Arizona Corporation Commission
DOCKETED
DEC 26 1996
DOCKETED BY CM
BEFORE THE ARIZONA CORPORATION COMMISSION
RENZ D. JENNINGS
Chairman
MARCIA WEEKS
Commissioner
CARL J. KUNASEK
Commissioner
IN THE MATTER OF THE COMPETITION ) DOCKET NO. U-0000-94-165
IN THE PROVISION OF ELECTRIC )
SERVICES THROUGHOUT THE STATE )
OF ARIZONA. ) DECISION NO. 59943
)
)
____________________________________) OPINION AND ORDER
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DATES OF HEARING: December 2, 3 and 4, 1996
PLACES OF PUBLIC Phoenix, Tucson, Yuma, Flagstaff, and
COMMENT: Kingman, Arizona
PRESIDING OFFICERS: Jerry L. Rudibaugh, Jane Rodda, Scott
Wakefield
IN ATTENDANCE: Renz D. Jennings, Chairman
Marcia Weeks, Commissioner
Carl J. Kunasek, Commissioner
APPEARANCES: Mr. Bradford A. Borman, and Mr. Peter
Breen, Staff Attorneys, Legal Division, on
behalf of the Utilities Division of the Arizona
Corporation Commission.
BY THE COMMISSION:
On October 1, 1996, the Utilities Division Staff ("Staff") of the
Arizona Corporation Commission ("Commission") forwarded to the Commission
proposed new rules A.A.C. R14-2-1601 through A.A.C. R14-2-1616 ("Rules" or
"Electric Competition Rules") regarding competitive electric services. By
Decision No. 59870 (October 10, 1996), the Commission directed the Hearing
Division to schedule Public Comment regarding the proposed Rules in Phoenix,
Tucson, Yuma, Flagstaff, and Kingman, Arizona. Our October 11, 1996 Procedural
Order scheduled public comment proceedings on the above-captioned matter on
December 2 in Phoenix, December 3 in Tucson and Yuma, and December
4 in Flagstaff and Kingman. Decision No. 59870 also ordered Staff to forward a
Notice of Proposed Rulemaking ("Notice") to the Office of the Secretary of State
for publication. The Notice was published in the Arizona Administrative Register
on November 1, 1996.
DISCUSSION
----------
The proposed Competitive Electric Rules set forth a framework for the
inevitable transition from a non-competitive to a competitive environment. It
has been a process that has evolved since May 1994 as Staff has held numerous
workshops prior to bringing forth the proposed Rules. Based on the amount of
comments filed and the attendance at each of the public comment proceedings
held, the interest in the proposed Rules is as great as it has been for as any
rules the Commission has promulgated.
Based on the overall comments, we must conclude that all of the parties
have expressed a desire for a more competitive electric market in Arizona. Some
parties, including Arizona Public Service ("APS"), Tucson Electric Power
("TEP"), Citizens Utilities Company ("Citizens"), Salt River Project ("SRP") and
the cooperatives were not as receptive to the proposed Rules as other parties.
That is certainly understandable since, under the proposed Rules, their status
as monopoly providers of electric service will change.
The parties were generally in agreement that competition will provide
the benefit of reduced costs, at least for some consumers. However, there were
concerns raised regarding the quality of service, as well as concerns that not
all customers, particularly residential customers, will receive the benefits of
competition as quickly as some large industrial customers. And of course, the
incumbent utilities were greatly concerned regarding the recoverability of
stranded costs.
While there was general agreement as to the need and inevitability of
competition in the electric field, there were major disagreements over the
implementation of these Rules. The parties identified complex problems such as
the recoverability of stranded investment, intra-state and inter-state
reciprocity, the status of the new Certificates of Convenience and Necessity
("CC&Ns"), and other issues, for which the parties assert the Rules provide
insufficient guidance. Several parties have suggested holding evidentiary
hearings on these issues in order to resolve them before going forward with
these Rules. Other parties, including Staff, have warned against delay in
promulgating
these rules, indicating that the competitive electric market is rapidly
approaching whether these Rules are promulgated or not. We conclude that these
gaps, to the extent that they exist, can be filled in later with workshops,
working groups, subsequent evidentiary hearings, and perhaps subsequent
rulemaking proceedings; while competition is approaching rapidly, the transition
to competition will allow time to address these issues and resolve them in a
timely fashion.
* * * * * * * * * *
Having considered the entire record herein and being fully advised in
the premises, the Commission finds, concludes, and orders that:
FINDINGS OF FACT
----------------
1. On October 1, 1996, Staff filed the proposed Rules regarding
competitive electric services.
2. On October 10, 1996, the Commission issued Decision No. 59870 which
directed the Hearing Division to schedule hearings on the proposed Rules in
Phoenix, Tucson, Yuma, Flagstaff, and Kingman, Arizona.
3. The purpose of the proposed Rules is to provide the Commission with
a framework to open the retail electric market to competition, and to streamline
the regulatory process for setting rates for competitive electric services.
4. The proposed amendments to the Rules are set forth in Appendix A,
attached hereto and incorporated by reference.
5. In accordance with A.R.S. Section 41-1027, a Concise Explanatory
Statement for the proposed Rules is set forth in Appendix B, attached hereto and
incorporated by reference.
6. The economic impact of the proposed Rules is set forth in Appendix
C, attached hereto and incorporated by reference.
7. The Notice of Rulemaking was filed with the Secretary of State and
was published in the Arizona Administrative Register on November 1, 1996.
8. Public Comment sessions were held on December 2, 1996, in Phoenix,
December 3, 1996 in Tucson and Yuma, and December 4, 1996 in Flagstaff and
Kingman, Arizona.
CONCLUSIONS OF LAW
------------------
1. The Commission has authority for the proposed Rules pursuant to the
Arizona Constitution, Article XV, under A.R.S. Sections 40-202, -203, -250,
- -321, -322, -331, -332, -336, 361, -365, -367, and under the Arizona Revised
Statutes, Title 40, generally.
2. Notice of the proceeding has been given in the manner prescribed by
law.
3. Adoption of the proposed Rules is in the public interest.
4. The Concise Explanatory Statement set forth in Appendix B should be
adopted.
ORDER
IT IS THEREFORE ORDERED that the proposed Rules A.A.C. R14-2-1601,
R14-2-1602, R14-2-1603, R14-2-1604, R14-2-1605, R14-2-1606, R14-2-1607,
R14-2-1608, R14-2-1609, R14-2-1610, R14-2-1611, R14-2-1612, R14-2-1613,
R14-2-1614, R14-2-1615, and R14-2-1616, as set forth in Appendix A, and the
Concise Explanatory Statement, as set forth in Appendix B, are hereby adopted.
IT IS FURTHER ORDERED that the Commission=s Utilities Division shall
immediately forward the new Rules A.A.C. R14-2-1601, R14-2-1602, R14-2-1603,
R14-2-1604, R14-2-1605, R14-2-1606, R14-2-1607, R14-2-1608, R14-2-1609,
R14-2-1610, R14-2-1611, R14-2-1612, R14-2-1613, R14-2-1614, R14-2-1615, and
R14-2-1616, to the Secretary of State.
IT IS FURTHER ORDERED that this Decision shall become effective
immediately.
BY ORDER OF THE ARIZONA CORPORATION COMMISSION
Renz D. Jennings Marcia Weeks Carl J. Kunasek
- --------------------------------------------------------------------------------
CHAIRMAN COMMISSIONER COMMISSIONER
IN WITNESS WHEREOF, I, JAMES MATTHEWS,
Executive Secretary of the Arizona Corporation
Commission, have hereunto, set my hand and
caused the official seal of this Commission to
be affixed at the Capitol, in the City of
Phoenix, this 26th day of December , 1996.
Phillip R. Moulton, Deputy
---------------------------------------
for JAMES MATTHEWS
Executive Secretary
DISSENT __________________
GY:DB:KEC: RTW:BAB:mmc
TITLE 14. PUBLIC SERVICE CORPORATIONS; CORPORATIONS AND
ASSOCIATIONS; SECURITIES REGULATIONS
CHAPTER 2. CORPORATION COMMISSION - FIXED UTILITIES
ARTICLE 16. RETAIL ELECTRIC COMPETITION
Section
R14-2-1601. Definitions
R14-2-1602. Filing of Tariffs by Affected Utilities
R14-2-1603. Certificates of Convenience and Necessity
R14-2-1604. Competitive Phases
R14-2-1605. Competitive Services
R14-2-1606. Services Required To Be Made Available by Affected
Utilities
R14-2-1607. Recovery of Stranded Cost of Affected Utilities
R14-2-1608. System Benefits Charges
R14-2-1609. Solar Portfolio Standard
R14-2-1610. Spot Markets and Independent System Operation
R14-2-1611. In-State Reciprocity
R14-2-1612. Rates
R14-2-1613. Service Quality, Consumer Protection, Safety, and
Billing Requirements
R14-2-1614. Reporting Requirements
R14-2-1615. Administrative Requirements
R14-2-1616. Legal Issues
ARTICLE 16. RETAIL ELECTRIC COMPETITION
R14-2-1601. Definitions
In this Article, unless the context otherwise requires:
1. "Affected Utilities" means the following public service corporations
providing electric service:
Tucson Electric Power Company, Arizona Public Service Company, Citizens
Utilities Company, Arizona Electric Power Cooperative, Trico Electric
Cooperative, Duncan Valley Electric Cooperative, Graham County Electric
Cooperative, Mohave Electric Cooperative, Sulphur Springs Valley
Electric Cooperative, Navopache Electric Cooperative, Ajo Improvement
Company, and Morenci Water and Electric Company.
#In the event that modifications are made to existing law that would allow
the application of this Article to the Salt River Project Agricultural
Improvement and Power District ("SRP") then Affected Utilities shall also
include SRP.#
2. "Bundled Service" means electric service provided as a package to the
consumer including all generation, transmission, distribution, ancillary
and other services necessary to deliver and measure useful electric energy
and power to consumers.
3. "Buy-through" refers to a purchase of electricity by an Affected Utility at
wholesale for a particular retail consumer or aggregate of consumers or at
the direction of a particular retail consumer or aggregate of consumers.
4. "Distribution Service" means the delivery of electricity to a retail
consumer through wires, transformers, and other devices that are not
classified as transmission services subject to the jurisdiction of the
Federal Energy Regulatory Commission; Distribution Service excludes meters
and meter reading.
5. "Electric Service Provider" means a company supplying, marketing, or
brokering at retail any of the services described in R14-2-1605 or
R14-2-1606.
6. "Eligible Demand" means the total consumer kilowatts of demand which an
Affected Utility must make available to competitive generation under the
terms of this Article or the consumer kilowatts of demand provided
competitively in an Affected Utility's distribution territory, whichever is
greater.
7. "Standard Offer" means Bundled Service offered to all consumers in a
designated area at regulated rates.
8. "Stranded Cost" means the verifiable net difference between:
a. The value of all the prudent jurisdictional assets and obligations
necessary to furnish electricity (such as generating plants, purchased
power contracts, fuel contracts, and regulatory assets), acquired or
entered into prior to the adoption of this Article, under traditional
regulation of Affected Utilities; and
b. The market value of those assets and obligations directly
attributable to the introduction of competition under this Article.
9. "System Benefits" means Commission-approved utility low income, demand side
management, environmental, renewables, and nuclear power plant
decommissioning programs.
10. "Unbundled Service" means electric service elements provided and priced
separately, including, but not limited to, such service elements as
generation, transmission, distribution, and ancillary services. Unbundled
Service may be sold to consumers or to other Electric Service Providers.
Text between # indicates strikethrough
R14-2-1602. Filing of Tariffs by Affected Utilities
Each Affected Utility shall file tariffs consistent with this Article by
December 31, 1997.
R14-2-1603. Certificates of Convenience and Necessity
A. Any Electric Service Provider intending to supply services described in
R14- 2-1605 or R-14-2-1606, other than services subject to federal
jurisdiction, shall obtain a Certificate of Convenience and Necessity from
the Commission pursuant to this Article; however, a Certificate is not
required to offer information services or billing and collection services.
An Affected Utility does not need to apply for a Certificate of Convenience
and Necessity for any service provided as of the date of adoption of this
Article within its distribution service territory.
B. Any company desiring such a Certificate of Convenience and Necessity shall
file with the Docket Control Center the required number of copies of an
application. Such Certificates shall be restricted to geographical areas
served by the Affected Utilities as of the date this Article is adopted and
to service areas added under the provisions of R14-2-1611. In support of
the request for a Certificate of Convenience and Necessity, the following
information must be provided:
1. A description of the electric services which the applicant intends to
offer;
2. The proper name and correct address of the applicant, and
a. The full name of the owner if a sole proprietorship,
b. The full name of each partner if a partnership,
c. A full list of officers and directors if a corporation, or
d. A full list of the members if a limited liability corporation;
3. A tariff for each service to be provided that states the maximum rate
and terms and conditions that will apply to the provision of the
service;
4. A description of the applicant's technical ability to obtain and
deliver electricity and provide any other proposed services;
5. Documentation of the financial capability of the applicant to provide
the proposed services, including the most recent income statement and
balance sheet, the most recent projected income statement, and other
pertinent financial information. Audited information shall be provided
if available;
6. A description of the form of ownership (e.g., partnership,
corporation);
7. Such other information as the Commission or the Staff may request.
C. At the time of filing for a Certificate of Convenience and Necessity, each
applicant shall notify the Affected Utilities in whose service territories
it wishes to offer service of the application by serving a complete copy of
the application on the Affected Utilities.
