Commission to Re-Examine Energy Deregulation

- The Arizona Corporation Commission will take a hard look at the state's deregulated electricity market to see if it still benefits consumers, as promised, and if ratepayers are adequately protected from potential price spikes.

"While I'm not ready to 'pull the plug' on my votes and previous positions, I want to take a closer look at the direction of current Arizona policy," Commission Chairman William Mundell wrote in a letter distributed Wednesday to the commission.

The other two commissioners, Jim Irvin and Marc Spitzer, said they would support such a move.

Mundell said he continues to support the development of competitive markets and acknowledged voting in favor of the rules that deregulated the market. But, he added, "the California experience has given me reason to pause and rethink the concept of restructuring the electric market."

After power shortages, rolling blackouts and skyrocketing prices over the past year, California has backtracked on deregulation. Blackouts were also predicted for Arizona this summer, but prices and power supplies have stabilized.

Arizona's electric market became substantially deregulated in January, when most residents were able to shop for competitively priced electricity. But traditional utilities were the only sellers.

Arizona Public Service Co., which has 850,000 electric customers in Arizona, is now asking the commission to modify an agreement that requires it to seek competitive bids for half its electricity beginning in 2003. Instead, it wants to buy all of its electricity from its own parent company, Pinnacle West Capital Corp., which would own APS' power plants.

The deal represents a partial return to regulation in that it would guarantee Pinnacle West a buyer for its electricity and a way to recover the $1 billion it is investing in new power plants. Pinnacle West would be able to pass along the cost of the plants to APS, which would then pass the costs to customers. The Corporation Commission would determine whether the rates were fair.

Pinnacle West said it needs the change to guarantee consumers a stable supply of electricity at reasonable prices.

But competitors such as Duke Energy, Pacific Gas & Electric and Reliant Energy argue that the change would undermine competition in Arizona.

Meanwhile, the Corporation Commission staff has advocated a "re-evaluation of the (electric competition) rules so a different path can be established for the transition to competition.

Mundell said he would ask interested parties to defend the current plan or offer specific suggestions on how it should be changed.