Electric Deregulation

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The Arizona Corporation Commission is looking into possibly deregulating the electrical industry, calling it “marketplace competition.” Deregulation proponent Stan Barnes of Copper State consulting and Chuck Coughlin of the Arizona Power Consumers Coalition, which is against deregulation, will discuss the issue.

Ted Simons: Good evening, and welcome to "Arizona Horizon." I'm Ted Simons. The concept of deregulating Arizona's electric industry was considered over a decade ago, but images of Enron put a Quickened to the conversation. Supporters, though, say times have changed and lessoned learned, and so the Arizona corporation commission is again examining the issue. Joining me tonight to discuss deregulation is chuck Coughlin of the Arizona power consumers coalition, an organization opposed to deregulation. And speaking ofN favor is Stan Barnes, of copper state consulting. Good to have you both here. Opposed to deregulation. Why?

Chuck Coughlin: Well, I think we do a good job in Arizona. The incumbent power providers have done a tremendous job of delivering reliable power in a very harsh climate, we've had price stability, the prices that we offer here in the state are below the national average, and it's a diversity of power options that we can choose from and pricing options. I think we can always do better. There's no question about that. It's just deregulating the entire industry upending the way we've done this for 100 years, which is in the constitution of the state, in suggesting there's another way to do it, what's the problem? I think we've done a good job. If there's things we need to do better, let's do it better under the authority we have right now.

Stan Barnes: Chuck asks the right question, what's the problem? Consumers of Arizona are held captive in a monopoly system that doesn't treat them like customers the way every other industry treats its customers. Like telephones of old, like airlines of old, things used to be government sets the price and government tells you what you get to do, then we changed that. And we've got great innovation in telephone and great things like southwest airlines came along because of deregulation in those industries. Consumers in Arizona are leaving a lot on the table. Other states, they're getting things we don't have. They have choices we don't have. Including the overarching choice, which is the choice to not be in the monopoly. That whole dynamic of where I am as a customer versus where I could be changes the relationship there, and puts a downward pressure on prices, which is important to people.

Ted Simons: Market competition, many would say it's always a good thing. Why not a good thing here?

Chuck Coughlin: In a truly competitive open marketplace, that's true, Ted. But what we're talking about here is not requiring another company to come in and build additional generation, or build in a deregulated marketplace additional power lines. There's one line. There's one line that goes to your house. Nobody is suggesting we're going to have to build a brand-new grid. So there has to be ways to fund the reliability of that grid. Again, we live in a harsh desert environment, we have monsoons, the grid is important for delivery of power, but more importantly, I think to the standpoint where we have done deregulation in the electric industry across the country, it's uniformly been a disaster for consumers. I'd say Maryland rates have increased 60%, Pennsylvania rates increased 53%. Illinois rates increased 53%. Texas complaints in-- Consumer complaints increased over 700%. In Texas right now, they're looking at increasing rates for everybody because they've kept rates so low that the market is not set to create additional generation capacity. I would say in this coming month we may be looking at Texas having some brownouts because everybody knows it's not -- You can't just go out and say I'm going to build a new power plant today. Particularly -- That's an important point for Arizona too. We've always lived in Arizona on a diverse set of power supplies, from nuclear, to coal, to solar, to natural gas. And it's always demonstrated that the best market for consumers is where you have a number of choices to choose from in that market. In this market I don't think anybody would ever make an investment in a coal-fired plant right now. Nobody would make an investment in additional nuclear capacity because there's no way that a capital market will say, oh, that's a very great idea. I don't know who's going to service me, but let me put $2.5 billion on the table --

Ted Simons: Is it a different beast we're dealing with in Arizona?

Stan Barnes: No, it's not, but it's worthy of pointing out that the disappointment in this debate is that the utilities which normally stand on fact and legal analysis in the confines of the corporation commission have decided they don't have the facts on their side, and so they've mounted a large political campaign outside of 1200 west Washington where the decisions are made. I've talked to a lawyer who's been there for four decades, and never seen a utility play the populist role outside of the facts on the inside of the building where that decision is taking place. The fear campaign by the other side is unfortunate. Because it is -- It works on people who otherwise don't know how electricity is made, but to get right to your point, no, electricity is not a special animal that has to be treated differently in a monopoly.

Ted Simons: With 60% increase in Maryland, 55 in Illinois, 53 in Pennsylvania, with the corporation commission supposed to be watching out for you, me, and Joe and Mary down the street, how do you explain that?

Stan Barnes: I have explanations for those complex Democratic-led states that had artificial rate caps that stood for five years and when they removed the rate caps, rates went to market. And they went up. That did happen. But that wasn't because of retail competition. That was because of how those rate makers designed the market. In Arizona, we're not going to make the mistake California made. We're not going to make the mistakes they made in New Jersey. But there are things we can do to bring competitive pressures to customers. That's what we're talking about.

