Utility: Arizona Transition to Retail Choice Would Cost $1 Billion

A transition to retail electric choice in Arizona would cost in excess of $1 billion, Arizona Public Service told the Arizona Corporation Commission in comments on the ACC's investigation of retail choice.

"Going forward, APS estimates that the costs to transition to restructuring (including RTO participation, utility stranded investment, and utility administrative and operational costs) is likely to exceed $1 billion depending on the type of market structure and the associated rules adopted by the Commission," APS said.

It was unclear if this total was for a statewide transition, or only for the APS territory.

Tucson Electric Power Company said that in TEP's service territory alone, it estimates that customers would need to pay at least $500 million to provide accelerated recovery of stranded utility investment costs incurred since Arizona's last attempted foray into retail competition. "Those costs, combined with the unknown expenses of joining or creating an Independent System Operator ('ISO') or Regional Transmission Operator ('RTO') and other necessary changes, could boost rates in a newly competitive market well above current regulated levels," TEP said.

At a more specific level, APS said that a 2007 study of RTO operations found that the operations and administrative costs to run a full-fledged RTO varied between $0.393 and $0.912 per MWh annually. "Simply assuming the same costs, at an average expense of $0.526 per MWh, to operate and run a RTO in Arizona would approach $40 million per year in new costs," APS said.

TEP also warned that under retail choice, responsibility for resource adequacy would be turned over to an ISO or RTO subject to the jurisdiction of the Federal Energy Regulatory Commission. "If that happened, the [Arizona] Commission would become just one of many litigants in that agency's review processes. In our view, the Companies and other Arizona utilities under the Commission's oversight are in a far better position to make decisions in the long-term best interests of Arizona residents," TEP said.