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State PBF/ USF History, Legislation, Implementation

Arizona
Last Updated: October 2004

Restructuring in Arizona is essentially on hold due to a variety of regulatory orders detailed below.

However, the state’s initial restructuring rules and legislation imposed a non-by-passable system benefits charge on direct access customers to fund Commission-approved low-income, demand side management, environmental, renewable and nuclear power plant decommissioning programs. However, since there are very few direct access customers in Arizona , there is actually no new funding.

According to the Arizona Corporation Commission, the systems benefit charge reflects what was already in base rates for public benefits for each utility. Some utilities do not have such a charge. For those utilities that do have the charge, all customers pay it. The amount of the charge that funds low-income programs varies by utility.

Most of the state’s major utilities have had low-income and energy efficiency programs for a number of years and these have continued under restructuring. (See details on the state’s low-income energy programs and general residential energy programs.)

Background

In September 1999, after multiple revisions, the Arizona Corporation Commission (ACC) issued Decision No. 61969 which adopted the Electric Competition Rules that set the course of deregulation in Arizona .

The competitive conditions that were set forth in the Retail Electric Competition Rules have not occurred as expected and competition has not materialized for Arizona ’s small retail customers.

The Retail Electric Competition Rules have come under question in a superior court and more recently in an appellate court decision, dated March 15, 2004 . The State of Arizona Court of Appeals , Division One, was asked to "resolve constitutional, statutory, and administrative challenges to the Rules that were publicized by the Commission to implement competition." The Court was also asked to determine the validity of Commission decisions approving the entry of new competitive electric generators into the market.

On September 2, 2002 , the Commission issued its final order on Track A issues. In the final order the Commission ordered the Staff to form the Electric Competition Advisory Group (ECAG) and to file quarterly reports detailing ECAG activities. The Commission Staff requested the ECAG to identify issues that may impede competition and specific areas where the Retail Electric Competition Rules could be improved. December 2003 comments from the ECAG can be viewed at the Commission's website. There has been no activity from the group since then.

The final order also instructed the Arizona Public Service Company (APS) and the Tucson Electric Power Company (TEP) "to cancel any plans to divest interests in any generating assets." The order also stated that the previous decisions dealing with the amount of power purchased through a competitive bid process are put on hold.

The purpose of the divestiture requirement was to ensure that the majority of the power necessary to serve Arizona customers was purchased on the wholesale market. Theoretically, it would have allowed a utility to bid for and secure electricity at a lower price than it would have cost to produce the power itself.

Price spikes on the wholesale market, transmission constraints and uncertainty about the role that the federal government would play in constructing a wholesale market caused ACC to retract the mandatory divestiture provision. The Commissioners cited California ’s deregulation plan, which also included mandatory divestiture, as one of the several pitfalls that led to extreme price hikes for consumers. ACC’s action is designed to avert a possible crisis if utilities were allowed to transfer their power plants to non-regulated affiliates and charge customers higher rates should energy run short.

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Page Last Updated: January 27, 2010