D. The Commission may deny certification to any applicant who:
1. Does not provide the information required by this Article;
2. Does not possess adequate technical or financial capabilities to
provide the proposed services;
3. Fails to provide a performance bond, if required.
E. Every Electric Service Provider obtaining a Certificate of Convenience and
Necessity under this Article shall obtain certification subject to the
following conditions:
1. The Electric Service Provider shall comply with all Commission rules,
orders,
and other requirements relevant to the provision of electric service
and relevant to resource planning;
2. The Electric Service Provider shall maintain accounts and records as
required by the Commission;
3. The Electric Service Provider shall file with the Director of the
Utilities Division all financial and other reports that the Commission
may require and in a form and at such times as the Commission may
designate;
4. The Electric Service Provider shall maintain on file with the
Commission all current tariffs and any service standards that the
Commission shall require;
5. The Electric Service Provider shall cooperate with any Commission
investigation of customer complaints;
6. The Electric Service Provider shall obtain all necessary permits and
licenses;
7. Failure to comply with any of the above conditions may result in
recision of the Electric Service Provider's Certificate of Convenience
and Necessity.
F. In appropriate circumstances, the Commission may require, as a precondition
to certification, the procurement of a performance bond sufficient to cover
any advances or deposits the applicant may collect from its customers, or
order that such advances or deposits be held in escrow or trust.
R14-2-1604. Competitive Phases
A. Each Affected Utility shall make available at least 20 percent of its 1995
system retail peak demand for competitive generation supply to all customer
classes (including residential and small commercial consumers) not later
than January 1, 1999. If data permit, coincident annual peak demand shall
be used; otherwise noncoincident peak data may be used.
1. No more than 1/2 of the Eligible Demand may be procured by consumers,
each of whose total competitive contract demand is greater than 3 MW.
2. At least 15% of the Eligible Demand shall be reserved for residential
consumers.
3. Aggregation of loads of multiple consumers shall be permitted.
B. Each Affected Utility shall make available at least 50% of its 1995
system retail peak demand for competitive generation supply to all customer
classes (including residential and small commercial consumers) not later
than January 1, 2001. If data permit, coincident peak annual demand shall
be used; otherwise noncoincident peak data may be used.
1. No more than 1/2 of the Eligible Demand may be procured by consumers,
each of whose total competitive contract demand is greater than 3 MW.
2. At least 30 % of the Eligible Demand shall be reserved for residential
consumers.
3. Aggregation of loads of multiple consumers shall be permitted.
C. Prior to 2001, no single consumer shall receive more than 20% of the
Eligible Demand in a given year in an Affected Utility's service territory.
D. Each Affected Utility shall make available all of its retail demand for
competitive generation supply not later than January 1, 2003.
E. By the date indicated in R14-2-1602, Affected Utilities shall propose for
Commission review and approval how customers will be selected for
participation in the competitive market prior to 2003.
1. Possible selection methods are first-come, first-served; random
selection via a lottery among volunteering consumers; or designation of
geographic areas.
2. The method for selecting customers to participate in the competitive
market must fairly allow participation by a wide variety of customers
of all sizes of loads.
3. All customers who produce or purchase at least 10% of their annual
electricity consumption from photovoltaic or solar thermal resources
installed in Arizona after January 1, 1997 shall be selected for
participation in the competitive market if those customers apply for
participation in the competitive market. Such participants count toward
the minimum requirements in R14-2- 1604(A) and R14-2-1604(B).
4. The Commission Staff shall commence a series of workshops on selection
issues within 45 days of the adoption of this Article and Staff shall
submit a report to the Commission discussing the activities and
recommendations of participants in the workshops. The report shall be
due not later than 90 days prior to the date indicated in R14-2-1602.
F. Retail consumers served under existing contracts are eligible to
participate in the competitive market prior to expiration of the existing
contract only if the Affected Utility and the consumer agree that the
retail consumer may participate in the competitive market.
G. An Affected Utility may engage in Buy-throughs with individual or
aggregated consumers. Any contract for a Buy-through effective prior to the
date indicated in R14-2-1604(A) must be approved by the Commission.
H. Schedule Modifications for Cooperatives
1. An electric cooperative may request that the Commission modify the
schedule described in R14-2-1604(A) through R14-2-1604(D) so as to
preserve the tax exempt status of the cooperative or to allow time to
modify contractual arrangements pertaining to delivery of power
supplies and associated loans.
2. As part of the request, the cooperative shall propose methods to
enhance consumer choice among generation resources.
3. The Commission shall consider whether the benefits of modifying the
schedule exceed the costs of modifying the schedule.
R14-2-1605. Competitive Services
A properly certificated Electric Service Provider may offer any of the following
services under bilateral or multilateral contracts with retail consumers:
A. Generation of electricity from generators at any location whether owned by
the Electric Service Provider or purchased from another generator or
wholesaler of electric generation.
B. Any service described in R14-2-1606, except Distribution Service and except
services required by the Federal Energy Regulatory Commission to be
monopoly services. Billing and collection services and information services
do not require a
Certificate of Convenience and Necessity.
R14-2-1606. Services Required To Be Made Available by Affected Utilities
A. Until the Commission determines that competition has been substantially
implemented for a particular class of consumers (residential, commercial,
industrial) so that all consumers in that class have an opportunity to
participate in the competitive market, and until all Stranded Costs
pertaining to that class of customers have been recovered, each Affected
Utility shall make available to all consumers in that class in its service
area, as defined on the date indicated in R14-2-1602, Standard Offer
bundled generation, transmission, ancillary, distribution, and other
necessary services at regulated rates.
1. An Affected Utility may request that the Commission determine that
competition has been substantially implemented to allow discontinuation
of Standard Offer service and shall provide sufficient documentation to
support its request.
2. The Commission may, on its own motion, investigate whether competition
has been substantially implemented and whether Standard Offer service
may be discontinued.
B. Standard Offer Tariffs
1. By the date indicated in R14-2-1602, each Affected Utility may file
proposed tariffs to provide Standard Offer Bundled Service and such
rates shall not become effective until approved by the Commission. If
no such tariffs are filed, rates and services in existence as of the
date in R14-2-1602 shall constitute the Standard Offer.
2. Affected Utilities may file proposed revisions to such rates. It is the
expectation of the Commission that the rates for Standard Offer
service will not increase, relative to existing rates, as a result of
allowing competition. Any rate increase proposed by an Affected Utility
for Standard Offer service must be fully justified through a rate case
proceeding.
3. Such rates shall reflect the costs of providing the service.
4. Consumers receiving Standard Offer service are eligible for future rate
reductions authorized by the Commission, such as reductions authorized
in Decision No. 59601.
C. By the date indicated in R14-2-1602, each Affected Utility shall file
Unbundled Service tariffs to provide the services listed below to all
eligible purchasers on a nondiscriminatory basis:
1. Distribution Service;
2. Metering and meter reading services;
3. Billing and collection services;
4. Open access transmission service (as approved by the Federal Energy
Regulatory Commission, if applicable);
5. Ancillary services in accordance with Federal Energy Regulatory
Commission Order 888 (III FERC Stats. & Regs. P. 31,036, 1996)
incorporated herein by reference;
6. Information services such as provision of customer information to other
Electric Service Providers;
7. Other ancillary services necessary for safe and reliable system
operation.
D. To manage its risks, an Affected Utility may include in its tariffs deposit
requirements and advance payment requirements for Unbundled Services.
E. The Affected Utilities must provide transmission and ancillary services
according to the following guidelines:
1. Services must be provided consistent with applicable tariffs filed with
the Federal Energy Regulatory Commission.
2. Unless otherwise required by federal regulation, Affected Utilities
must accept power and energy delivered to their transmission systems by
others and offer transmission and related services comparable to
services they provide to
themselves.
F. Customer Data
1. Upon authorization by the customer, an Electric Service Provider shall
release in a timely and useful manner that customer's demand and energy
data for the most recent 12 month period to a customer-specified
Electric Service Provider.
2. The Electric Service Provider requesting such customer data shall
provide an accurate account number for the customer.
3. The form of data shall be mutually agreed upon by the parties and such
data shall not be unreasonably withheld.
G. Rates for Unbundled Services
1. The Commission shall review and approve rates for services listed in
R14-2-1606(C) and requirements listed in R14-2-1606(D), where it has
jurisdiction, before such services can be offered.
2. Such rates shall reflect the costs of providing the services.
3. Such rates may be downwardly flexible if approved by the Commission.
H. Electric Service Providers offering services under this R14-2-1606 shall
provide adequate supporting documentation for their proposed rates. Where
rates are approved by another jurisdiction, such as the Federal Energy
Regulatory Commission, those rates shall be provided to this Commission.
I. Within 90 days of the adoption of this Article, the Commission Staff shall
commence a series of workshops to explore issues in the provision of
Unbundled Service and Standard Offer service.
1. Parties to be invited to participate in the workshops shall include
utilities, consumers, organizations promoting energy efficiency, and
other Electric Service Providers.
2. Among the issues to be reviewed in the workshops are: metering
requirements; metering protocols; designation of appropriate test
years; the nature of adjustments to test year data; de-averaging of
rates; service characteristics such as voltage levels; revenue
uncertainty; line extension policies; and the need for performance
bonds.
3. A report shall be submitted to the Commission by the Staff on the
activities and recommendations of the participants in the workshops not
later than 60 days prior to the date indicated in R14-2-1602. The
Commission shall consider any recommendations regarding Unbundled
Service and Standard Offer service tariffs.
R14-2-1607. Recovery of Stranded Cost of Affected Utilities
A. The Affected Utilities shall take every feasible, cost-effective measure to
mitigate or offset Stranded Cost by means such as expanding wholesale or
retail markets, or offering a wider scope of services for profit, among
others.
B. The Commission shall allow recovery of unmitigated Stranded Cost by
Affected Utilities.
C. A working group to develop reccomendations for the analysis and recovery of
Stranded Cost shall be established.
1. The working group shall commence activities within 15 days of the date
of adoption of this Article.
2. Members of the working group shall include representatives of Staff,
the Residential Utility Consumer Office, consumers, utilities, and
other Electric Service Providers. In addition, the Executive and
Legislative Branches shall be invited to send representatives to be
members of the working group.
3. The working group shall be coordinated by the Director of the Utilities
Division of the Commission or by his or her designee.
D. In developing its recommendations, the working group shall consider at
least the following factors:
1. The impact of Stranded Cost recovery on the effectiveness of
competition;
2. The impact of Stranded Cost recovery on customers of the Affected
Utility who do not participate in the competitive market;
3. The impact, if any, on the Affected Utility's ability to meet debt
obligations;
4. The impact of Stranded Cost recovery on prices paid by consumers who
participate in the competitive market;
5. The degree to which the Affected Utility has mitigated or offset
Stranded Cost;
6. The degree to which some assets have values in excess of their book
values;
7. Appropriate treatment of negative Stranded Cost;
8. The time period over which such Stranded Cost charges may be recovered.
The Commission shall limit the application of such changes to a
specified time period;
9. The ease of determining the amount of Stranded Cost;
10. The applicability of Stranded Cost to interruptible customers;
11. The amount of electricity generated by renewable generating resources
owned by the Affected Utility.
E. The working group shall submit to the Commission a report on the activities
and recommendations of the working group no later than 90 days prior to the
date indicated in R14-2-1602.
F. The Commision shall consider the recommendations and decide what actions,
if any, to take based on the recommendations.
G. The Affected Utilities shall file estimates of unmitigated Stranded Cost.
Such estimates shall be fully supported by analyses and by records of
market transactions undertaken by willing buyers and willing sellers.
H. An Affected Utility shall request Commission approval of distribution
charges or other means of recovering unmitigated Stranded Cost from
customers who reduce or terminate service from the Affected Utility as a
direct result of competition governed by this Article, or who obtain lower
rates from the Affected Utility as a direct result of the competition
governed by this Article.
I. The Commission shall, after hearing and consideration of analyses and
recommendations presented by the Affected Utilities, Staff, and
intervenors, determine for each Affected Utility the magnitude of Stranded
Cost, and appropriate Stranded Cost recovery mechanisms and charges. In
making its determination of mechanisms and charges, the Commission shall
consider at least the following factors:
1. The impact of Stranded Cost recovery on the effectiveness of
competition;
2. The impact of Stranded Cost recovery on customers of the Affected
Utility who do not participate in the competitive market;
3. The impact, if any, on the Affected Utility's ability to meet debt
obligations;
4. The impact of Stranded Cost recovery on prices paid by consumers who
participate in the competitive market;
5. The degree to which the Affected Utility has mitigated or offset
Stranded Cost;
6. The degree to which some assets have values in excess of their book
values;
7. Appropriate treatment of negative Stranded Cost;
8. The time period over which such Stranded Cost charges may be recovered.
The Commission shall limit the application of such charges to a
specified time period;
9. The ease of determining the amount of Stranded Cost;
10. The applicability of Stranded Cost to interruptible customers;
11. The amount of electricity generated by renewable generating resources
owned by the Affected Utility.
J. Stranded Cost may only be recovered from customer purchases made in the
competitive market using the provisions of this Article. Any reduction in
electricity purchases from an Affected Utility resulting from
self-generation, demand side management, or other demand reduction
attributable to any cause other than the retail access provisions of this
Article shall not be used to calculate or recover any Stranded Cost from a
consumer.
K. The Commission may order an Affected Utility to file estimates of Stranded
Cost and mechanisms to recover or, if negative, to refund Stranded Cost.
L. The Commission may order regular revisions to estimates of the magnitude of
Stranded Cost.
