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For Arizona, Retail Supplier Recommends Consideration Of Trading Market With, "Energy Pricing High Enough To Ensure That Sufficient Capacity Is Built," With No Explicit Requirement For Providers To Have Capacity

Retail Supplier Recommends "Mandatory" Financial Assurance Requirement In Arizona Retail Choice Rules

February 24, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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Stakeholders filed comments with the Arizona Corporation Commission concerning two draft proposals for retail electric choice from ACC Chairman Robert Burns and Commissioner Justin Olson

See a full discussion of the drafts in's exclusive prior analysis

In comments on the drafts, Direct Energy said, "To ensure that the competitive providers are financially strong, it is recommended that Staff include a minimum performance bond, proof of sufficient credit, or other means to establish adequate capitalization at the time of registration. While the Draft Rules stated that the ACC may require a performance bond, this should be changed to a mandatory requirement with options available to demonstrate financial stability."

As first reported by, the draft rules provide that, "No consumer shall be deemed to have changed providers of any service authorized in this Article (including changes from the Affected Utility to another provider) without written authorization by the consumer for service from the new provider."

The National Energy Marketers Association said that such a written authorization requirement to switch suppliers is, "antiquated and unjustified."

"Other jurisdictions permit telephonic and electronic authorization to switch, in addition to written authorization. A written authorization requirement is also inconsistent with the federal Electronic Signatures Act," NEM said

Also drawing comments were provisions concerning enrollment authorization rules.

Direct Energy sought clarification on a provision related to "inducements"

As first reported by, the drafts set forth certain requirements for written authorizations, including a requirement that, "The authorization shall not contain any inducements[.]"

Direct Energy noted, however, that, "elsewhere in the Draft Rules, it states that providers should provide 'an explanation of sign-up bonuses, limited time offers, other sale promotions and exclusions, if applicable.'"

"It is not clear what would be classified as an 'inducement', competitive providers will provide customers with pricing, services, or other products to meet their needs, so a clarification for what would not be allowed by the ACC should be provided," Direct Energy said

Direct Energy also said that the drafts were unclear on capacity obligations for LSEs

"It is unclear from the Draft Rules if competitive providers will be required to self-provide capacity or if capacity provisions are part of the 'non-competitive services' in both Drafts. In addition, Draft B states that utilities will only procure 'power' from the competitive market. Does this mean that all capacity will continue to be provided by the incumbent utilities, with no opportunity for competition? Or will there be no explicit requirement for providers to have capacity requirements in the future market structure? Development of an independent trading platform ... with energy pricing high enough to ensure that sufficient capacity is built, would be a structure that is recommended for consideration," Direct Energy said

To the extent the ACC does allow the utility to serve in a default supplier role, Direct Energy offered the following "guiding principles" that the ACC should follow when considering incumbent utility engagement in a competitive market:

• "Customers should have to choose. Even if the option is some state regulated price a customer should be required to take an affirmative action to receive that product."

• "Do not allow utilities to pilot products and hoard data. Utilities operating as default providers have 'tested' products before allowing suppliers access to data need to sell products. The result is a throttling of innovation. This had led to claims that customers don't want certain products because a utility failed with a new program."

• "Utility desire to have one foot in and one foot out of the competitive market has let to neglect of their grid. The focus on preventing competition and innovation until the utility can offer similar products has resulted in less and less focus on outages and grid investment. Money has gone into subsidizing rates instead of innovation and resiliency."

NEM sought further specific requirements for the unbundling required under the draft rules

"The rules should contain additional detail on required utility delivery rate unbundling Delivery rate unbundling must encompass more than a mere identification of wholesale energy costs associated with providing default service. It should include the indirect costs of rendering commodity default service. It should include all of the supply management costs (bidding, contracting, hedging, risk management costs, scheduling and forecasting services, and applicable administrative and general expenses) and the administrative costs (billing, collection, education, regulatory, litigation, tariff filings, working capital, information system and associated administrative and general expenses) of providing commodity default service," NEM said

The Grand Canyon State Electric Cooperative Association reiterated its past concerns with retail choice, and identified several major issues left unresolved under the drafts:

• "The proposals do not address Arizona's lack of an Independent System Operator or Regional Transmission Organization, which the stakeholders unanimously agree is a practical necessity to implementation of full retail electric competition."

• "The proposals contain provisions regarding asset divestiture and recovery of stranded costs that may violate the Court of Appeals' decision in Phelps Dodge and/or create an unconstitutional taking."

• "While GCSECA appreciates the inclusion of opt-out provisions for the cooperatives, we believe the better option -- if the Commission moves forward with exploring competition - is to incorporate an opt-in provision similar to the Texas statute, Tex. Util. Code §41.051, which affords cooperatives the option to participate in competition by a majority vote of the cooperative's democratically elected board of directors."

The Arizona State Association of the International Brotherhood of Electrical Workers, AFL-CIO (the IBEW) filed comments stating, "The IBEW does not support either of the ACC's proposed draws. It is the IBEW's position that the current system is not broken. All customers are provided safe and reliable power at low rates."

"The IBEW believes that the changes proposed by the Arizona Corporation Commission ('the ACC') will only benefit the high-power users, leaving the residential customers to pick up the difference in the cost to maintain the power system so that reliable power can be provided. Specifically, the IBEW has four major areas of concern with the proposed changes; the associated cost increases to residential customers, the utilities' ability to provide reliable and stable power, future investments in power generation, and resulting losses in local high quality, good paying employment opportunities," IBEW said

Docket RE-00000A-18-0405

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