Arizona Public Service says deregulation not a good idea

Citing longstanding benefits of reliability, affordability and accountability in the current system, Arizona Public Service told the Arizona Corporation Commission (ACC) that deregulation of the state’s energy market would create uncertainty in the electricity delivery system.

APS, along with other stakeholders, was asked to provide information as the ACC reviews whether it should actively consider the possibility of changing the way Arizona customers receive their electric service with a move to a deregulated market, the utility noted in a July 19 statement.

APS recently put a hold on its planned buy from Southern California Edison of part of the coal-fired Four Corners power plant when the commission in May indicated it wanted to look at the merits of deregulation.

In its filing, APS said:

  • 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  ranks in the top quartile for keeping the power on and minimizing unexpected outages.
  • 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 $500m. With deregulation, these jobs and taxes may go to companies located in other states.

“APS’s mission – to safely and efficiently generate and deliver reliable electric power and related services to our customers – is one we embrace with gravity,” said Don Brandt, President and CEO of APS. “We are proud to be stewards of Arizona’s communities. It is no coincidence that APS is a national leader in every aspect of service reliability and customer service.”

Among the other APS points was that in a deregulated market, the ACC will have to surrender some of its jurisdiction, which by default would go to federal regulators.

Also, in a deregulated market, no one entity is held accountable for making sure there is enough generation to meet the energy needs of customers. 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, APS noted.

Wholesale markets are rife with examples of manipulation, the utility said. Just this month, the Federal Energy Regulatory Commission levied a record $435m fine against British bank Barclays (which Barclays said it will fight) 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.

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, APS argued.

Regulation has stood the test of time, APS said. The national trend for those states that previously deregulated is to reverse course, with 26 states either re-regulating or cancelling plans to deregulate.

Today, Texans are under a constant possibility of rolling blackouts because the deregulated market has not created enough incentives for anyone to build new power plants, APS said. So while the state has seen a population increase, the amount of energy available has remained stagnant.

APS, Arizona’s largest and longest-serving electricity utility, serves more than 1.1 million customers in 11 of the state’s 15 counties. With headquarters in Phoenix, APS is the principal subsidiary of Pinnacle West Capital Corp. (NYSE: PNW).

APS on hold for now on buying bigger stake in Four Corners plant

Pinnacle West Capital first said in a June 17 SEC filing that a decision from Arizona regulators had put on hold its long-planned buy of 48% of each of Units 4 and 5 at the coal-fired Four Corners power plant. APS and Southern California Edison (SCE) have an agreement where APS would purchase SCE’s 48% interest in each of Units 4 and 5 of the Four Corners. SCE needs to get rid of this coal stake to satisfy California greenhouse gas standards.

On May 9, the ACC voted to re-examine the facilitation of a deregulated retail electric market in Arizona. The commission has opened a docket for this matter and set a procedural schedule that call for parties to file comments in July and August. The commission stated that after it has had an opportunity to review the written comments, it plans to convene an open meeting to discuss the issues and information filed in the docket.

“In light of this development, APS currently expects that it will not be in a position to close the Four Corners purchase transaction with SCE until the ACC’s intentions with regard to pursuing deregulation in Arizona become clearer,” said the June 17 SEC filing by APS. “While the process set by the ACC to consider this issue proceeds, APS intends to take action to maintain all necessary regulatory and other approvals required on its behalf to complete the transaction.”

The Four Corners plant consists of five generating units. The first three units, each of which is wholly-owned by APS, went online in 1963-1964 and have a combined capacity of 560 MW. Units 4 and 5, each of which is co-owned by various parties, commenced commercial operation in 1969-1970 and have a combined capacity of 1,540 MW. APS operates Four Corners on behalf of all the participants.

APS has announced that, if APS’s purchase of SCE’s interests in Units 4 and 5 at Four Corners is consummated, it will close Units 1-3 at the plant. These events will change the plant’s overall generating capacity from 2,100 MW to 1,540 MW and APS’s entitlement from the plant from 791 MW to 970 MW.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.