R14-2-1608. System Benefits Charges
A. By the date indicated in R14-2-1602, each Affected Utility shall file for
Commission review non-bypassable rates or related mechanisms to recover the
applicable pro-rata costs of System Benefits from all consumers located in
the Affected Utility's service area who participate in the competitive
market. In addition, the Affected Utility may file for a change in the
System Benefits charge at any time. The amount collected annually through
the System Benefits charge shall be sufficient to fund the Affected
Utilities' present Commission-approved low income, demand side management,
environmental, renewables, and nuclear power plant decommissioning
programs.
B. Each Affected Utility shall provide adequate supporting documentation for
its proposed rates for System Benefits.
C. An Affected Utility shall recover the costs of System Benefits only upon
hearing and approval by the Commission of the recovery charge and
mechanism. The Commission may combine its review of System Benefits charges
with its review of filings pursuant to R14-2-1606.
D. Methods of calculating System Benefits charges shall be included in the
workshops described in R14-2-1606(I).
R14-2-1609. Solar Portfolio Standard
A. Starting on January 1, 1999, any Electric Service Provider selling
electricity under the provisions of this Article must derive at least 1/2
of 1% of the total retail energy sold competitively from new solar
resources, whether that solar energy is purchased or generated by the
seller. Solar resources include photovoltaic resources and solar thermal
resources that generate electricity. New solar resources are those
installed on or after January 1, 1997.
B. Solar portfolio standard after December 31, 2001:
1. Starting on January 1, 2002, any Electric Service Provider selling
electricity under the provisions of this Article must derive at least
1% of the total retail energy sold competitively from new solar
resources, whether that solar energy is purchased or generated by the
seller. Solar resources include photovoltaic resources and solar
thermal resources that generate electricity. New solar resources are
those installed on or after January 1, 1997.
2. The Commission may change the solar portfolio percentage applicable
after December 31, 2001, taking into account, among other factors, the
costs of producing solar electricity and the costs of fossil fuel for
conventional power plants.
C. Any Electric Service Provider certificated under the provisions of this
Article shall be able to credit 2 times the electric energy it generated,
or caused to be generated under contract, before January 1, 1999 using
photovoltaics or solar thermal resources installed on or after January 1,
1997 in Arizona to the electric energy requirements of R14-2-1609(A) or
R14-2-1609(B).
D. Electric Service Providers selling electricity under the provisions of this
Article shall provide reports on sales and solar power as required in this
Article, clearly demonstrating the output of solar resources, the
installation date of solar resources, and the transmission of energy from
those solar resources to Arizona consumers. The Commission may conduct
necessary monitoring to ensure the accuracy of these data.
E. If an Electric Service Provider selling electricity under the provisions of
this Article fails to meet the requirement in R14-2-1609(A) or
R14-2-1609(B) in any year, the Commission may impose a penalty on that
Electric Service Provider up to
$0.30 per kWh for deficiencies in the provision of solar energy. In
addition, if the provision of solar energy is consistently deficient, the
Commission may void an Electric Service Provider's contracts negotiated
under this Article.
F. Photovoltaic or solar thermal resources that are located on the consumer's
premises shall count toward the solar portfolio standard applicable to the
current Electric Service Provider serving that consumer.
G. The solar portfolio standard described in this section is in addition to
renewable resource goals for Affected Utilities established in Decision No.
58643.
R14-2-1610. Spot Markets and Independent System Operation
A. The Commission shall conduct an inquiry into spot market development and
independent system operation for the transmission system.
B. The Commission may support development of a spot market or independent
system operator(s) for the transmission system.
C. The Commission may work with other entities to help establish spot markets
and independent system operators.
R14-2-1611. In-State Reciprocity
A. The service territories of Arizona electric utilities which are not
Affected Utilities shall not be open to competition under the provisions of
this Article, nor shall Arizona electric utilities which are not Affected
Utilities be able to compete for sales in the service territories of the
Affected Utilities.
B. An Arizona electric utility, subject to the jurisdiction of the Commission,
which is not an Affected Utility may voluntarily participate under the
provisions of this Article if it makes its service territory available for
competing sellers, if it agrees to all of the requirements of this Article,
and if it obtains an appropriate Certificate of Convenience and Necessity.
#C. The Commission shall pursue, on its own or in cooperation whith the Joint
Legislative Study Committe on Electric Industry Competition established by
House Bill 2504 (1996), legislation to address the role of electric
utilities of Arizona political subdivisions or municipal corporations in a
competitive market. The Commission shall further make available, as
appropriate, Staff assistance to the Legislature if the Legislature
requests such assistance for the purpose of determining the proper role of
electric utilities of Arizona political subdivisions or municipal
corporations in a competitive market.
D. An Arizona electic utility, not subject to the jurisdiction of the
Commission, which is not an Affected Utility, may voluntarily participate
under the provisions of this Article if it makes its service territory
available for competing sellers, if it agrees to all of the requirements of
this Article other than any requirement to obtain a Certificate of
Convenience and Necessity, if adequate enforcement mechanisms can be
established, and if all other Affected Utilities consent in writing.#
C. An Arizona electric utility, not subject to the jurisdiction of the
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Commission, may submit a statement to the Commission that it voluntarily
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opens its service territory for competing sellers in a manner similar to
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the provisions of this Article. Such statement shall be accompanied by the
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electric utility's nondiscriminatory Standard Offer Tariff, electric supply
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tariffs, Unbundled Services rates, Stranded Cost charges, System Benefits
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charges, Distribution Services charges and any other applicable tariffs and
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policies for services the electric utility offers for which these Rules
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otherwise require compliance by Affected Utilities or Electric Service
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Providers. Such filings shall serve as authorization for such electric
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utility to utilize the Commission's Rules of Practice and Procedure and
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other applicable Rules concerning any complaint that an Affected Utility or
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#Text between # indicates strikethrough
Electric Service Provider is violating any provision of this Article or is
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otherwise discriminating against the filing electric utility or failing to
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provide just and reasonable rates in tariffs filed under this Article.
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D. If an electric utility is an Arizona political subdivision or municipal
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corporation, then the existing service territory of such electric utility
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shall be deemed open to competition if the political subdivision or
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municipality has entered into an intergovernmental agreement with the
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Commission that establishes nondiscriminatory terms and conditions for
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Distribution Services and other Unbundled Services, provides a procedure
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for complaints arising therefrom, and provides for reciprocity with
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Affected Utilities. The Commission shall conduct a hearing to consider any
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such intergovernmental agreement.
R14-2-1612. Rates
A. Market determined rates for competitively provided services as defined in
R14-2-1605 shall be deemed to be just and reasonable.
B. Each Electric Service Provider selling services under this Article shall
have on file with the Commission tariffs describing such services and
maximum rates for those services, but the services may not be provided
until the Commission has approved the tariffs.
C. Prior to the date indicated in R14-2-1604(D), competitively negotiated
contracts governed by this Article customized to individual customers which
comply with approved tariffs do not require further Commission approval.
However, all such
contracts whose term is one year or more and for service of 1 MW or more
must be filed with the Director of the Utilities Division as soon as
practicable. If a contract does not comply with the provisions of this
Article it shall not become effective without a Commission order.
D. Contracts entered into on or after the date indicated in R14-2-1604(D)
which comply with approved tariffs need not be filed with the Director of
the Utilities Division. If a contract does not comply with the provisions
of this Article it shall not become effective without a Commission order.
E. An Electric Service Provider holding a Certificate pursuant to this Article
may price its competitive services, as defined in R14-2-1605, at or below
the maximum rates specified in its filed tariff, provided that the price is
not less than the marginal cost of providing the service.
F. Requests for changes in maximum rates or changes in terms and conditions of
previously approved tariffs may be filed. Such changes become effective
only upon Commission approval.
R14-2-1613. Service Quality, Consumer Protection, Safety, and Billing
Requirements
A. Except as indicated elsewhere in this Article, R14-2-201 through R14-2-212,
inclusive, are adopted in this Article by reference. However, where the
term "utility" is used in R14-2-201 through R14-2-212, the term "utility"
shall pertain to Electric Service Providers providing the services
described in each paragraph of R14-2-201 through R14-2-212. R14-2-212(G)(2)
shall pertain only to Affected Utilities. R14-2-212(G)(4) shall apply only
to Affected Utilities. R14-2-212(H) shall pertain only to Electric Service
Providers who provide distribution service.
B. The following shall not apply to this Article:
1. R14-2-202 in its entirety,
2. R14-2-212(F)(1),
3. R14-2-213.
C. No consumer shall be deemed to have changed suppliers of any service
authorized in this Article (including changes from supply by the Affected
Utility to another supplier) without written authorization by the consumer
for service from the new supplier. If a consumer is switched to a different
("new") supplier without such written authorization, the new supplier shall
cause service by the previous supplier to be resumed and the new supplier
shall bear all costs associated with switching the consumer back to the
previous supplier.
D. Each Electric Service Provider providing service governed by this Article
shall be responsible for meeting applicable reliability standards and shall
work cooperatively with other companies with whom it has interconnections,
directly or indirectly, to ensure safe, reliable electric service.
E. Each Electric Service Provider shall provide at least 30 days notice to all
of its affected consumers if it is no longer obtaining generation,
transmission, distribution, or ancillary services necessitating that the
consumer obtain service from another supplier of generation, transmission,
distribution, or ancillary services.
F. All Electric Service Providers rendering service under this Article shall
submit accident reports as required in R14-2-101.
G. An Electric Service Provider providing firm electric service governed by
this Article shall make reasonable efforts to reestablish service within
the shortest possible time when service interruptions occur and shall work
cooperatively with other companies to ensure timely restoration of service
where facilities are not under the control of the Electric Service Provider
H. Each Electric Service Provider shall ensure that bills rendered on its
behalf include the toll free telephone numbers for billing, service, and
safety inquiries and the telephone number of the Consumer Services Section
of the Arizona Corporation Commission Utilities Division. Each Electric
Service Provider shall ensure that billing and collection services rendered
on its behalf comply with R14-2-1613(A) and R14-2- 1613(B).
I. Additional Provisions for Metering and Meter Reading Services
1. An Electric Service Provider who provides metering or meter reading
services pertaining to a particular consumer shall provide access to
meter readings to other Electric Service Providers serving that same
consumer.
2. A consumer or an Electric Service Provider relying on metering
information provided by another Electric Service Provider may request a
meter test according to the tariff on file and approved by the
Commission. However, if the meter is found to be in error by more than
3%, no meter testing fee will be charged.
3. Protocols for metering shall be developed subsequent to the workshops
described in R14-2-1606(I).
J. Working Group on System Reliability and Safety:
1. If it has not already done so, the Commission shall establish, by
separate order, a working group to monitor and review system
reliability and safety.
a. The working group may establish technical advisory panels to
assist it.
b. The working group shall commence activities within 15 days of the
date of adoption of this Article.
c. Members of the working group shall include representatives of
Staff, consumers, the Residential Utility Comsumer Office,
utilities, other Electric Service Providers and organizations
promoting energy efficiency. In addition, the Executive and
Legislative Branches shall be invited to send representatives to
be members of the working group.
d. The working group shall be coordinated by the Director of the
Utilities Division of the Commission or by his or her designee.
2. All Electric Service Providers governed by this Article shall cooperate
and participate in any investigation conducted by the working group,
including provision of data reasonably related to system reliability or
safety.
3. The working group shall report to the Commission on system reliability
and safety regularly, and shall make recommendations to the Commission
regarding improvements to reliability or safety.
K. Electric Service Providers shall comply with applicable reliability
standards and practices established by the Western Systems Coordinating
Council and the North American Electric Reliability Council or successor
organizations.
L. Electric Service Providers shall provide notification and informational
materials to
consumers about competition and consumer choices, such as a standardized
description of services, as ordered by the Commission.
R14-2-1614. Reporting Requirements
A. Reports covering the following items shall be submitted to the Director of
the Utilities Division by Affected Utilities and all Electric Service
Providers granted a Certificate of Convenience and Necessity pursuant to
this Article. These reports shall include the following information
pertaining to competitive service offerings, Unbundled Services, and
Standard Offer services in Arizona:
1. Type of services offered;
2. kW and kWh sales to consumers, disaggregated by customer class (e.g.,
residential, commercial, industrial);
3. Solar energy sales (kWh) and sources for grid connected solar
resources; kW capacity for off-grid solar resources;
4. Revenues from sales by customer class (e.g., residential, commercial,
industrial);
5. Number of retail customers disaggregated as follows: aggregators,
residential, commercial under 100 kW, commercial 100 kW to 2999 kW,
commercial 3000 kW or more, industrial less than 3000 kW, industrial
3000 kW or more, agricultural (if not included in commercial), and
other;
6. Retail kWh sales and revenues disaggregated by term of the contract
(less than 1 year, 1 to 4 years, longer than 4 years), and by type of
service (for example, firm, interruptible, other);
7. Amount of and revenues from each service provided under R14-2- 1605,
and, if applicable, R14-2-1606;
8. Value of all Arizona specific assets and accumulated depreciation;
9. Tabulation of Arizona electric generation plants owned by the Electric
Service Provider broken down by generation technology, fuel type, and
generation capacity;
10. Other data requested by Staff or the Commission;
11. In addition, prior to the date indicated in R14-2-1604(D), Affected
Utilities shall provide data demonstrating compliance with the
requirements of R14-2-1604;
B. Reporting Schedule
1. For the period through December 31, 2003, semi-annual reports shall be
due on April 15 (covering the previous period of July through December)
and October 15 (covering the previous period of January through June).
The first such report shall cover the period January 1 through June 30,
1999.
2. For the period after December 31, 2003, annual reports shall be due on
April 15 (covering the previous period of January through December).
The first such report shall cover the period January 1 through December
31, 2004.
