…expressed a desire to receive and consider comments from any and all interested parties regarding whether it is in the public interest to implement retail electric competition in Arizona.”
The ACC put the deregulation question out at a May 9 meeting, and asked electric industry stakeholders and customers to respond to a list of 18 questions they included in the letter.
Among the questions included were:
* Will retail electric competition reduce rates for all classes of customers–residential, small business, large business and industrial classes?
* In addition to the possibility of reduced rates, identify any and all specific benefits of retail electric competition for each customer class.
* Identify the risks of retail electric competition to residential ratepayers and to the other customer classes. What entity, if any, would be the provider of last resort?
* How can the commission guarantee that there would be no market structure abuses and/or market manipulation in the transition to and implementation of retail electric competition?
* Will electric competition impact reliability? Why, or why not?
* How have retail rates been affected in states that have implemented retail electric competition?
APS replied to the ACC letter with a statement that deregulation of the state’s energy market would create uncertainty in the electricity delivery system.
In a press release the power company cited what it maintains are “long-standing benefits of reliability, affordability and accountability in the current system.”
In its filing, APS noted:
* Arizona’s electricity rates are below market. Electricity rates in the state are lower than the national average and are lower than rates in nearly all deregulated states, according to the U.S. Energy Information Administration.
* APS is reliable. The company ranks in the top quartile for keeping the power on and minimizing unexpected outages.
* APS delivers high quality customer service. In 2013, APS ranked fifth out of 54 large investor-owned utilities for customer satisfaction by J.D. Power & Associates, an independent market research company.
* APS keeps jobs and tax payments in Arizona. APS employs 6,500 and is the state’s largest taxpayer, paying state and local taxes surpassing $500 million. With deregulation, these jobs and taxes may go to companies located in other states.
The APS filing also lists eight reasons why preserving the current system is in the best interest of customers:
* Customers demand affordability. Residential rates in deregulated states are 26 percent higher than those in regulated states, and in 13 of the 17 states that are restructured, rates exceed the national average, according to the U.S. Energy Information Administration.
* Arizona should remain in control of its energy future. In a deregulated market, the ACC would have to surrender some of its jurisdiction, which by default would go to federal regulators.
* Customers demand reliability. In a deregulated market, no one entity is held accountable for making sure there is enough generation to meet the energy needs of customers. Restructured markets have not provided enough financial incentives to spur investment in new generation, increasing the risk of unreliable electric service.
* Resource planning is vital. Deregulation eliminates the integrated resource planning process, which is the only time generation, transmission and fuel supply issues are folded together into one comprehensive analysis and subject to public input.
* Wholesale markets are not working in other areas. Wholesale markets are rife with examples of manipulation. Just this month, the Federal Energy Regulatory Commission levied a record $435 million fine against British bank Barclays and, according to The Wall Street Journal, is weighing an even greater fine against JP Morgan Chase for alleged manipulation of the California and Midwest energy markets. These cases are reminiscent of the California Enron scandal of 2001.
* Arizona will face unique challenges. Along with overcoming the 2004 court decision stating that certain parts of Arizona’s first attempt at deregulation were unconstitutional, any plan to deregulate would require a revamping of the current transmission system.
* Restructuring is expensive. APS estimates restructuring costs would exceed $1 billion, which would eventually be paid for by customers.
* Regulation has stood the test of time. The national trend for those states that previously deregulated is to reverse course, with 26 states either re-regulating or cancelling plans to deregulate.
“Electricity is fundamental to all advanced economies, but in Arizona–the hottest state in America–reliable electric service is literally a life or death necessity,” said Don Brandt, president and Chief Executive Officer of APS. He noted APS has been a reliable provider of electricity since before Arizona achieved statehood.
The press release goes on to say that in Arizona’s regulated market, the state and customers hold APS accountable for making sure there is enough energy generation to meet customer needs. In a deregulated market, energy needs go unfulfilled. This has led to rolling blackouts and higher prices in several deregulated states.
The APS release also raises fears that deregulation would lead to abuses and cites the Enron scandal, in which the energy company allegedly manipulated the energy market in California and limited the amount of energy available to customers. APS also maintains that Texas electricity customers “are under a constant possibility of rolling black-outs because the deregulated market has not created enough incentives for anyone to build new power plants.”
“These types of problems do not occur in Arizona because APS and other state utilities are held responsible by the ACC to ensure the state has enough back-up energy,” the press release states.
The ACC plans to review the responses received and then will schedule an open meeting to discuss the matter. Notice of the meeting time and place can be found on the commission’s website at www.azcc.gov by clicking on the “Public Meetings” icon and looking under the “Special Open Meetings/Workshops” link.
As of Wednesday, no meeting notice had been posted.