Arizona Commission Staff: Retail Suppliers Often Entice Customers With "Artificially Low Prices," Hope To Make-up Loss On Renewal Contract Or Book Sale

Arizona Staff Releases Supplemental Research Report On Retail Electric Choice, Cite "Complex" Nature Of Market Design, Reliability, Stranded Costs

February 13, 2020

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Copyright 2010-20 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Utilities Division of the Arizona Corporation Commission have filed a supplemental research report on retail electric competition, which includes an observation concerning what the report calls, "artificially low prices," that are "often" used to entice customers to enroll with a retail supplier

The report largely includes additional information on electric choice in certain jurisdictions not included in Staff's initial report, as well as a discussion on the role of PUCs and RTOs in restructured environments and a review of recent events (see EnergyChoiceMatters.com's story on the initial report here)

The supplemental report makes no determination on the value of retail competition, nor does it make any recommendations for or against restructuring the electric market in Arizona

"While the report does focus on the unique challenges faced in each jurisdiction, the reader should not interpret that the inclusion of such challenges as elements of an argument against retail competition. Their presence is merely to identify the unique nature of each restructuring initiative and perhaps convey to the reader the complex nature of electric market design," the report states

The report does include the following observation: "Electric contracts offered to new customers are often loss leaders using artificially low prices to entice the customer to switch away from their incumbent supplier. If the customer does switch, the new supplier intends to make up for the loss on a renewal contract or include these contracts in a sales book that can then be sold to another retail electric provider, preferably at a profit. However, in the event the customer spurns its renewal contract for a lower-priced contract from a competitor or a sales book is unsold, the supplier is left with a loss."

The report states that it has identified the following as the "key impressions" from states' experiences with electric restructuring:

• The significant time and resources demanded by the restructuring process

• The treatment of stranded costs

• The need for a fully functional wholesale market

• The complex nature of market design

• Maintaining reliability

• The need for consumer protections

The report was filed in Docket RE-00000A-18-0405

See the report here

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