C. The information listed above may be provided on a confidential basis.
However, Staff or the Commission may issue reports with aggregate
statistics based on confidential information that do not disclose data
pertaining to a particular seller or purchases by a particular buyer.
D. Any Electric Service Provider governed by this Article which fails to file
the above data in a timely manner may be subject to a penalty imposed by
the Commission or may have its Certificate rescinded by the Commission.
E. Any Electric Service Provider holding a Certificate pursuant to this
Article shall report to the Director of the Utilities Division the
discontinuation of any competitive tariff as soon as practicable after the
decision to discontinue offering service is made.
F. In addition to the above reporting requirements, Electric Service Providers
governed by this Article shall participate in Commission workshops or other
forums whose purpose is to evaluate competition or assess market issues.
G. Reports filed under the provisions of this section shall be submitted in
written format and in electronic format. Electric Service Providers shall
coordinate with the Commission Staff on formats.
R14-2-1615. Administrative Requirements
A. Any Electric Service Provider certificated under this Article may propose
additional electric services at any time by filing a proposed tariff with
the Commission describing the service, maximum rates, terms and conditions.
The proposed new electrical service may not be provided until the
Commission has approved the tariff.
B. Contracts filed pursuant to this Article shall not be open to public
inspection or made public except on order of the Commission, or by the
Commission or a Commissioner in the course of a hearing or proceeding.
C. The Commission may consider variations or exemptions from the terms or
requirements of any of the rules in this Article upon the application of an
affected party. The application must set forth the reasons why the public
interest will be served by the variation or exemption from the Commission
rules and regulations. Any variation or exemption granted shall require an
order of the Commission. Where a conflict exists between these rules and an
approved tariff or order of the Commission, the provisions of the approved
tariff or order of the Commission shall apply.
D. The Commission may develop procedures for resolving disputes regarding
implementation of retail electric competition.
R14-2-1616. Legal Issues
A. A working group to identify, analyze and provide recommendations to the
Commission on legal issues relevant to this Article shall be established.
1. The working group shall commence activities within 15 days of the date
of adoption of this Article.
2. Members of the working group shall include representatives of Staff,
the Residential Utility Consumer Office, consumers, utilities, and
other Electric Service Providers. In addition, the Executive and
Legislative Branches and the Attorney General shall be invited to send
representatives to be members of the working group.
3. The working group shall be coordinated by the Director of the Legal
Division of the Commission or by his or her designee.
B. The working group shall submit to the Commission a report on the activities
and recommendations of the working group no later than 90 days prior to the
date indicated in R14-2-1602.
C. The Commission shall consider the recommendations and decide what actions,
if any, to take based on the recommendations.
APPENDIX B
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CONCISE EXPLANATORY STATEMENT
-----------------------------
This explanatory statement is provided to comply with A.R.S. Section
41-1036.
I. REASONS FOR ADOPTING THE PROPOSED AMENDMENTS.
The Arizona Corporation Commission has promulgated proposed Rules to
govern the provision of competitive electric services in the State of Arizona.
R14-2-1601. Definitions.
This section contains all the definitions necessary to interpret and
follow the provisions set forth in the proposed Rules.
R14-2-1602. Filing of Tariffs by Affected Utilities.
This section requires all Affected Utilities (defined in R14-2-1601) to
file tariffs required by this Article by December 31, 1997.
R14-2-1603. Certificates of Convenience and Necessity.
This section requires all Electric Services Providers (defined in
R14-2-1601) intending to supply electric services under this Article to obtain a
Certificate of Convenience and Necessity from the Commission. Affected Utilities
already have Certificates for their existing service area, and thus need not
obtain a Certificate in order to continue to provide service therein. This
section sets up the process for obtaining such Certificates, as well as grounds
for denial and conditions under which they may be granted.
R14-2-1604. Competitive Phases.
This section outlines the time frames for the introduction of
competition in Arizona. In the first phase, to begin in 1999, Affected Utilities
are required to open up 20 percent of their base year (1995) markets (as
measured by kW demand) to competition. In the second phase, to begin in 2001,
this is enlarged to at least 50 percent of the incumbent utilities' base year
markets. Full competition for generation, the third phase, begins in 2003. At
least 15 percent of the eligible demand must be reserved for residential
consumers in the competitive marketplace in the first phase, and at least 30
percent of the eligible demand must be reserved for residential consumers in the
competitive marketplace in the second phase. In addition, prior to 2001, no
single consumer may receive more
than 20 percent of the total service available in the competitive market in an
Affected Utility's service territory.
The Affected Utilities must propose how customers will be selected for
participation in the competitive market. Consumers who use photovoltaics or
solar thermal resources (built after January 1, 1997 and installed in Arizona)
for at least 10 percent of their annual electricity consumption are
automatically included in the list of eligible customers for participation in
the competitive market if they wish to participate in the competitive market. To
assist the Affected Utilities and the Commission in understanding selection
issues, a workshop will be conducted on selection issues prior to the date when
selection filings are due.
Customers served under existing contracts are eligible to participate
in the competitive market prior to expiration of the existing contract only if
the affected utility and customer agree to early revision of the contract.
Buy-throughs are permitted on a voluntary basis. These mechanisms, which enable
the incumbent utility to purchase specific sources of energy at wholesale for
the use of a specific consumer, may enable some consumers to obtain some of the
benefits of competition prior to the start of the first competitive phase, if
the Commission approves.
Electric cooperatives may request a modification to the schedule. Any
such requests must include proposals on enhancing consumer choice among
generation resources. The Commission will have to consider the costs and
benefits of modifying the schedule in making a determination on the proposed
modifications.
R14-2-1605. Competitive Services.
This section describes services which can be provided competitively.
These include generation at any location (including distributed generation) plus
other services except distribution service and except services required by the
federal government to be provided on a monopoly basis.
R14-2-1606. Services Required To Be Made Available by Affected Utilities.
This section deals with utilities' obligations to provide unbundled
services and standard offer services. Incumbent utilities must offer "Standard
Offer" service in their service territories until the Commission determines that
competition has been substantially implemented. Standard offer service consists
of bundled service at regulated rates for consumers who do not or cannot
participate in the
competitive market. In addition, by December 31, 1997, Affected Utilities will
have to file unbundled tariffs to provide to all eligible purchasers on a
nondiscriminatory basis the following services: Distribution service, metering
and meter reading, billing and collection, open access transmission service, and
ancillary services. Such transmission and ancillary service tariffs must be
consistent with applicable tariffs filed with the Federal Energy Regulatory
Commission ("FERC").
This section also sets up guidelines and practices for the
authorization and release of customer demand and energy data, sets up a process
for the review of rates for unbundled services, and sets up a series of
workshops to explore various issues involved in the provision of unbundled
services and Standard Offer services.
R14-2-1607. Recovery of Stranded Cost of Affected Utilities.
This section discusses the process by which Affected Utilities may seek
to recover their unmitigated Stranded Costs (defined in R14-2-1601). The section
sets up a working group to develop recommendations for the analysis and recovery
of such Stranded Costs, and sets forth several factors to be considered in
allowing this recovery. Stranded Costs can only be recovered from customers in
the competitive marketplace, and estimates of Stranded Costs must be updated
periodically to allow the Commission to monitor the magnitude of such costs, and
to grant refunds where such estimates may be overstated.
R14-2-1608. System Benefits Charges.
This section recognizes the availability of the recovery of costs of
Commission-approved utility low income, demand side management, environmental,
renewables, and nuclear power plant decommissioning programs. Affected Utilities
are to propose the necessary charges on competitive consumers (to continue
existing programs) for Commission review and approval.
R14-2-1609. Solar Portfolio Standard.
This section requires any Electric Service Provider selling electricity
under the provisions of the Rules to derive at least 1/2 of 1% of the total
retail energy sold competitively from new solar resources. As of January 1,
2001, this standard becomes 1%, unless the Commission decides otherwise. New
solar resources are those installed on or after January 1, 1997. Electric
Service Providers selling electricity derived from new solar resources prior to
January 1, 1999 are allowed
to claim credit toward the Solar Portfolio Standard for twice the electric
energy generated by such solar resources prior to 1999. Periodic reports of such
sales of solar energy are required; Electric Services Providers who fail to meet
the standard in the Rules may be subject to penalties imposed by the Commission.
R14-2-1610. Spot Markets and Independent System Operators.
This section requires the Commission to conduct an inquiry into spot
market development and independent system operation for the transmission system;
the Commission is authorized to support the development of either, and may work
with other entities to help establish them.
R14-2-1611. In-State Reciprocity.
This section recognizes that electric utilities which are not subject
to the Commission's jurisdiction are not allowed to participate in the
competitive electric market unless certain legislative changes are made, or
these electric utilities either voluntarily submit to the Commission=s
jurisdiction for purposes of such participation, or they enter into some form of
agreement with the Commission to allow for their participation under mutually
agreeable terms.
R14-2-1612. Rates.
This section sets forth the Commission's determination that rates
determined by the competitive market are just and reasonable. Electric Service
Providers selling services under these Rules are required to file with the
Commission tariffs describing such services along with the maximum rates of
those services, subject to Commission approval. Pricing for competitive services
may be at or below the maximum rates specified in the tariff, provided the price
is not less than the marginal cost of the service. Changes in maximum rates or
in terms and conditions of previously approved tariffs may be filed, and are
effective upon Commission approval.
R14-2-1613. Service Quality, Consumer Protection, Safety, and Billing
Requirements.
This section explicitly recognizes that the Commission's existing rules
for electric service apply in the competitive arena, except in specific
instances. "Slamming" by suppliers of electric service is explicitly prohibited.
Electric Service Providers supplying service under these Rules are responsible
for meeting applicable reliability standards, are required to provide customer
notice if it is unable to continue providing customers with any service, shall
submit accident reports, shall
make reasonable efforts to reestablish service in the shortest possible time in
the event of service interruptions, and shall ensure that bills rendered on
their behalf include toll free telephone numbers for customer inquiries. In
addition, Electric Service Providers supplying metering or meter reading
services shall provide access to meter readings to other Electric Service
Providers serving the same customer. Meter tests may be requested by a consumer
or an Electric Service Provider relying on meter information provided by another
Electric Service Provider; such test shall be without charge if an error of more
than 3% is found. A working group on System Reliability and Safety is set up to
monitor and review such issues and make regular reports to the Commission on
these issues. All Electric Service Providers are required to comply with
applicable reliability standards and practices set forth by the Western Systems
Coordinating Council and the North American Electric Reliability Council or
successor organizations.
R14-2-1614. Reporting Requirements.
This section requires regular reporting of market information so the
Commission is able to monitor developments in competitive markets.
R14-2-1615. Administrative Requirements.
This section indicates that Electric Service Providers may file to
offer new services and that contracts are not public documents. It further
states the Commission may grant variation s or exemptions from portions of the
Rules. The Commission may also adopt procedures to resolve disputes.
R14-2-1616. Legal Issues.
This section sets up a working group to identify, analyze and provide
recommendations to the Commission on legal issues relative to these Rules. The
Commission shall consider the recommendations and decide the appropriate actions
to take thereon.
II. CHANGES IN THE TEXT OF THE PROPOSED AMENDMENT FROM THAT CONTAINED IN
THE NOTICE OF RULEMAKING FILED WITH THE SECRETARY OF STATE.
A.A.C. R14-2-1601 Definitions
The last sentence has been deleted from R14-2-1601.1. The deleted
language stated that "In the event that modifications are made to exisiting law
that would allow the application of this Article to the Salt River Project
Agricultural Improvement and Power District ("SRP"), then Affected Utilities
shall also include SRP."
A.A.C. R14-2-1603 Certificates of Convenience and Necessity
The second sentence of R14-2-1603(B) has been amended to read: "Such
Certificates shall be restricted to geographical areas served by the Affected
Utilities as of the date this Article is adopted and to service areas added
under the provisions of R14-2-1611."
A.A.C. R14-2-1611 In-State Reciprocity
R14-2-1611(C) has been deleted. The remaining subsections have been
renumbered and relettered accordingly.
R14-2-1611D (now C) has been amended to read:
C. An Arizona electric utility, not subject to the jurisdiction
of the Commission, may submit a statement to the Commission
that it voluntarily opens its service territory for competing
sellers in a manner similar to the provisions of this Article.
Such statement shall be accompanied by the electric utility's
nondiscriminatory Standard Offer tariff, electric supply
tariffs, Unbundled Services rates, Stranded Cost charges,
System Benefits charges, Distribution Services charges and any
other applicable tariffs and policies for services the
electric utility offers, for which these Rules otherwise
require compliance by Affected Utilities or Electric Service
Providers. Such filings shall serve as authorization for such
electric utility to utilize the Commission's Rules of Practice
and Procedure and other applicable Rules concerning any
complaint that an Affected Utility or Electric Service
Provider is violating any provision of this Article or is
otherwise discriminating against the filing electric utility
or failing to provide just and reasonable rates in tariffs
filed under this Article.
R14-2-1611D has been added to read:
D. If an electric utility is an Arizona political subdivision or
municipal corporation, then the existing service territory of
such electric utility shall be deemed open to competition if
the political subdivision or municipality has entered into an
intergovernmental agreement with the Commission that
establishes
nondiscriminatory terms and conditions for Distribution
Services and other Unbundled Services, provides a procedure
for complaints arising therefrom, and provides for reciprocity
with Affected Utilities. The Commission shall conduct a
hearing to consider any such intergovernmental agreement.
