Restructuring Map

Fourteen states have full retail electric choice for all utility customers, and seven have partial restructuring. In some cases, states have re-regulated parts of the market that had previously been open to full competition. The Arizona Corporation Commission is considering a move toward restructuring in that state. 

Arizona regulators on July 30 and 31 participated in a thorough discussion of retail electric competition with stakeholders from within the state and around the country at the first of several likely workshops at the Arizona Corporation Commission in Phoenix.

Community choice aggregators from California and others listed the benefits electricity choice could provide Arizona, but an ACC staff director and utilities are less enthusiastic.

“If I had to answer today,” Elijah Abinah, director of the ACC’s utilities division, said at the workshop, “I don’t think opening retail choice to residential customers would be in the public interest.” Abinah encouraged commissioners and stakeholders to bring every possible issue up for consideration. Abinah’s goal, he said, is to develop recommendations for rules that could withstand any legal challenge.

Initial proposed rules, drafted by the ACC’s utility staff, guided the conversation [RE-00000A-18-0405]. While the only consensus to emerge from the initial workshop was that the commission should proceed with caution, stakeholders—with the notable exception of utilities—were largely supportive of pursuing a competitive electricity market in the state.

Commissioners spoke about the potential of a competitive electricity market to draw large employers to the state, but questioned whether residential ratepayers would benefit from retail choice.

Maureen Scott of the ACC’s legal division provided background on retail electric competition in the state. The 2004 Phelps Dodge decision effectively ended Arizona’s early efforts with retail choice when an appellate court determined that many of the state’s original rules governing retail electric competition were unconstitutional. The court, according to Scott’s summary, ruled that creation of an independent system operator or regional transmission organization was not reasonably related to ratemaking and thus not within the ACC’s power to require.

Other states with retail competition are dependent on their RTOs, Scott said, adding that it would not be legally impossible to create one in Arizona. “It would require some creative thinking” and a lot of careful thought to proceed with RTO formation in light of the Phelps Dodge decision, she said.

Other findings in the 2004 decision included the unconstitutionality of the ACC imposing market rates on customers and requiring incumbent utilities to divest of generation resources. “While there are important restrictions that the court imposed [in the Phelps Dodge decision], there are ways that the commission can deal with these restrictions,” Scott said. A benefit of not being the first to do this is the opportunity to study other states as models, she said.

More than a dozen stakeholders, including trade associations, utilities and cooperatives, private energy and consulting firms and others, made presentations to the commission offering perspectives on potential pros and cons of electric restructuring. Consultants with a deep perspective on the effects of restructuring in the mostly Northeastern states advised the commission on best practices to have emerged from those markets amid great change in the energy sector.

Many states with a market for retail competition restrict that marketplace to nonresidential customers, Phil Metzger of the ACC utility division told the commission. Texas, pointed to by many presenters as a restructuring success story, is a notable exception. With the exception of some municipal carve-outs, participation in retail electric choice is mandatory for all Texas electric customers, whether residential or commercial.

The utility division’s proposed rules—merely a starting point for discussion, staff stressed—suggest nonresidential customers with loads above 400 kW be the first allowed to participate in a competitive electric market. A provision would allow smaller nonresidential customers to aggregate their loads to a minimum of 5 MW in order to qualify for participation. Municipalities procuring on behalf of businesses and municipal operations would also be eligible for the aggregation provision, Metzger said.

Data from several states indicate that residential customers often pay more to retail providers than they would have paid an incumbent utility, according to Concentric Energy Advisors and others at the workshop. Several stakeholders also spoke of predatory business practices and inadequate protection for residential customers in restructured states.

Cathy DeFalco, a California Community Choice Association board member and general manager of the California Choice Energy Authority in Lancaster, explained the structure, benefits and her own experience with community choice aggregation to an enthusiastic commission. ACC Chairman Bob Burns was one of several regulators suggesting that community choice aggregation in Arizona could provide an opportunity for residential customers to participate in the benefits of a more open marketplace without taking on undue risk.

CCAs in California are exclusively government entities or “joint-power authorities” consisting of multiple government entities such as municipalities or counties. Local leadership determines the CCA structure, DeFalco explained, by focusing on the priorities of the communities they serve. These priorities range from low rates to increasing renewable generation and access to battery storage. The programs often provide benefits that extend beyond electricity access into the community and the grid itself, DeFalco said. These include distributed resource aggregation and investment in renewable-energy projects that have bolstered economic development.

However, CCAs have created many issues in California, including a rapid disaggregation of utility procurement and planning that has drawn attention and conflict with state regulators in that state.

Arizona’s largest state-regulated utilities, Arizona Public Service and Tucson Electric Power, along with the Grand Canyon State Electric Cooperative Association and AARP, were less confident about moving away from the regulated monopoly utility model.

Michael Patten, representing TEP, said the company’s customers do not seem to be “clamoring for change.” Patten pointed to TEP’s relatively low and stable rates compared with those in restructured states, and said its J.D. Power Residential Utility Customer Satisfaction Survey scores have been on the rise in recent years. TEP has worked with the commission to offer choices in rate structure in recent years, he said, adding that Arizona’s investor-owned utilities have been beating state renewables portfolio standard targets.

Brad Albert, vice president of resource management for APS, pointed to resource adequacy as a major concern in what he referred to in his presentation as a “deregulated” electricity marketplace. The consulting firm Concentric Energy Advisors validated those concerns with the acknowledgment, in their presentation, that restructured markets have been challenged in meeting reliability needs that are determined by market forces rather than regulation.

Reflecting on whether competition could benefit the utility arena in Arizona, Burns suggested that renewable resources and technologies call for revisions to the regulated monopoly structure. “Monopolies are created to serve a mission,” Burns said in his closing remarks, “but as soon as they’re created, the priority shifts from the mission to protecting the structure.”