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Arizona Debates Deregulation

More than a decade ago, the Arizona Corporation Commission (ACC) abandoned a plan to enforce electric deregulation in Arizona due to the perceived risks and problems it posed. Now the ACC is revisiting that decision.

As ACC regulators consider the possibility of deregulating retail electricity sales in Arizona, they have now put on hold their plan to purchase a coal-fired power plant in New Mexico.

Arizona Public Service (APS), a Phoenix-based utility, said it was delaying plans to purchase Southern California Edison‘s (SCE) shares of two units of the coal-fired Four Corners Power Plant in northwestern New Mexico and to retrofit the units for emissions compliance.

The project, intended to secure power supply for APS, has a total cost approaching $600 million.

APS said the ACC’s May decision to accept comment on the possibility of deregulation creates uncertainty for the project. Deregulation would dismantle APS’ status as a regulated monopoly.

The ACC is accepting comments on possible deregulation and plans a meeting this fall to discuss the comments and information it receives.”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,” the utility commented.

Proponents of deregulation say competition would force rates down, give customers an array of choices and compel companies to become more efficient. Critics contend that Arizona’s current setup provides low rates and, more significantly, offers reliability while the experience of deregulated states cautions against competition.

Nick Dranias, a Goldwater Institute policy adviser who co-authored a policy paper advocating competition in the energy industry, said APS could be certainly be worried that deregulation would lower power costs.

“I suspect APS is really saying that the Four Corners plants are uneconomic to run in an environment where the plants might have to compete with lower cost generators from within the state and around the country,” said Dranias.

Ultimately, the major issue of discussion is that Arizona can potentially become deregulated. Energy deregulation breaks up the vertical monopoly on electricity and natural gas long held by utility companies. If passed, utilities in Arizona (like APS) will be forced to sell off their means of production and could only profit from distribution and transmission. This then opens the door to retail energy providers, who buy wholesale energy from generation companies to sell to the utility’s customers.

With retail energy providers, the power is then in the hands of the public. Residents and businesses will have an opportunity to select a provider and compare rates they desire – whether fixed, monthly, or even renewable. Want to see whether your state is deregulated? Visit www.compareelectricity.com and enter your zip code to see if rates are available in your area.