III. EVALUATION OF THE ARGUMENTS FOR AND AGAINST THE PROPOSED AMENDMENTS.
A. General Legal Arguments Against The Rules.
1. The Commission Has the Legal Right to Promulgate These Rules.
One primary overriding comment made by the parties is that the
Commission has no legal right to adopt these Rules. This argument follows
several lines of reasoning, the three primary ones being that the rules modify
or abrogate the regulatory compact; the rules are in violation of the Arizona
Administrative Procedures Act; and that the Commission does not have the
authority to issue, modify or delete a Certificate of Convenience and Necessity
without some legislative change.
Issue: The Rules Are an Unlawful Modification or Abrogation of
the Regulatory Compact.
The basic argument made by the parties regarding the regulatory compact
is that there is some sort of "contract" between the state and the incumbent
monopoly electric utility, wherein the utility is obligated to supply
electricity to all customers who require it at a reasonable cost, and in return,
the state agrees to provide the utility with the exclusive right to serve all
customers within a defined territory. The argument goes on to assert that since
the Proposed Rules would change the exclusive nature of electric service, the
rules unilaterally abrogate or at least modify this contract, and thus the
Proposed Rules cannot be passed.
Staff argues that no such contract has been formed. Generally, a party
asserting the formation of a contract by statute must overcome a presumption
against such formation, and courts will be cautious both in identifying a
contract within the language of a regulatory statute, and in defining the
outlines of any contractual obligation. Nat'l R.R. Passenger Corp. v. Atchison,
Topeka, and Santa Fe Ry. Co., 470 U.S. 451, 466, 105 S.Ct. 1441, 1452 (1985).
"[A]bsent some clear indication that the legislature intends to bind itself
contractually, the presumption is that 'a law is not intended
to create private contractual or vested rights but merely declares a policy to
be pursued until the legislature shall ordain otherwise.'" Id. at 465-66, 105
S.Ct. at 1451 (quoting Dodge v. Bd. Educ. of City of Chicago, 302 U.S. 74, 79,
58 S.Ct. 98, 100 (1937)). In promulgating these Proposed Rules, the Commission
is exercising the legislative discretion flowing from its plenary ratemaking
authority. See Simms v. Round Valley Light & Power, 80 Ariz. 145, 294 P.2d 378
(1956). The question as to whether particular legislation creates a contractual
right begins with an examination of the statute itself. Nat'l R.R. Corp., 470
U.S. at 465-66, 105 S.Ct. at 1451. However, a search of the Arizona Constitution
reveals no such intent on the part of the State to bind itself. Indeed, the
Constitution expressly disfavors monopolies: "[m]onopolies and trusts shall
never be allowed in this State . . . ." Ariz. Const. Art. XIV, section 15.
Staff further notes that, while the parties cite Application of Trico
Electric Co-operative, Inc., 92 Ariz. 373, 377 P.2d 309 (1962) for the
proposition that "the state in effect contracts" with a monopoly utility, that
language in Trico is clearly dicta. Additionally, other cases refer to regulated
monopoly as public policy rather than a contractual relationship. See Ariz.
Corp. Comm'n v. Super. Ct., 105 Ariz. 56, 59, 459 P.2d 489 (1969) (regulated
monopoly held to be public policy of Arizona); Winslow Gas Co. v. Southern Union
Gas Co., 76 Ariz. 373, 385, 265 P.2d 442, 443 (1954)(referring to Arizona=s
public policy of controlled monopoly); James P. Paul Water Co. v. Ariz. Corp.
Comm'n, 137 Ariz 426, 429, 671 P.2d 404, 407 (1983)("It is well established that
Arizona's public policy respecting public service corporations . . . is one of
regulated monopoly over freewheeling competition.").
In addition, Staff points out that it is well established that any
alleged contract is subject to modifications in the law. The parties seem to
find the source of the regulatory compact in both the Arizona Constitution and
the statutes concerning public service corporations. The Constitution clearly
provides for changes in the law concerning public service corporations; see
Ariz. Const Art. XV, section 3. Further, any statutes concerning public service
corporations may be changed at any time as well. If indeed the Constitution and
the statutes have created a contract such as the parties claim, then this
possibility for changes in the law must also be a part of that contract.
Analysis: We are not convinced that the regulatory policy of the state
has formed any
sort of contract with the Affected Utilities. It appears that the former
"policy" of regulated monopoly was just that- a policy, made with no intent to
bind the state or the Commission. Finally, we recognize, as should the
utilities, that such regulatory policies are always subject to change as the
economics and technologies of the time also change.
Resolution: There is no reason to delay the promulgation of these
Rules.
Issue: The Rules Violate the Administrative Procedures Act.
The next argument made by the parties is that the Commission in
adopting the Proposed Rules in this manner is violating the Arizona
Administrative Procedures Act ("APA"), A.R.S. section 41-1001 et seq. There are
two prongs to this argument, one being that the rules will clearly not be
certified by the Attorney General's office, and the other being that because the
Economic Impact Statement ("EIS") accompanying the Proposed Rules are somehow
inadequate, interested persons are not given an adequate opportunity for notice
and comment as required in the APA. Both prongs are without merit.
Staff believes that the rules are not subject to Attorney General
certification, as they are quite plainly a manifestation of the Commission's
ratemaking authority. Clearly, the adoption of the Proposed Rules will have an
impact on rates, something even all the commentators seem to recognize. Such an
impact on rates has been recognized as grounds for the Commission's authority to
exercise its plenary ratemaking authority through the adoption of rules. Ariz.
Corp. Comm'n v. State ex rel. Woods, 171 Ariz. 286, 295, 830 P.2d 807, 816
(1992). Where rules, such as these, are an exercise of that ratemaking
authority, the Attorney General does not have the authority to review and reject
them. State ex rel. Corbin v. Ariz. Corp. Comm'n, 174 Ariz. 216, 219, 848 P.2d
301 (Ct.App. 1992).
Further, Staff notes that the Commission is expressly exempted pursuant
to A.R.S. section 41-1057 from the requirement of submitting an EIS as set forth
in section 41-1055. Under section 41-1057, the Commission is merely required to
adopt substantially similar review procedures for its rules. This is what Staff
has done in this case in preparing the EIS forwarded to the Secretary of State
as part of the rulemaking package. Staff thus believes its EIS thus meets the
requirements of the APA.
Analysis: We have previously litigated the issue of whether Commission
rules
involving ratemaking are subject to review and certification by the Attorney
general=s office. The Courts have been clear in deciding that they are not.
Further, we are satisfied that the EIS prepared by Staff meets the statutory
requirements set forth in A.R.S. section 41-1057.
Resolution: There is no reason to delay the promulgation of these
Rules.
Issue: The Adoption of These Rules Modifies Existing CC&Ns.
Another argument raised by various parties in this proceeding is that
the Commission has no authority to enact the Rules because the legislature has
not afforded the Commission the authority to issue competitive CC&Ns as is
contemplated by the Rules. According to this argument, the Commission has no
authority to promulgate the Rules until the legislature grants to the Commission
the authority to grant competitive CC&Ns.
Staff urges that the adoption of these Rules does not grant to any
potential competitor the right to provide electric service. Pursuant to the
Rules, CC&Ns may be granted to applicants after going through an application
process which includes public notice of the application and an opportunity for a
hearing. See A.A.C. R14-2-1603. No CC&N is granted merely by the adoption of the
Rules, and any CC&N granted under these Rules is expressly conditional upon
numerous factors set forth in the rules. Therefore no additional legislative
authority is required for the Commission to promulgate the Rules.
Furthermore, Staff points out that courts have recognized that the
Commission does have the authority to determine when competition is in the
public interest and to issue competitive CC&Ns. Arizona v. People's Freight
Line, 41 Ariz. 158, 166-67, 16 P.2d 420, 423 (1932); Winslow Gas Co. v. Southern
Union Gas Co., 76 Ariz. 383, 385, 265 P.2d 442, 443 (1954). Thus, while Staff
welcomes a role for the legislature in clarifying this authority, Staff believes
such authority already exists.
Analysis: The Rules as drafted set forth a framework for the
introduction of competition into the electric services market in Arizona. As
they are merely a framework, the Rules do not grant, modify, or delete any new
or existing CC&N. The Rules do set up a process that must be followed before any
such event occurs. All of the objecting parties are anticipated and expected to
participate in such process. We are also persuaded by Staff's argument that we
already have the authority to
grant competitive CC&Ns, when the public interest demands it. However, that is
an issue that we expect to address again before any competitive CC&Ns are
issued.
Resolution: There is no reason to delay the promulgation of these
Rules.
2. The Adoption of the Proposed Rules Does Not Violate Due Process.
Issue: Several parties in their comments have observed that the
Proposed Rules as written violate due process because they are impermissibly
vague. They argue that the Proposed Rules defer resolution of too many issues,
such as stranded cost and the nature of CC&Ns under the rules, and do not give
the affected parties fair warning as to how these and other aspects of the rules
will be determined by the Commission.
Staff acknowledges that a statute or rule is impermissibly vague in
violation of due process if a) it fails to give a person of ordinary
intelligence a reasonable opportunity to know what the law is in order to plan
accordingly, or b) it allows arbitrary or discriminatory enforcement by failing
to provide an objective standard. Bird v. State, 184 Ariz. 198, 908 P.2d 12
(Ct.App. 1995). However, Staff believes the Rules as written do not violate this
standard. First, in regard to stranded cost recovery, the Rules set up a process
for utilities claiming to have incurred stranded costs to seek recovery of those
costs. The Rules set forth several factors for the Commission to consider in
determining a utility's stranded cost, and allow the requesting utility to
recover the appropriate amount. The Rules thus give the utility an opportunity
to know what the law is so it can plan ahead, and sets forth an objective
standard which the Commission must follow in doing so. As for CC&Ns, once again
it is clear to a person of ordinary intelligence that under the Rules, all new
CC&Ns will be competitive CC&Ns, and that under the rules there is a clear
standard for granting such CC&Ns.
Analysis: The Rules as written give the parties a great deal of
guidance in terms of what is expected in the new competitive environment.
Precise specificity is of course impossible; neither we nor anyone else has the
prescience to know exactly what will happen in the future. However, the Rules do
set adequate standards and processes for dealing with these future
uncertainties. We thus do not agree that the Rules are impermissibly vague in
violation of due process.
Resolution: There is no reason to delay the promulgation of these
Rules.
3. The Proposed Rules Do Not Violate Equal Protection.
Issue: Some parties argue that the rules as proposed do not allow for
equal treatment of all members of a recognized class, that class being all
entities that provide electric services. The claim is made that the Proposed
Rules treat incumbent monopoly public service corporations differently than they
treat such potential competitors as the Salt River Project, municipal
corporations, tribal authorities and non-utility generators. According to these
comments, these other entities are not subject to any of the obligations of the
Proposed Rules, but are still allowed to reap the benefits of the rules. Such
unequal treatment, it is claimed, violates equal protection.
Staff notes that there are serious differences between the incumbent
monopoly providers and other potential entrants. Equal protection is satisfied
if all persons in a class are treated alike. Baseball Liquors v. Circle K Corp.,
129 Ariz. 215, 630 P.2d 38 (Ct.App. 1981), cert den. 454 U.S. 969, 102 S.Ct.
515. Legislation which applies to members of a class, but not to nonmembers of
that class, will be upheld under equal protection if the classification is not
arbitrary and there is a substantial difference between those within the class
and those without. Farmer v. Killingsworth, 102 Ariz. 44, 424 P.2d 172 (1967).
In this instance, there is one clear difference between the incumbent monopoly
providers, and all others: the incumbents' monopoly status. To treat all parties
identically under the rules would fail to recognize the incumbents' ability to
use their current monopoly status to inhibit the competition these rules are
designed to encourage. These Proposed Rules recognize that electric competition
is not a race that begins with all entrants beginning at the starting gate;
rather, the incumbents have a significant head start and a full head of steam.
The Proposed Rules treat the incumbents differently because they ARE different.
This does not violate equal protection.
Analysis: As pointed out by Staff, there are clear reasons why Affected
Utilities are treated differently than other entities under these Rules. Indeed,
it would make no sense to make their treatment identical, because of their
differing circumstances. The Rules identify those differences and treat the
classes fairly based on those differences.
Resolution: There is no reason to delay the promulgation of these
Rules.
4. Passage of the Proposed Rules Does Not Constitute an
Unconstitutional Taking.
Issue: Another argument put forth by several parties is that the
property rights of regulated
utilities enjoy constitutional protection, and therefore the Rules constitute an
unconstitutional taking of this property. The primary focus of these comments s
that because under the Rules the Commission possibly may not allow recovery of a
utility's entire stranded cost claim, this constitutes a regulatory taking of
the utility's property without compensation. Another argument is that the rules
confiscate the exclusive rights inherent in existing CC&Ns without compensation
Staff believes such claims are premature at this time. The Rules as
written do not take anything; they do not deny any utility recovery of any
stranded cost, nor do they grant any new CC&N. What the rules do is set forth a
framework wherein a regulated entity claiming to have stranded costs may come
before the Commission and seek recovery of those costs. The rules also establish
a process wherein potential new entrants may apply for and receive a CC&N. Mere
adoption of the Rules will not result in any property being taken.
Furthermore, Staff argues that in order for a taking to be
unconstitutional, it must be done without compensation. The law is well-settled
that takings claims are not ripe until the plaintiff has been denied
compensation. Pub. Serv. Comm'n of New Mexico v. City of Albuquerque, 755
F.Supp. 1494, 1498 (D.N.M. 1991). If a state provides an adequate procedure for
seeking just compensation, the property owner cannot claim a violation until it
has used the procedure and been denied just compensation. Williamson Co.
Regional Planning Comm'n v. Hamilton Bank, 473 U.S. 172, 195, 105 S.Ct. 3108,
3121 (1985).
