Electric Deregulation

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The Arizona Corporation Commission may be looking at the issue of deregulation for electric utilities again. The commission is taking steps to set up public hearings about the issue. Former commissioner Jeff Hatch-Miller and current commissioner Bob Burns will discuss electric deregulation.

Ted Simons: Deregulation of electrical power markets swept the Nation more than a decade ago. But the effort produced Massive failures, including the infamous Enron case. Now, the Arizona corporation commission is taking early and decidedly cautious steps at what is being called Retail competition in a landscape changed by an increase in power sources outside the regulatory domain of the commission. Here now with more on the future of electric Jeff Hatch-Miller -- also joining us is the current corporation commissioner, Bob Burns. Thank you for joining us.

Bob Burns: Thank you.

Ted Simons: Give us a better definition of electric deregulation.

Jeff Hatch-Miller: It is to designate that certain components of electric delivery, like generation are opened up to outside providers prior to --

Ted Simons: Is that how you see it as well?

Bob Burns: Yeah, well, I think there is -- I need to qualify my statements because I'm in a position of not taking any sides. Now, coming out of the legislature, I used to be able to take sides. But not anymore. This is a different situation. The responsibility of the corporation commissioners is to represent the rate payers. And so, we end up in these issues of people on one side or the other and our responsibility is to represent the rate payers. We want to be able to get the best deal for the rate payer obviously. And there are a number of people out there saying that the way to do that is by retail competition, deregulation, open market, so forth. We have a -- regulated Monopoly, model in place now, and so a transition away from that is going to be a major, major effort. We want to at least take a look, but look very, very closely at it. And study it very, very closely before we make any movements in any direction or the other.

Ted Simons: The idea of the best deal for rate payers, I mean, there is the best deal as to what you pay, and there is the best deal as far as public policy and infrastructure and the whole nine yards. Talk to us more about that.

Jeff Hatch-Miller: Most people want a low rate and reliable service. It is pretty -- reliable service is even more important here in Arizona because of our hot summers. You want to make sure that your air conditioning is going to run pretty much every day. So, the -- as Bob said, the commission's role is to balance the needs of the rate payer and the utilities to make sure that they're getting a fair profit off of their activity. And that balancing act is really important. But for the average user, you know, Joe and Mary, they're basically saying, I'd like to have reliable, affordable electricity.

Ted Simons: And I guess some people would look at this and say is there a problem that deregulation would fix?

Bob Burns: Well, and that's a statement that a lot of people make. What's broke?

Ted Simons: Yes.

Bob Burns: But there is also the other statement, there is always the better mouse trap. And now the pressure that's coming from those people, those organizations, those different types of energy production that are outside of the control of the corporation commission. You've got independents building power stations out there. You've got the solar issue. You've got the wind. All of these other different mechanisms that weren't around when the last debacle happened. It is a different landscape. And so, I think it is imperative that we, the commissioners, representing the rate payers get out in front of this issue. We need to understand as much -- as best we can what the options are out there and then make decisions based on that. This is the reason why we voted to put this into a study category if you will to take a closer look and better know what all is out there, as far as the options are concerned and how it will impact at the bottom line the rate payers.

Ted Simons: Is it a different landscape than back in the California energy crisis/Enron days? That was a debacle and then some. Have things changed?

Jeff Hatch-Miller: Not to my vantage point, no. I mean, there are different forms of generation solar and wind primarily. But the issues are still the same. It is the same group that is coming in and applying pressure. Wanna be electric power brokers, big power users. Mainly deregulation is to help lower prices for big multinational corporations. The big box retailers. The mines, industrial activity. Most -- the average smaller rate payer really isn't in this game. It is a big money deal. And there's lobbyists. In Congress, in the last decade, they spent over $50 million just lobbying this effort in Congress. It is a big money game. People from outside, like Enron did years ago. They came from outside and they wanted a share of the money to be made in the power business. From that vantage point, it's the same group, pretty much identical players, actually, wanting to get back into the power market and sell to the big users of electricity.