Chuck Coughlin: Well, fundamentally we've got a system in place. I like the idea of regulating the utility with state level regulation. Because what we're really talking about here is not a fully deregulated marketplace. That's a misnomer. When you go into the -- When you begin to advocate as Stan does to move away from a state regulated system, you fall under the federal energy regulatory commission. So you get reregulated by those entities under what they call an RTO or an ISO, independent system operator. What you're doing is advocating state control for some federal regulatory control, and you're asking those guys to control the market and to say, that's going to be a competitive market under that system. I just don't find the merit in that. The facts don't support it. I'm disappointed to see Stan says we're moving this big power -- It's not hard to make these arguments, because we have a 100-year history in Arizona of companies that are largely responsible for building the state that we're in right now. We had this competitive system. Would I agree with Stan, we can do better. But do we need to up end the entire structure to create a better answer? I would say no.

Stan Barnes: 15 years ago when we did this the first time, we passed a bill in the legislature, competition is our policy. Which is a good thing. The leaders of Arizona public service and Tucson electric power and Salt River project said, we want to give the benefits of competition to our constituencies. 15 years later nothing's changed. Except the utilities have decided they can stop this before we even get to talk about it. This is an important point for your viewers. Very sophisticated audience who watches "Arizona Horizon," right? We're not going to flip a switch in September or October at the corporation commission and move to competition. What -- I'm hoping they're going to do is vote to step into the rule-making exercise which will take some time and everyone will be at the table. And if it's no good they'll vote it down.

Chuck Coughlin: My concern about that is two of the entities we have in the state are publicly traded companies. We already know there's enormous amount of pressure on the Salt River projects and cap and other institutions on the Navajo generating station. APS has already announced they've suspended further capital investments because of the instability of this debate causes in those markets. I as a businessman am not going to invest tons of money in capital infrastructure if the right -- If the way it's going to be regulated is going to be upended entirely. What I would suggest is, I would hope that the commission does its job. Put this issue to bed, quietly, and work with Stan's organizations, work with people who want to see more competitive rates which want to see the price of peak power. Maybe we overuse peak power. Maybe there's a way to reduce the demand on peak power that we're not using -- That's what our corporation commission is for. That's what our forefathers saw as the sensible way to do it. I don't think that's changed.

Ted Simons: The idea of these other states going this direction, whether they release the caption or whatever happened and the rates increase, regardless of what happened, some would argue that's the true price of energy. And the market made the price and we have to deal with the market. That is what market competition is all about. How do you respond?

Chuck Coughlin: Well, I've heard the Adam Smith, invisible hand of the free market to say -- I just don't believe it's ever existed in electric utility rate settings. As we see in the last couple weeks, we see J.P. Morgan chase has paid $430 million fine for manipulating energy markets. Barclays paid a fine. You see a story on the front page of the "Wall Street Journal" the other day about how Goldman Sachs is hoarding aluminum in factories to artificially manipulate the price of the commodities. That's what happens in a deregulated marketplace. And I fear if we disempower our state and take ourselves -- Take the responsibility away from our Arizona corporation commission, who we elect, that's a mistake.

Stan Barnes: We're not doing this. The sky is not going to fall if customers have a choice. The government doesn't set the price of gasoline. It doesn't set the price of food or housing no. Longer sets the price of an airline ticket. Has no role to play in setting the price of an electron generated. The delivery of the electron, the wires, the transmission, the meter, the billing, you name it, they're still going to regulate that. We're only talking about the generation. Ted, an important point -- If you're in Houston and you buy a house, you don't plug in and pay your bill at the end of the month and hope you have enough money. There are what I call a thousand flowers blooming in Texas. You might have a plan, because you have a lot of people chasing you, that is 100% renewable energy and you can do it with the click of a mouse. Not with a rooftop thing. And there are dozens of other choices we don't have in Arizona.

Ted Simons: 15 years ago wind, solar, fuel cells, all these arguments were way, way out there in the future. We're there now, and they're changing the landscape. Are they changing the landscape enough to say, maybe we look at deregulation?

Chuck Coughlin: I don't think so. I think we can look at all those alternative sources under the current regulatory structure we have. There's no reason why we cannot. What I -- My concern here is in this -- In a de-- divest of our generating capacity, who owns that generating capacity? And my experience is in deregulation, fewer and fewer entities own that. There's fewer airlines today, prices have gone up. There's fewer banks today. Fees have gone up. I'm not naive enough to believe that there's not a lot of financial institutions out there that would look at the Arizona marketplace and say, maybe if I buy 30% of the generating capacity maybe I can control the market? Again, it's not easy to build a new power plant. It's not like something you come in with -- You got to get local zoning, state approval, federal approvals, it just doesn't happen.

Ted Simons: We've got about 30 seconds. We're going all the way back to the beginning. Things seem to be humming along well why change?

Stan Barnes: We're leaving a lot on the table. Things could be better. Competitive pricing and a flurry of option that's come to you. One thing we haven't touched on, companies that have a big power bill might like to control their energy costs so they can expand and have certainty. That's another big indicator.

Ted Simons: Some are arguing that's who's behind the push.

Stan Barnes: There's no secret about that. These companies, large employers in Arizona want control of their energy. Why not?

Chuck Coughlin: I don't know why we couldn't do that under the existing structure. I don't know why you have to throw the baby out with the bath water.

Ted Simons: Great to have you both here. Thank you.

Stan Barnes:Copper State Consulting Group;Chuck Coughlin:Arizona Power Consumers Coalition

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