Any property that a utility believes has been taken once competition
has been implemented under the Rules is essentially a stranded cost. The Rules
allow for stranded cost recovery, and set forth a process wherein utilities can
seek recovery of these costs.
Analysis: Mere adoption of these Rules does not constitute a taking.
Thus claims by parties that the Rules constitute an unlawful taking are clearly
premature. Losses in value of utility assets as a result of competition would
appear to be stranded costs; as the Rules set forth a process to allow for the
recovery of stranded costs, it seems clear that the Rules do not constitute an
unconstitutional taking of any utility property.
Resolution: There is no reason to delay the promulgation of these
Rules.
B. A.A.C. R14-2-1601: Definitions
Issue: Trico proposes that cooperatives be deleted from the definition
of affected utilities (R14-2-1601(1)).
Staff disagrees. The consumers located in the service areas of the
cooperatives should be able to benefit from competition.
Analysis: The Commission agrees that all customers should be able to
benefit from competition, including those located in the service areas of
cooperatives.
Resolution: No amendment to R14-2-1601(1) is necessary.
Issue: APS wants to delete the word "net" and to delete the term
"value" and substitute "recorded costs of the assets and obligations" from the
definition of stranded costs in R14-2-1601(8). Further, APS wants to substitute
"used and useful" for "necessary," pertaining to furnishing electricity. APS is
also concerned that stranded costs refers only to assets and obligations created
prior to the adoption of the article.
TEP is concerned that the proposed definition of stranded cost would
result in reconsideration of the prudence of past investment decisions. TEP
states that it is unclear what specific assets and obligations are included in
stranded cost and whether the definition is limited to balance sheet accounts.
TEP states that stranded cost is not limited to generation assets and may
include regulatory assets and operating expenses.
In response to Arizona Public Service Company's concerns, Staff
believes that the word "net" is essential -- it reflects the fact that some
assets will have market values greater than regulated values and that some
assets will have market values less than regulated value. Further, Staff
believes the rule should be general so as to permit stranded cost calculations
reflecting the individual circumstances of a given utility.
Staff expects that, in general, reconsideration such as concerns TEP
would not be undertaken, but cannot rule out reconsideration of the prudence of
past investments in every circumstance. Further, Staff believes that the
definition is clear on these points: the calculation of stranded cost will not
consider only generation assets, and can include purchased power contracts,
regulatory assets, fuel contracts, etc.
Evaluation: The Commission should not just allow a utility to recover
stranded costs only
for those assets whose value has decreased without offsetting that gross
stranded cost with increases in the value of other assets. Substituting
"recorded costs of the assets and obligations" for "value" is not necessary.
APS' point can be dealt with in the stranded cost working group to obtain input
from other parties; this may be an issue on which consensus can be reached.
Resolution: No amendment to R14-2-1601(8) is necessary.
C. R14-2-1604: Competitive Phases
Issue: Several cooperatives (Arizona Electric Power Cooperative, Duncan
Valley Electric Cooperative, Inc., Graham County Electric Cooperative, Inc., and
Sulphur Springs Valley Electric Cooperative), would substitute for
R14-2-1604(H), which allows for modifications of the implementation schedule for
cooperatives, a requirement that the cooperatives file a report describing the
status of the efforts to address and resolve tax exemption and contractual and
federal financing issues. Phelps Dodge Morenci, Inc. (Phelps Dodge) disagrees
with the contention that cooperatives should be exempted from competition. To do
so, Phelps Dodge says, would mean that rural customers will be prevented from
receiving the lowest possible price of electricity.
Staff disagrees with the cooperatives, and agrees with Phelps Dodge,
because this proposal will exclude consumers served by cooperatives from the
benefits of competition and dilute incentives for the cooperatives to introduce
competition.
The cooperatives propose that a new definition be added for available
transmission capability ("the meaning accorded it by Federal Energy Regulatory
Commission Order 888 ...). The phrase "subject to Available Transmission
Capability" would then be added to the beginning of R14-2-1604(A), (B), and (D).
FERC Order 888 requires transmission providers to describe their method for
determining available transmission capability posted on the transmission
provider's OASIS (Open Access Same time Information Systems). If sufficient
transmission capability may not exist to accommodate a service request, the
transmission provider will respond by performing a system impact study (Section
15.2 of the pro-forma tariff). System impact studies are described in Section 32
of the pro-forma tariff. If transmission upgrades are needed to supply a service
request, the customer must reimburse the transmission provider for the
facilities study and, if the customer wants the facilities, he or she will have
to pay for them. Staff believes that the cooperative's proposal
incorrectly gives the impression that the transmission provider is not obligated
to conduct system impact studies or facilities studies as required by the FERC.
Therefore, Staff recommends that the wording of the proposed rule not be changed
as suggested by the cooperatives.
The cooperatives also propose to add language to R14-2-1604 that states
that "Any consumer which elects to participate in the competitive market shall
pay all costs attributable to such election including but not limited to special
metering costs and any costs required to relieve transmission or distribution
constraints." Staff argues that these costs should be covered by rates charged
for unbundled services; no change in the rule is needed.
Analysis: As with Trico's objection to R14-2-1601(1), the Commission
agrees that all customers should be able to benefit from competition, including
those located in the service areas of cooperatives. Further, it appears to the
Commission that the cooperatives' proposed language regarding transmission
service gives the misleading impression that transmission providers have no
obligation regarding the stated studies. Finally, the proposed language
regarding competitive customers paying special metering costs and other costs is
not necessary.
Resolution: No amendment to R14-2-1604 is necessary.
Issue: Timing of the introduction to competition.
TEP proposes that unbundling of distribution services be postponed
until 2002 to allow operational issues with generation competition to be sorted
out first and to allow time to prepare for "complete competitive product and
service unbundling."
Nordic Power of Southpoint I, Limited Partnership (Nordic Power)
"supports market-based rates with customer choice in the most expeditious manner
reasonably feasible." Nordic Power proposes that the phase-in begin no later
than January 1, 1998. Enron Capital & Trade Resources (ECT) agrees that
competition should begin in 1998, rather than in 1999.
Staff believes that two years offers a practical, but aggressive
schedule, in which to address all of the unanswered questions that need to be
resolved. Two years will allow for evidentiary hearings, working group
deliberations, and time to review successful programs as well as problems in
other state restructuring efforts.
Analysis: The time line in the Rule as written for the introduction of
competition in these services is both reasonable and feasible. It allows time
for the Commission, Staff and other parties to come up to speed on competition
quickly, yet is not so hasty as to ignore lessons that can be learned through
the procedures in the rules and the experiences of other states.
Resolution: No amendment to R14-2-1604 is necessary.
D. R14-2-1606: Services Required To Be Made Available by Affected
Utilities
Issue: Obligation to provide service.
APS wants clarification that an Affected Utility has an obligation to
provide service and plan for generation resources during the phase-in period for
those customers not eligible for access. Staff notes that R14-2-1606(A)
indicates that Affected Utilities have an obligation to provide standard offer
service until the Commission determines otherwise.
Analysis: R14-2-1606(A) is clear on this subject: an Affected Utility
has an obligation to provide Standard Offer service until otherwise ordered by
this Commission.
Resolution: No amendment to R14-2-1606 is necessary.
E. R14-2-1607: Recovery of Stranded Cost of Affected Utilities
Issue: R14-2-1607(A) requires Affected Utilities to take every
feasible, cost-effective measure to mitigate Stranded Costs.
APS wants to replace in R14-2-1607(A),"every feasible, cost effective
[mitigation] measure" with "reasonable [mitigation] measures..." Staff believes
this proposed change may be more workable than the initial wording and would not
object to such a change if it were clear that the Commission is serious about
having utilities actively work to offset stranded costs through mitigation
measures. APS further proposes deletion of the examples of types of mitigation.
Staff believes that the examples provide additional clarity to the intent.
TEP states that it is unclear whether mitigation of stranded costs
includes only energy related activities or is all-encompassing, covering any
business activity the utility and its affiliates may pursue. TEP believes that
profits from activities that are unrelated to the provision of electricity in
Arizona and that do not require use of assets acquired to serve electric
customers in Arizona, and that are potentially strandable, should not be
considered as a source of funds to offset stranded cost.
Further, TEP fears that costs of mitigation activities could become stranded.
Staff interprets the rule as including all activities, including
non-energy-related activities, as part of mitigation. An Affected Utility's
losses due to stranded cost are to be offset by that company's gains in other
activities. Further, there cannot be any recoverable stranded costs associated
with mitigation since those costs would not be necessary to furnish electricity
to consumers in the utility's service territory and be incurred prior to the
adoption of the Article.
RUCO wants greater emphasis on mitigation of stranded costs.
Analysis: This Commission is serious about having utilities actively
pursue mitigation measure to offset stranded costs. Because of that, we believe
it is important to retain the current language requiring Affected Utilities to
take "every feasible, cost-effective measure to mitigate or offset Stranded
Cost." We further agree with Staff that the inclusion of examples of mitigation
or offset are helpful to parties in understanding what we are expecting.
We interpret the rule in a manner similar to Staff, in that it
envisions Affected Utilities utilizing a wide variety of methods to mitigate or
offset Stranded Cost, including methods unrelated to energy activities. We also
agree with Staff that there are no recoverable Stranded Costs associated with
mitigation, since those costs cannot be both necessary to furnish electricity to
consumers in its service territory, and be incurred prior to the adoption of
these Rules.
So far as RUCO's comments are concerned, we believe the Rule as written
adequately emphasizes the importance of mitigation. Further, RUCO never
indicates how this additional emphasis is to be provided.
Resolution: No amendment to R14-2-1607(A) is necessary.
Issue: Guarantee of recovery of Stranded Costs.
RUCO wants the rule to indicate that there is no guarantee of recovery
of stranded costs and that the Commission should make a determination regarding
the amount of stranded costs that should be recoverable by each utility. The
rule allows recovery of unmitigated stranded cost (R14-2-1607(B)) and for the
determination of the magnitude of stranded cost (R14-2-1607(I)).
Destec is concerned that the Commission has determined the efficacy of
stranded cost recovery before considering the issue.
Staff expects that the Commission will ultimately consider a wide range
of estimates of the magnitude of stranded cost offered by Affected Utilities,
Staff, RUCO, consumer groups, and other intervenors. The Commission must also
consider several factors regarding mechanisms and charges for recovery of
stranded costs (R14-2-1607(I)). Staff believes that no change in the rule is
needed on this matter.
Analysis: The Rule does guarantee recovery of unmitigated Stranded
Cost, but also provides a process for determining the magnitude of Stranded
Cost, and recovery mechanisms and charges. Input from various parties as to that
magnitude is provided and encouraged.
Resolution: No amendment to the Rule is necessary.
Issue: R14-2-1607(I) lists various factors to be considered by the
Commission in determining the mechanisms for the recovery of Stranded Cost.
APS wants the rule to indicate that the factors listed in R14-2-1607(I)
pertain only to recovery mechanisms and not to the recoverability of stranded
costs. APS wants to remove R14-2-1607(I)(8) pertaining to the period over which
stranded cost charges may be recovered. Further, APS desires prompt review of
Stranded Cost recovery proposals.
TEP states that a specific time period over which stranded costs are
computed should not be ordered. The proposed rule does not specify a standard
time period, but leaves this to be determined on a case by base basis.
AEPCO and other cooperatives propose deleting some of the factors in
R14-2-1607(I) because they believe that stranded cost recovery is required by
law. Trico also indicates that some of these should not be considered because,
in Trico's view, all stranded costs are recoverable.
Staff believes that changes proposed by APS to R14-2-1607(I) are
unnecessary. As written, R14-2-1607(I) states that the list of factors is to be
considered by the Commission in determining mechanisms and charges for recovery
of stranded cost, but not the magnitude of stranded cost. The Commission cannot
consider stranded cost recovery mechanisms and charges in a vacuum as proposed
by APS. Staff further believes that the Commission will give prompt attention to
requests for stranded cost recovery. However, not knowing the nature of the
utilities' filings or the nature of other parties' analyses, no specific time
limit should be imposed now. The inclusion of R14-2-
1607(I)(8) is necessary to indicate that a stranded cost recovery charge is for
a fixed time period to be determined by the Commission after having reviewed
data provided by utilities and other parties. Stranded cost recovery for an
indefinite time period is precluded.
Staff disagrees with the cooperatives and Trico; the effects of
stranded cost recovery on competition and on consumers are important factors in
stranded cost recovery mechanisms and should not be ignored by the Commission.
Staff believes that the Commission must consider all the factors listed so as to
take into account impacts of stranded cost recovery mechanisms on consumers and
on the market in general.
Analysis: We believe that the Rule is clear in that R14-2-1607(I)
identifies factors to be considered in setting the mechanisms and charges for
Stranded Cost recovery, not for the issue of the magnitude of Stranded Cost.
Further, as regards R14-2-1607(I)(8), utilities will be free to propose specific
methods for stranded cost recovery that are compatible with their circumstances.
Further, the factors identified in the Rule are necessary in order for the
Commission to determine the appropriate mechanisms for Stranded Cost recovery.
Resolution: No amendment to R14-2-1607(I) is necessary.
Issue: R14-2-1607(J) allows Stranded Cost recovery only from those
customers participating in the competitive market.
RUCO indicates that stranded costs should be recovered from all
customers. TEP argues that consumers who self generate should pay for stranded
costs.
Staff notes that costs are only stranded when competitive market prices
are below traditionally regulated rates. Consumers served in non-competitive
markets will pay for all prudently incurred costs in their regulated rates and
so, in that case, there is no stranded cost. Thus, RUCO's proposed objectives
are already incorporated in the rule. As for TEP's recommendation, self
generation has been available to consumers for years and no stranded cost
recovery has been imposed on such customers.
