Arizona Commissioner Questions Usefulness Of Two Commissioners Drafting Retail Electric Choice Rules Prior To Being Informed By Workshop Process

Offers Suggestions For Nine Workshops

September 30, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Arizona Corporation Commissioner Lea Márquez Peterson filed a memo questioning how helpful the drafting of proposed rules for full retail electric choice, as to be undertaken by ACC Chair Bob Burns and Commissioner Justin Olson, will be if such drafting occurs before hearing from stakeholders in a workshop process

As first reported by EnergyChoiceMatters.com, Burns and Olson said that they would begin work on a preliminary rules package for full electric choice.

Márquez Peterson in a memo wrote that, based on the September 11 Staff meeting, "Utilities Division Staff said their understanding was that commissioners would each submit their initial questions on retail electric competition to the docket and that, 'We [Staff] are going to issue these questions to all parties and give them 60-90 days to respond, and then bring all of that back to you [the commissioners] in January and you can direct us [Staff] how to move forward.' It was also decided that an initial workshop would be held in December and that the workshop would center around Staff's research and findings on a national survey of other states' experience with retail electric competition."

Márquez Peterson wrote that, "On September 24, 2019, Chairman Burns and Commissioner Olson issued a letter stating that they will work in parallel with Staff and generate their own, preliminary rules package for issuance in early 2020. While fellow commissioners are obviously free to propose rules packages for consideration at any time, and a package developed by commissioners is preferable, in my opinion, to one developed by Staff without clear direction from a majority of the commissioners, I question how helpful such a package will be if it is proposed before hearing from all stakeholders in the numerous different workshops that will need to be held on this issue."

Márquez Peterson wrote that, "I agree with Commissioner Dunn's statement at the September 11, 2019, Staff Open Meeting where he said, 'I couldn't think of a policy or project that has more magnitude than this one [retail competition]. We are basically restructuring the ACC as we know it.'"

Márquez Peterson further noted that, "As Utilities Division Director Eli Abinah said, 'This is a huge shift. A huge shift in the way business is going to be done.' If we get this wrong, we risk upheaving the entire Arizona economy, and we can't simply tweak the system when the next fiscal year rolls around."

Márquez Peterson wrote that, "As I have begun developing my initial questions on this issue for the docket, it has become even more clear to me how much work we have to do. How many moving pieces there are to this decision. How many legal questions have to be answered. How many stakeholders will have an opinion. And how large the impact of our decision will be. We need to get it right."

"While I think the December workshop provides a logical next step in the process, I also believe numerous additional workshops will be necessary to 'drill down' the scope and direction of the Commission's objectives and gather all the information, testimony, and data necessary to codify our underlying assumptions and make a final and informed policy decision on any particular rules package," Márquez Peterson wrote

"I believe that any workshops we decide to hold should be structured to answer very specific questions, and we should leave those workshops as a Commission that has made concrete decisions, one way or another, on each of the different issues and assumptions that will find their way into any final rules decision," Márquez Peterson wrote

"For instance, we have not even decided as a Commission what we mean by 'retail electric competition' or 'deregulation.' If we held a workshop that explored the different options and hybrids available when discussing competition, I would hope that we would leave that workshop with a majority agreement of: 'Ok, we think it's best to pursue investigation of full retail competition for all customer classes, at all utilities in Arizona.' Or, alternatively, 'This Commission thinks it best to look at limited retail choice for large industrial users.' Or even, 'After further investigation, this Commission does not believe that it is in the best interest of Arizona to continue investigation into retail competition,'" Márquez Peterson wrote.

"These similar 'on the record' votes or statements should be established for dozens of major questions we will need to examine. At that point, it will be clear what we intend to do as a Commission. I alone have hundreds of questions in my head right now on a variety of topics. I imagine all of my fellow commissioners do as well," Márquez Peterson wrote

"To illustrate just how involved this process is, and how thorough I hope we would be in making this decision, I have highlighted a series of potential workshops below structured around the many questions I have that I feel would be of value to this Commission and would help inform any decision I would make. While I encourage stakeholders to answer these questions and provide supplemental information in the docket, I personally find great value -- especially on complex policy issues like retail electric competition -- in holding workshops, where commissioners can witness a live back and forth between parties," Márquez Peterson said

Márquez Peterson's list of potential workshops is as follows:

1. Workshop on 50 state survey (Proposed for December). Other states' research and transition costs & benefits to customers roadblocks type of "dereg" each state was pursuing & why whether each state was or was not connected to other states in regional wholesale markets; and how the political participation of each state has skewed markets in favor of their respective states.

2. Workshop on Natural Monopolies and the Regulatory Compact: Legal discussions on what "natural monopolies" are and what the "regulatory compact" is (is it Generation? Is it Transmission? Is it Wireless Transmission? Is it fleets of Mobile Batteries such as EVs? Is it Distribution?) Policy discussions on what the benefits and drawbacks of "natural monopolies" and "regulatory compacts" are; Legal and policy discussions on what "competitive markets" are and what is required to have a "competitive market," Discussion on what "dereg"; means Is Direct-X "dereg"? Is aggregation "dereg"? Are PPAs "dereg"? Is competitive billing meter reading or customer service "dereg"? Discussion from an accounting/legal/economics perspective regarding which line items on an income statement or balance sheet represent "competitive" expenditures and which line items represent "natural monopoly" expenditures.

