The “don’t be California or Texas” argument is a red herring./Facebook
Opinion: A company wants to offer 100% renewable energy to Arizona retail electricity customers. The Legislature shouldn’t slam the door on that.
By Robert Robb | Arizona Republic
Around the turn of the century, the Arizona Corporation Commission passed regulations and the Arizona Legislature passed a law for a transition to a competitive retail electricity market.
For a variety of reasons, including a 2004 court case, the full-blown competitive market never materialized. The Legislature is now contemplating completely repealing the competition law (House Bill 2101 and Senate Bill 1631). That would be both a mistake and very bad timing.
The argument in favor of complete repeal is that time has proven that full-blown competitive electricity markets are a bad idea, citing the experiences in California and Texas.
This is based upon a misunderstanding of what happened in those two states. But it is also beside the point. Because of the court case, Phelps Dodge Corp. v. Arizona Electric Power Cooperative, there are sharp limitations on what retail competition in Arizona can look like.
Repeal could thwart a green energy newcomer
However, there is at least one company, Green Mountain Energy, which is willing to negotiate the legal shoals that have been created. It has filed an application with the commission to offer 100% renewable power to retail customers in the service areas of Arizona Public Service and Tucson Electric Power.
The full repeal of the competition statute would close off the legal path the company believes gives it an opening to enter the retail market. It would be a mistake to cut off what would amount to a small pilot project in retail electricity competition.
The Phelps Dodge decision held that, under the state Constitution, the commission couldn’t simply open up the retail market and let the market determine retail rates. The commission had to conduct fair value evaluations of retail providers and set rates for them.
The rates had to be based in part on the fair value determination. And while the commission could set a ban for rates, the ban couldn’t be so elastic as to abdicate the commission’s constitutional duty to establish “just and reasonable rates.”
‘Don’t be California or Texas’ is a red herring
The flaw in California’s design was the requirement that all retailers purchase their power from the spot market. Long-term contracts to smooth out wholesale price fluctuations were forbidden. And the daily auction was poorly designed so it could be gamed. Arizona’s competitive structure never included these flaws.
There were a variety of contributing factors to what occurred more recently in Texas. But with the tight, commission-approved ban that retailers in Arizona must have under the court ruling, the huge spikes in bills to some end customers that Texas experienced also would not be possible in Arizona.
The “don’t be California or Texas” argument is a red herring.
The statutes these bills would completely repeal do contemplate the full-blown retail competitive market that the Phelps Dodge decision precludes. There could be an argument for updating them to reflect those limitations.