Analysis: The Commission agrees that consumers who will not be
participating in the competitive market will be paying for Stranded Costs
through the regulated Standard Offer rates. We also agree that there is no
compelling reason to impose Stranded Cost responsibility on self
generators under these Rules, when none has been imposed in the past.
Resolution: No amendment to R14-2-1607(J) is necessary.
F. R14-2-1609: Solar Portfolio Standard
Issue: The Solar Portfolio Standard may not result in increased solar
capacity in Arizona.
APS suggests that the solar portfolio standard might not result in any
increased solar capacity in Arizona. Staff agrees that there is a possibility
that no new solar capacity will be built in Arizona, but notes that the purpose
of the standard is to promote solar power regardless of the location of
generation facilities. Staff believes that economics favor Arizona locations for
new solar facilities serving Arizona consumers. Because out-of-state solar
resources would need to acquire transmission rights to transmit solar
electricity into Arizona for use by the competitive customers in the phased-in
competition program, out-of-state resources would probably be more expensive. In
addition, since Arizona has the most plentiful supply of sunshine resources in
the nation, it is unlikely that an Electricity Service Provider would want to
build a solar plant elsewhere. The double credit provision for early solar
electricity generation is designed to encourage the installation of the solar
facilities in Arizona.
Analysis: While the Rule does not specifically require the building of
solar resource in Arizona, we believe that the prevailing environmental and
economic conditions will result in much of the solar requirement being met by
Arizona resources.
Resolution: No amendment to R14-2-1609 is necessary.
Issue: The Rules may not require that solar resources be used to serve
Arizona customers.
APS suggests that the proposed rules do not require that the solar
resources "even be used to serve Arizona consumers." Staff notes that
R14-2-1609(A) defines the solar portfolio standard as a percentage "of the total
retail energy sold competitively..." The obvious reference is for electricity
sold competitively in Arizona to Arizona consumers as part of the phased-in
competition program. However, if there is a need for clarification, Staff would
not object to the addition of the phrase "to Arizona consumers" after the phrase
"sold competitively."
Analysis: These rules pertain to the provision of electric services in
the State of Arizona.
While Staff's proposed language may be useful, it is not necessary, in that all
electricity sold competitively under these Rules is sold in Arizona.
Resolution: No amendment to R14-2-1609(A) is necessary.
Issue: APS' alternative solar proposal.
APS made an alternative proposal in its September 12, 1996 comments
that it claims would be far less costly, guarantee between 25 and 50 MW of new
solar generation, and not serve as a market barrier. The proposal would have the
Commission levy a fixed fee on all kWh delivered to customers in Arizona
starting in June 1997. The money would be placed in an interest bearing account
and, starting in 1998, the money would be used to "buy down" the uneconomic
portion of the cost of newly installed solar systems in Arizona. The money would
be disbursed on a competitive-bid basis.
Staff does not believe that APS' proposal will accomplish what APS
claims it will. The proposal appears to contemplate the need for the
establishment of a new bureaucracy to collect fees, determine winning bidders,
oversee solar plant construction and start-up. At a time where competition
should be encouraging the reduction of bureaucracies in the regulation of
electric service and the provision of those services, this proposal would seem
to offer just the opposite.
Analysis: The APS proposal, contrary to APS' assertions, would not
guarantee that any solar facilities are built. It would offer an opportunity,
certain incentives, and a favorable environment for solar projects, but
certainly no guarantees. The Staff proposal, in contrast, offers a good chance
that solar projects will be built because of the potentially high penalties for
not meeting the standard. Further, we are not convinced that APS' proposal will
be less costly. The costs of buying and installing solar should be about the
same. In fact, there is a distinct possibility, under the solar portfolio
standard, that utilities or other large electricity suppliers, by buying solar
equipment in large volume purchases, will be able to obtain significant price
reductions from solar manufacturers anxious for increased market share.
Resolution: No amendment to R14-2-1609 is necessary.
Issue: The Solar Portfolio Standard is too expensive compared to wind
power.
RUCO is concerned about the cost of the solar portfolio standard. RUCO
states that wind
power would be cheaper than solar power.
Staff notes that the purpose of the solar portfolio standard, however,
is to promote a specific type of renewable resource and not renewables in
general, some of which are already cost effective in a wide range of
applications. Further, Arizona has mostly Class 3 wind regions, which are not
currently cost effective resources, and Arizona wind resources are best in the
winter when their value is less than it would be during peak summer demand.
Analysis: The Solar Portfolio Standard as written serves properly
serves its intended purpose of encouraging the development of solar resources.
Solar resources more accurately match the electric demand needs of Arizona
consumers than do wind resources, improving their cost effectiveness.
Resolution: No amendment to R14-2-1609 is necessary.
Issue: R14-2-1609 should be deleted to make the Rules fuel and resource
neutral.
The Center for Energy and Economic Development (CEED) believes that
restructuring should be fuel and resource neutral. Staff disagrees that
restructuring should be resource and fuel neutral. The Commission, over the last
few years has encouraged the utilities it regulates to diversify their energy
portfolios to include renewable energy resources
Analysis: Diversification of resource portfolios benefits Arizona. We
believe it particularly appropriate to encourage solar because of its natural
advantages in the state.
Resolution: No amendment to R14-2-1609 is necessary.
Issue: The Solar Portfolio Standard is too modest.
The Environmental Group is concerned that the solar portfolio
standard's percentage rate is too low. The group quotes two National Renewable
Energy Laboratory ("NREL") reports that claim that solar thermal technologies
produce electricity today at 10.5 cents/kWh and that the current cost of
photovoltaic generated electricity is 21.8 cents/kWh. This is in contrast to
Staff's estimates of 30 cents/kWh. The group therefore suggests that section
R14-2-1609(B)(2) be modified to show that only an increase in the solar
portfolio be allowed when the standard is re-evaluated in 2001.
Staff disagrees with the proposal to change the solar portfolio
standard. There is insufficient information at this time to set future policy,
and R14-2-1609(B) should not be altered in the absence
of this information. Staff agrees that NREL's estimated solar electricity cost
numbers are probably appropriate for large solar installations. However, since
the early solar portfolio projects will be modest in size, Staff feels that it
is important to be conservative in estimates. This has resulted in the modest
and conservative 1/2 of 1 percent initial solar portfolio standard. Staff agrees
with the Environmental Group and NREL that solar costs in the 1999-2003 time
frame will be significantly lower than current costs. If this cost reduction
occurs as projected, there will be a natural tendency to increase the solar
standard in 2001. If not, it may be appropriate to freeze the standard at 1/2 of
1 percent for a few years.
Analysis: While the Environmental Group may be right in regard to the
information it has provided from NREL, we believe it is too premature to
increase the standard beyond the levels set forth in the Rule.
Resolution: No amendment to R14-2-1609(B) is necessary.
Issue: Several commentators at the Public Comment session encouraged
the Commission to expand the Solar Portfolio Standard to include solar water
heaters and other solar demand reduction technologies. It was argued that many
of these technologies are cost effective and reliable methods to reduce the
demand for electricity from the grid.
Analysis: While the suggestions of these commentators has some merit,
we do not believe it appropriate to modify the Solar Portfolio Standard at this
time. As noted earlier, the purpose of the Solar Portfolio Standard is to
promote a specific type of renewable resource.
Resolution: No amendment to R14-2-1609 is necessary.
G. R14-2-1611: In-State Reciprocity
Issue: R14-2-1611 precludes Salt River Project and other
quasi-governmental entities and municipalities from participating in the
competitive marketplace.
SRP states that the Rules do not give all Arizona customers the right
to choose their Electric Service Provider. SRP further states that the Rules=
proposed regulation of political subdivisions and municipal corporations is
unconstitutional. SRP expressed concern about having to obtain consent from the
Affected Utilities. A concern is that some utilities will bar SRP's entrance by
refusing to agree to allow SRP to participate. Consequently, SRP proposed the
use of
intergovernmental agreements to allow it to participate in competition under
this Article.
The Irrigation and Electrical Districts' Association of Arizona (IEDA)
suggests current wording in the Rules may embroil jurisdictional fights and
proposed rewording R14-2-1611 subsection D. The rewording would allow
non-jurisdictional utilities to voluntarily file unbundled and standard offer
service tariffs and to voluntarily open its service territory to competing
sellers. These filings would serve as authorization for such service providers
to utilize the Commission's rules concerning complaints related to their
participation in the competitive market.
Staff believes that the rules as proposed do not make provisions for
competition in the service territories of utilities not regulated by the
Commission. The rules do provide a framework for implementing competition in the
service territories of utilities regulated by the Commission and several means
by which nonjurisdictional utilities may participate. Staff further notes that
the Rules do not propose regulation of nonjurisdictional utilities in their
service territories. They apply to affected utilities and energy service
providers authorized to do business in currently regulated service areas. The
rules also explicitly state that SRP would not be considered an Affected Utility
unless existing law changes (R14-2-1601(1)).
Nordic Power is concerned that the intergovernmental agreement
recommended by SRP may allow major utilities to carve out service territories if
customers and competitive power service providers are left out of the process.
Staff believes SRP's proposed use of intergovernmental agreements has
merit and may be a means of establishing adequate enforcement of
nondiscriminatory rates. The concerns of other utilities over level playing
field issues must be considered in any resolution of SRP's status. Further,
there must be an objective party who can resolve disputes over whether electric
service providers have fair, nondiscriminatory access to SRP's distribution
system. If the Commission does not have this authority, some other party must
take on this responsibility; other electric service providers may also want to
be involved in the creation of this independent party.
Staff agrees with Nordic Power that other parties should have the
opportunity to provide input into intergovernmental agreements and expects that
if such an agreement is being entertained, the Commission will seek that input.
Analysis: SRP's status as the second largest electric provider in the
state, coupled with its status as a political subdivision of Arizona, has vexed
the Commission in the formation of Rules designed to allow competition to
benefit all electric consumers in the state. SRP's and IEDA's proposals have
merit.
Resolution: R14-2-1611 should be amended as follows:
Initially, based on SRP's arguments and the analysis set forth above,
it is clear that R14-2-1611(C) is simply unnecessary. Therefore, R14-2-1611(C)
as previously proposed is deleted. The remaining subsections have been
relettered to conform.
Therefore. R14-2-1611D has been relettered as (C) and amended to read:
C. An Arizona electric utility, not subject to the jurisdiction
of the Commission, may submit a statement to the Commission
that it voluntarily opens its service territory for competing
sellers in a manner similar to the provisions of this Article.
Such statement shall be accompanied by the electric utility's
nondiscriminatory Standard Offer tariff, electric supply
tariffs, Unbundled Services rates, Stranded Cost charges,
System Benefits charges, Distribution Services charges and any
other applicable tariffs and policies for services the
electric utility offers, for which these Rules otherwise
require compliance by Affected Utilities or Electric Service
Providers. Such filings shall serve as authorization for such
electric utility to utilize the Commission's Rules of Practice
and Procedure and other applicable Rules concerning any
complaint that an Affected Utility or Electric Service
Provider is violating any provision of this Article or is
otherwise discriminating against the filing electric utility
or failing to provide just and reasonable rates in tariffs
filed under this Article.
R14-2-1611D has been added to read:
E. If an electric utility is an Arizona political subdivision or
municipal corporation, then the existing service territory of
such electric utility shall be deemed open to competition if
the political subdivision or municipality has entered into an
intergovernmental agreement with the Commission that
establishes nondiscriminatory terms and conditions for
Distribution Services and other Unbundled Services, provides a
procedure for complaints arising therefrom, and provides for
reciprocity with Affected Utilities. The Commission shall
conduct a hearing to consider any such intergovernmental
agreement.
In addition, several other conforming changes are necessary. First,
because the adopted changes to the rules make it redundant, the last sentence of
R14-2-1601.1 should be deleted. The deleted sentence stated that "In the event
that modifications are made to existing law that would allow the application of
this Article to the Salt River Project Agricultural Improvement and Power
District ("SRP"), then Affected Utilities shall also include SRP." Also, the
second sentence of R14-2-1603(B) should be amended to read: "Such Certificates
shall be restricted to geographical areas served by the Affected Utilities as of
the date this Article is adopted and to service areas added under the provisions
of R14-2-1611."
APPENDIX C
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ECONOMIC IMPACT STATEMENT
PROPOSED RULE --RETAIL ELECTRIC COMPETITION
R14-2-1601 et seq.
A. Summary of economic, small business and consumer impacts.
1. Identification of the proposed rulemaking.
The proposed rule (Article 16) provides procedures and schedules for
introducing competition into the provision of electric service.
2. Brief summary of the economic, small business and consumer impact
statement.
Increased competition in the electric industry is expected to produce
several benefits:
(1) Consumer choice among energy suppliers.
(2) Greater customization of energy services, especially for
larger consumers, regarding time of use rates, interruptible
service, contract duration, pricing arrangements, risk
management, and so on.
(3) Greater innovation in technology and greater applications
of technological innovations, especially in distributed
generation, as a result of incentives in the competitive
marketplace.
(4) Greater application of energy efficiency measures as
energy service companies offer packages of electric energy,
demand side management measures, and possibly other services
such as building maintenance services.
(5) Lower prices for electricity due to competitive pressures
and to technological, marketing, and organizational
innovations that would not occur as rapidly, if at all, in a
regulated monopoly environment.
The costs of participating in a competitive market generally involve
risk management and information. Examples of possible costs include: the costs
of searching out and evaluating alternatives; additional record keeping and
billing costs associated with deliveries of electricity from
suppliers; additional costs of executing, monitoring, and enforcing contracts;
and additional costs of maintaining power quality and transmission and
generation system reliability.