Bob Burns: Well, I think there's some additions to that. With all of these rooftop systems that are going into place, as that footprint grows, that has an impact on the utility company's ability to recover the costs of building the plant. And so, that issue is also out there to be -- to be dealt with. I've heard recently in a couple of conferences that I've been at that the development of fuel cells, and if they become successful, there was even the talk of a refrigerator-size fuel cell for the homeowner, which would basically put you almost 100% independent. Now, there is always going to be that back-up system in case of some kind of failure. But -- so those issues need to be rung out, I believe. So we understand as commissioners what works and what will not work. This pressure of the outside entities, fuel cell people, there is talk of a break through possibly. Who knows when -- on batteries which would have a tremendous impact on the rooftop community. If they could have batteries and that all comes back as a smaller base for the utility to operate off of.

Ted Simons: We talked about this before. There may be a new normal coming very quickly as far as utilities are concerned. Especially when you talk about net metering and a variety of other issues that could put lots of homeowners, very independent of whatever is happening with the major utility. Is this just a step toward that direction, or is -- have things not changed in the grand scheme of things that much.

Jeff Hatch-Miller: Fuel cells, we were talking about that back in 2001 and 2003. Same issue. Solar we were talking about. Wind we were talking about. You know, the kinds of issues are the same ones. The same group that is basically in the dialogue. For me, I was a proponent of deregulation back in the late 1990s. I even went to some of the American legislative exchange council meetings where they touted it and met with Enron officials in Washington, D.C., where they touted it. It wasn't until the big meltdown, as you already mentioned, first California, 2000, 2001, basically the electric system in California melted down to the point they were having rolling blackouts all of the time. It was a fiasco. The governor lost his job because of it. Rate payers paying huge rate increases from that. And then Enron. Enron fell apart and it cost hundreds of millions -- billions of dollars to Arizona's -- to America's economy. Those things happen. And to me, I don't see any lessons learned yet that protect us from that downside.

Ted Simons: Is there, from what you've seen so far, and I guess from -- obviously you are studying as opposed to deciding right now, have other states, or other states using these ideas, similar to Arizona? Can you compare and contrast? And how do you keep Enron from happening again?

Bob Burns: Well, I think we obviously have to learn from mistakes that were made. There are other states out there, my understanding Texas and Pennsylvania have some model in place. But that's part of this process. We establish the process to do the study to make sure that we don't get into this situation that happened before. I mean, that's -- and I think everybody on the commission is very, very sensitive to that issue. All of the employees there are sensitive to that issue. That was a big, big mistake. And so, we definitely don't want to make that mistake again. But we do need to be able to understand the developments taking place and a lot of development I believe has taken place. There may be some of the same types of units, solar and fuel cells and so forth, but those things evolve. And at some point, they break through and they become usable and very -- a lot less costly to use. So --

Ted Simons: With that in mind, is it the best scenario that we can find right now for all of us to have these two major utilities with boundaries as -- as the rule for whether or not you use X or Y.

Jeff Hatch-Miller: Rates in Arizona are as low or lower than almost every deregulated state. If you look at the deregulated states, big northeastern industrialized pretty much democrat, governmental controlled states. And their rates are way higher. We pay about 9.5 cents for kilowatt hour here. They are paying 14, 15 cents there. They are primarily the total group of the most expensive states in the nation. Issues we have to resolve. I'm supportive of the commission taking a look at the issue. That's appropriate. I think they're doing a good job to move slowly and cautiously into that. But this has to come down it is not just for the big rate payers. This has to be for Joe, Mary, average little guy in the community.

Ted Simons: Very quickly.

Bob Burns: Well, we put the priority, rate payers to the individual and small business people are in that category of needing the protection, that we are there to provide.

Ted Simons: Very good gentlemen. Good discussion. Good to have you both here.

Jeff Hatch-Miller:Former commissioner, Arizona Corporation Comission;Bob Burns:Current comissioner, Arizona Corporation Commission;

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