3. Workshop on "choice" and what the Commission means by granting customers "choice;" Is it more rate plans offered by existing utilities? Is it more green choice selections, customer polls, and the democratization of rate offerings that our existing utilities provide? Is it opening up "freedom" and allowing any and all of Arizona's customers to directly "choose" any and all combinations of retail electric service providers meter readers billing companies customer service call center providers, generation sources, and/or transmission service providers? Is this in the public interest or not, and if not, then how does the Commission ensure its version of "choice" will be in the public interest? Policy discussion on the outcome of "choice" in the last APS rate case.

4. Workshops on the Commissions Goals & Objectives; Technical and legal discussion on what the types of defined market structures are and what the Commissions possible defined market boundaries could be Policy discussion on what the Commission's desired/intended market structure is and why the Commission wants to pursue such a market structure i.e., what does Arizona gain or lose as a result of each possible market structure, and what is the Commissions ultimate objective in deciding which market structure it should aim for:

• Workshop on RTO's & ISO's generally; what they are, how they work what they require; is this what we want?

• Workshop on Community Choice Aggregation & aggregation generally; what is it; how is it different than coops?

• Workshop on intra-CC&N residential and commercial energy trading and aggregation; what do these enable; what do they require how can customers aggregate their producing power within a CC&N like a "virtual power plant"? How can customers aggregate their buying power within a CC&N like collective bargaining?

5. Workshops on the stakeholders and stakeholder impacts. Who wins & who loses? How do we equalize? Should we equalize?:

• Workshop on urban customers - rate impact & who will serve them, pros/cons; solutions.

• Workshop on rural customers - rate impact & who will serve them; pros/cons; solutions; how to ensure equal service.

• Workshop on tribes - likelihood of building new generation on land; rate impact; who will serve; pros/cons; solutions.

• Workshop on commercial/industrial customers & water companies - rate impact & who will serve them pros/cons

• Workshop on existing utility & merchant plants/ new merchant plants - who will own them, who will they serve, & where will they be built? rate impact; pros/cons; public policy.

• Workshop on coops impact on coops and their customers are they different should they be exempt if so then how?

• Workshop on non-jurisdictional entities; how will they be impacted; what happens if they join/don't join; should they join; should the Commission make them join; can the Commission make them join; would they become jurisdictional entities or not; would jurisdictional entities become non-jurisdictional or not; what would the impact to their ratepayers be; what would the impact to our ratepayers be?

6. Workshops on Commission control and what the Commission is seeking to cede or retain regarding its constitutional authority over resource planning, energy standards, rate setting, consumer protections, and reliability, Legal discussions on each topic, including what constitutional changes would be needed if any for the Commission to legally cede such control; Policy discussions on whether such constitutional changes are or are not in the best interest of the public/stakeholders, and, if so, then for which members of the public/stakeholders, specifically?

• Workshop on energy standards, how were they handled in the past; would they be relevant in a deregulated market?

• Workshop on resource planning; how was this handled in the past; would it still be relevant in a deregulated market?

• Workshop on retail protection/fraud; how can deregulated markets be manipulated; who prosecutes bad actors?

• Workshop on reliability & reserve margin how will blackouts be prevented; who ensures enough power; at what cost?

• Workshop on rate setting how do we overcome Phelps Dodge; are mins and maxes good enough; are we ceding control to FERC? Is the Commission willing to accept rate hikes as a market signal for building reliable and baseload power?

7. Workshop on stranded assets and the expectation of recovery on all divestitures; Legal and policy discussion on the Commission's ultimate goals and whether the Commission is actively seeking to penalize/dismantle incumbent utilities (such as through the implementation of "dereg" without granting recovery on stranded assets) or whether the Commission seeking to find true cost savings for common and low-income customers; if the latter, then how will cost savings be accomplished in light of stranded assets?

8. Workshop on the "free market"; Economic discussion on what a "free market" is and is not; Regulatory discussion on whether deregulated energy markets in other states are or are not true "free markets" and if so or if not then to what degree are they " free markets" and why; Policy discussion on what states/customers/utilities/stakeholders gain or lose by moving to or away from "free markets" in the utility sector; Legal/Policy/or Economic discussion on the "free market of political power" and what it means for States (such as state legislators and PUC's) to be political participants themselves, in a regional "free market"; If Arizona enters the "market," then is it ready and willing to also acknowledge and accept that other States (such as Nevada, Utah, Oregon, etc., and their legislatures and PUCs) could also enter the "market" and likely will give their utilities a competitive advantage over our utilities in Arizona (See for example Illinois subsidizing nuclear in Illinois to the detriment of coal in Ohio).

9. Workshop on final direction of the Commission. Summary of all findings. Remaining questions. Direction to Staff for next steps.

"I understand that we may not schedule all of these workshops or structure them in the way that I have outlined. I simply offer them here as an illustration of the many issues we have yet to address and to highlight the many questions that I would like to see answered. Accordingly, I would hope that this Commission will have a discussion at its next Staff Open Meeting about adopting an aggressive workshop schedule for 2020 that addresses issues such as those I have outlined above. I would also request that parties who wish to provide answers to, or information and materials regarding, the questions and issues I have posed in this letter, respond by October 18, 2019, to be in line with the requests made by Chairman Burns and Commissioner Olson," Márquez Peterson's wrote

Docket RE-00000A-18-0405

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