A competitive market in electricity will benefit small businesses
because it increases their choices and tends to lower prices of electric
service. However, small businesses must be informed about their choices. The
rule indicates that the Commission may undertake educational activities to lower
the costs of participating in the competitive market.
Probable costs to the Commission include costs associated with new
tasks, such as reviewing applications for competitive Certificates of
Convenience and Necessity, and engaging in evidentiary hearings for stranded
investment and unbundled tariff filings. However, Commission review of tariff
filings should be reduced eventually and costly rate cases will be avoided for
competitive services.
Employment opportunities could be enhanced as new energy related
companies move into the area or as a result of new business start-ups. However,
employees at public utilities could lose their positions through cost cutting
measures as the utilities strive to become more cost competitive.
Implementation of the proposed rule should result in no increased costs
to political subdivisions. As an end user of competitive electricity services, a
political subdivision may benefit from greater choices of service options and
affordable rates. Those political subdivisions which have their own municipal
electric utilities may feel pressure to allow competitive electric service.
The restructuring policy proposed is preferred to alternatives
considered because it: minimizes administrative complexity; requires minimal
information and planning needs a priori; is relatively flexible so that policy
could be adjusted in mid-course; uses existing institutions; minimizes utility
organizational disruption; allows buyers and sellers to enter the market freely;
limits market power of incumbent utilities; and minimizes public confusion.
3. The name and address of agency employees to contact regarding this
statement.
Gary Yaquinto or Bradford Borman at the Arizona Corporation Commission,
1200 West Washington Street, Phoenix, Arizona 85007.
B. Economic, small business and consumer impact statement.
1. Identification of the proposed rulemaking.
The proposed rule (Article 16) provides procedures and schedules for
introducing competition into the provision of electric service.
2. Persons who will be directly affected by, bear the costs of, or
directly benefit from the proposed rulemaking.
a. The public at large who are consumers of electricity
throughout the State of Arizona.
b. Furnishers of electricity (serving Arizona and elsewhere),
including Investor Owned Utilities, consumer owned
utilities/power authorities, self generators, and Independent
Power Producers.
c. Power aggregators/marketers.
d. Industry organizations (e.g., Regional Transmission Groups).
e. Transmission utilities.
f. Employees of furnishers of electricity.
g. Suppliers to furnishers of electricity.
h. Investors in Investor Owned Utilities and Independent Power
Producers and holders of bonds of consumer owned utilities and
cooperatives.
i. Financial Organizations.
j. Government agencies such as the Arizona Corporation
Commission, siting authorities, Federal agencies (including
the Federal Energy Regulatory Commission), and consumer
advocates such as the Residential Utility Consumers
Organization.
3. Cost-benefit analysis.
a. Probable costs and benefits to the implementing agency and
other agencies directly affected by the implementation and
enforcement of the proposed rulemaking.
Probable costs to the Commission include costs associated with new
tasks, such as reviewing applications for competitive Certificates of
Convenience and Necessity, and engaging in evidentiary hearings for stranded
costs, standard offer service, and unbundled tariff filings.
The proposed rule allows competitive power and energy suppliers to
change rates by applying for streamlined rate treatment. Filing requirements for
rate increases may be reduced. Thus, Commission review of tariff filings should
be reduced eventually and costly rate cases will be avoided for competitive
services.
b. Probable costs and benefits to a political subdivision of this state
directly affected by the implementation and enforcement of the proposed
rulemaking.
Implementation of the proposed rules should result in no increased
costs to political subdivisions relative to cost changes that may otherwise
occur. As an end user of competitive electricity services, a political
subdivision may benefit from greater choices of service options and affordable
rates. Those political subdivisions which have their own municipal electric
utilities may feel pressure to allow competitive electric service.
c. Probable costs and benefits to businesses directly affected by
the proposed rulemaking, including any anticipated effect on
the revenues or payroll expenditure of employers who are
subject to the proposed rulemaking.
Greater efficiency under competition should arise from lower cost
electricity generation, efficient operation and maintenance, development of low
cost new resources, and greater stimuli to innovation in electric generation
technology. These benefits are achievable while limiting adverse financial
impacts of competition on incumbent utilities; maintaining transmission and
generation system reliability; countering the market power of vertically
integrated utilities; and promoting solar resources.
Possible costs include: additional record keeping and billing costs
associated with deliveries of electricity; transmission access costs; costs of
interconnection arrangements such as disconnection switches to ensure that
interruptible consumers are properly interrupted; additional costs of
maintaining power quality and transmission and generation system reliability;
additional costs of scheduling power deliveries to meet contract requirements;
additional costs of executing, monitoring, and enforcing contracts; and costs of
complying with legal requirements.
4. Probable impacts on private and public employment in business,
agencies and political subdivisions of this state directly
affected by the proposed rulemaking.
Employment opportunities could be enhanced as new energy related
companies move into the area or as a result of new business start-ups. However,
employees at public utilities could lose their positions through cost cutting
measures as the utilities strive to become more cost competitive.
5. Probable impact of the proposed rulemaking on small business.
a. Identification of the small businesses subject to the proposed
rulemaking. Businesses subject to the proposed rulemaking are
furnishers of electricity (serving Arizona and elsewhere),
including Investor Owned Utilities, consumer owned
utilities/power authorities, self generators, Independent
Power Producers, and power aggregators/marketers. Some of
these businesses are small, but some are also large regional,
national, or international firms.
b. Administrative and other costs required for compliance with
the proposed rulemaking.
Administrative costs to providers of competitive retail electric
service would include costs associated with filing requests with the Commission
for approval of Competitive Certificates of Convenience and Necessity; filing
unbundled tariffs for approval; filing semi-annual reports to inform the
Commission about the progress of competition during the phase-in period and
annual reports when competition is fully established; and requests for stranded
cost recovery. Sellers may be required to provide notification and informational
materials to consumers about competition and their choices.
c. A description of the methods that the agency may use to reduce
the impact on small businesses.
A competitive market in electricity will benefit small businesses
because it increases their choices and tends to lower prices of electric
service. However, small businesses must be informed about their choices. The
rule indicates that the Commission may undertake educational activities to lower
the costs of participating in the competitive market.
A possible alternative to reduce the impact on small businesses is to
reduce the frequency of filings during the phase-in period. As a consequence,
however, the Commission may not become aware of implementation problems quickly
enough to offer timely solutions.
Another alternative would be to allow competitive service providers to
engage in market competition by simply registering the company with the
Commission rather than requiring the company to apply for a Certificate of
Convenience and Necessity. However, the outcome of this alternative may be
undesirable if an electric service provider does not have the technical or
financial capability of providing reliable energy services, and if the industry
becomes more prone to companies that engage in fraudulent activities.
A third alternative is to dispense with tariff filings. However, the
Commission could not fulfill its Constitutional responsibilities and consumers
would have less information about businesses who supply electric service.
d. The probable cost and benefit to private persons and consumers
who are directly affected by the proposed rulemaking.
Costs of participating in the market generally involve information and
risk management. Possible costs include: the costs of searching out and
evaluating alternatives; the cost of interruptions, whether the power was
intended to be interruptible or firm; costs of backup and maintenance service
provided by a utility or another party to deal with forced or scheduled outages
at the supplier's generation plant or transmission lines; and additional costs
of executing, monitoring, and enforcing contracts. Also, consumers of
competitive energy services may be assessed a stranded investment charge for
sunk costs incurred by the utility from which they previously received service.
The proposed rule will benefit Arizona consumers by creating consumer
choice among energy suppliers; customizing energy services to consumer needs;
stimulating innovation in technology; encouraging energy efficiency; and
lowering prices relative to regulated rates. Important public programs, such as
low income programs, will be protected and consumers who do not participate in
competition will be shielded from adverse effects during the early phases via
Commission-approved standard offer service from incumbent utilities.
6. A statement of the probable effect on state revenues.
The proposed rule could reduce state revenues received from public
utilities as rates and, therefore, utility revenues are reduced. However, to the
degree that consumers respond to lower prices by increasing their demand for
electricity, the reduction in utility revenues would be offset by additional
revenues from increased electricity demand.
7. A description of any less intrusive or less costly alternative
methods of achieving the purpose of the proposed rulemaking.
A Working Group on Retail Electric Competition met in 1995 to discuss
restructuring options, including retail wheeling and maintaining the status quo.
The Working Group was comprised of individuals from utilities, alternative power
providers, consumer groups, and other interested parties. Several restructuring
options were considered: (1) maintaining the status quo, (2) introducing retail
competition and requiring divestiture of utility assets, (3) introducing retail
competition and requiring an exclusive poolco, and (4) introducing retail
competition and allowing bilateral contracts for power supplies (similar to the
proposed rule).
The first alternative is to maintain the status quo, utilizing
traditional cost-plus rate-making, incentive rate-making (e.g., bench-marking
prices, quality and reliability standards), and flexible pricing. No new
institutions would be required and disruptions in utility operations would be
minimized. However, the effectiveness of incentives (if any) and flexible
pricing are unknown. Also, the circumstances which once warranted classifying
utilities as "natural monopolies" are no longer applicable. The economies of
scale of large central station generation plants are not nearly as large as they
once were. Further, regulated monopolies cannot produce prices that are as low
as would occur in a competitive market and regulated monopolies cannot stimulate
technological, marketing, and organizational innovations as would occur in a
competitive market.
A second alternative is to establish retail competition with an
"exclusive poolco," which is an independent system operator that controls all
power transactions. All generators would sell to the neutral system operator and
all purchasers would buy from the system operator. With an exclusive poolco, all
consumers or their agents would know the market price at each hour. In addition,
power would be dispatched in a least cost order, subject to restrictions on
transmission.
A major disadvantage of an exclusive poolco is that it forces all
transactions to be spot market transactions, thereby increasing the risk to
investors of investing in new power plant capacity without long term contracts
to purchase the output from new plants. Further, with only spot market
transactions, it becomes more difficult to customize contracts to suit the
circumstances of a wide variety of buyers and sellers.
Another disadvantage of retail competition with an exclusive poolco is
the unknown cost to implement the poolco. Also bidders in the poolco may game
their bids, especially if some have an advantage because of their location or
large size relative to the market.
A third option is to introduce retail competition and require utilities
to divest their generation and possibly transmission facilities. The market
would become segmented by function and generation companies would be expected to
operate in a competitive environment. A principal reason for divestiture is that
any incentive for utilities to impede access to their transmission systems to
inhibit competition in generation could be eliminated. In addition, incentives
for efficiency gains could be created by unbundling services into profit
centers. However, the Commission's regulatory authority to require divesture of
utility assets may be questioned and result in a protracted legal dispute.
Further, utilities, utility shareholders, and utility debt holders may strongly
resist divesture. Divestiture could be costly due to expensive debt
re-financing. In addition, inefficiencies could result from the loss of
traditional coordination of generation, transmission, and distribution services.
The restructuring policy proposed is preferred to the alternatives
described above because it: minimizes administrative complexity; requires
minimal information and planning needs a priori; is relatively flexible so that
policy could be adjusted in mid-course; uses existing institutions; minimizes
utility organizational disruption; allows buyers and sellers to enter the market
freely; limits market power of incumbent utilities; and minimizes public
confusion.
The proposed rule was synthesized from comments received from
interested parties on electric industry restructuring and it represents a middle
ground of proposals submitted by utilities, potential energy service
competitors, consumer groups, and others.
C. If for any reason adequate data are not reasonably available to comply with
the requirements of subsection B of this section, the agency shall explain the
limitations of the data
and the methods that were employed in the attempt to obtain the data and shall
characterize the probable impacts in qualitative terms.
The Commission conducted a series of workshops and task forces to
obtain useful information to assess the costs and benefits of electric industry
competition. It is not possible to quantify future market prices, technological
innovations, organization changes, and the like. Therefore, we have described
impacts in qualitative terms.
Among the information gathering activities were:
* An introductory workshop held on September 7, 1994. One
hundred eighteen representatives from utilities, consumer
organizations, other power suppliers, and others attended the
workshop. The workshop was summarized in a Staff Report dated
October 1994.
* A series of nine working group and task force meetings held
in 1995 which addressed restructuring options, implementation
of the options, and advantages and disadvantages of the
options. Fifty-one groups were represented on task forces
which focused on systems and markets, regulatory issues, and
energy efficiency and environmental issues. Members of the
task forces included representatives from utilities, consumer
organizations, other power suppliers, and others. This work
was summarized in a "Report of the Working Group on Retail
Electric Competition," dated October 5, 1995. The report
contains an extensive bibliography on electric industry
restructuring.
* A request for comments on electric industry restructuring
issued in February 1996. Comments were filed by 31 parties on
June 28, 1996. Commenters included consumer groups, Arizona
utilities, other suppliers, and other parties. Staff prepared
a summary of the comments in July 1996.
* A workshop held on August 12, 1996 to explore and obtain
feedback on a small number of options for introducing retail
electric competition. One hundred thirty workshop participants
included representatives from utilities, consumer
organizations, other power suppliers, and others. Staff
summarized the workshop in
a report dated August 19, 1996.
* Requests for comments on a draft rule to phase-in retail
electric competition. The requests were sent out on August 28,
1996 and comments were due September 12, 1996. Comments were
provided by a total of 30 utilities, consumer organizations,
other power suppliers, and others.
* A workshop to discuss a revised draft rule held on September
18, 1996. Ninety individuals attended the workshop, including
representatives from utilities, consumer organizations, other
power suppliers, and others.
In addition, to better understand possible impacts of restructuring,
the Commission Staff reviewed activities in other jurisdictions, including: New
Hampshire, Massachusetts, Illinois, Rhode Island, Texas, Alberta, and New York.