The Challenges of Deregulation in Arizona

During the spring of 2013, The Arizona Corporation Commission (ACC), the state’s utility

regulator, re-opened the state’s discussion on energy deregulation. They began sending out

letters asking local government, utilities, and consumers for their input. On September 11th,

2013, the commission voted 4-1 to close the docket on these discussions, citing constitutional

issues. Many of these issues stem from the state’s previous attempt to deregulate energy. For

this reason, it is unlikely that Arizona will see deregulation implemented anytime in the near

future.

The idea of deregulation was first raised during the 1990’s, around the same time that other

states were attempting to open up their markets. Over the span of several years, utilities began

forming independent companies to market electricity. The California energy crisis of 2000 and

2001 caused many states, including Arizona, to delay or halt deregulation. In 2004, the court of

appeals found that some of the rules governing deregulation were unconstitutional. R14-2-1611

(A) stated that the market would be allowed to determine fair energy rates. The court ruled that

this was in violation of Article 15, section 3 of the Arizona Constitution, which gave the ACC the

power to determine and set fair rates.

With this currently ruling in place, it might be necessary for deregulation supporters to challenge

this ruling in court. As ACC Chairman Bob Stump said after the vote, “The Constitutional

impediments are simply too great with regard to electric retail competition in the state.”

However, the chairman also stated that he was, "ideologically sympathetic" to the idea. 

Proponents believe that deregulation gives consumers the power to choose their energy

provider. An open market could create competition, which would potentially lower electricity

prices. States like Pennsylvania, which has implemented the system, allow consumers to

choose their energy provider. Using PA Power Switch (The Pennsylvania Public Utilities

Commission) they can search electricity rates and find the most affordable provider in their area.

There are also independent comparison tools such as Shop My Power which allow consumers

to compare electricity rates in several deregulated states. Among the groups supporting

deregulation is The Goldwater Institute, a free-market think tank.

Opponents, such as AARP, claim that deregulation will actually raise prices. David Mitchell, the

Arizona director for AARP has said, "This is evidenced by many people in deregulated states

paying higher rates for their electricity after deregulation." According to the U.S. Energy

Information Administration, the average electricity price to ultimate customers in the end use

sector of Arizona was 12.18 cents/kilowatt hour during June 2013. While several deregulated

states including New Jersey, Connecticut, Pennsylvania, and Rhode Island saw prices which

exceeded 16 cents/kilowatt hour during the same month.

In fact, many of the states that originally implemented deregulation have repealed or suspended

legislation. It is therefore unlikely that deregulation in Arizona will happen anytime soon.

However, the possibility is still alive if supporters can garner enough public support for the idea.

As Nick Drainas of The Goldwater Institute has said, “This is a continuous process, and it’s only

going to ramp up because energy is the most important thing in our economy.”

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