The Arizona Corporation Commission opened up discussion on deregulating the state’s energy market to allow its residents to shop for electricity in a competitive environment in May. The ACC is accepting comments on the possibility and is planning two public meetings this fall in which it will examine the pros and cons of switching to a deregulated market.
Though the commission has decided to take its time making a decision, utilities seem to be bracing for impact. In fact, Arizona Public Service, which is the largest utility in the state, halted its efforts to purchase more energy for the state. APS planned to buy and retrofit two units of the coal-burning Four Corners Power Plant in New Mexico, but the $600 million project was put on hold, it said, in light of the ACC’s decision to consider energy deregulation.
APS disclosed its decision to pause the project in a filing with the Securities and Exchange Commission in June. It also mentioned its opposition to deregulation, saying it was risky since the current energy structure provided rates that were already lower than the national average.
If the state does become deregulated, APS will lose its status as a regulated monopoly and have to compete with retail providers and potentially lower energy rates. And with the opportunity for residents to switch energy suppliers, the utility could lose much of its customer base and its need to procure large supplies of electricity.
In an interview with the San Jose Mercury News, Nick Drainias, a Goldwater Institute policy adviser, gave his opinion on the matter. “I suspect APS is really saying that the Four Corners plants are uneconomic to run in an environment where the plants might have to compete with lower cost generators from within the state and around the country,” he said.
The deregulation debate in Arizona
In the late 1990s Arizona took its first steps toward becoming a deregulated state. Utilities prepared for competition and started forming companies of their own to sell electricity supply. However, after seeing how other states faired with deregulation, specifically California’s problem with rolling blackouts, Arizona decided to squash its decision. Residential customers never got the opportunity to shop for competitive retail electricity.
But now, more than a decade later, the ACC is willing to consider deregulation again. The Arizona Corporation Commission initiated a pilot program in the APS service area to test out deregulation for its large commercial customers in 2012. The program was limited and participants were chosen through a lottery program. These businesses can purchase power from alternative suppliers and have it delivered by APS.
The ACC is also rethinking deregulating energy markets for residential customers. It said that as deregulation models have evolved in the energy market more competition is fostered and energy prices are lower.
There are different models for deregulation all over the nation. Texas deregulated markets, for example, pushed all residents into electric choice and doesn’t allow the option for default utility service. On the other hand, New York, which has some of the highest electricity rates in the nation, gives consumers the option to choose between the utility and a retail energy supplier.
Those who support deregulating the state believe that Arizona could pick and choose aspects of deregulation that’s worked in other states to be successful. In addition, many think the opportunity to choose among competitive retail suppliers could result in cost savings for Arizona residents and business owners, while others think it’s a change that shouldn’t take place.