Arizona: Don't Call It Deregulation

April 26, 2012 - PRLog -- Companies in Arizona are calling on experts from Texas to assist them in getting lower electricity prices through a new Arizona rate case.   In a huge rate case, involving commercial giants Arizona Public Service Company, Wal-Mart, Kroger, as well as AARP, IBEW, Arizona Association of Realtors and at least 17 others, the Arizona Corporation Commission is in the final stages of determining the rules for electricity suppliers to offer competitive pricing on Arizona electricity albeit limited.  Unlike Texas and at least a dozen other states, which allow businesses from small tanning salons to the largest industrial manufacturer to shop for the best price available, Arizona will only be allowing a few of their largest commercial users to “shop”.

Commercial entities in Arizona are hoping to get in on some that cheap power. But it won’t be easy.
To navigate these uncharted waters, Arizona entities are turning to experts in deregulation.  Elizabeth Nottingham, President of Verdigris Energy, LLC, a utility consulting firm in North Texas assists businesses in procuring electricity in deregulated states and is actively working with companies in Arizona. She explains,  “although deregulated is a term often used, it is really regulated competition.”

Texans have been able to shop for electricity for over ten years now. As a result of ardent competition, Texas businesses are enjoying record low utility costs.  Today’s rates for small businesses like day cares and tanning salons in the Dallas area are less than 6 cents per kWh, while extra large industrials are getting rates as low as three and half cents per kWh.  Nottingham points out that it is the electricity supply that is open to competition, not electricity delivery— the “wires company”.  That is how it will be in Arizona.  The “wires company” will not change.  

In a letter to the Arizona Corporation Commission, Chris Hendrix of Wal-Mart states “In general, commercial customers such as Wal-Mart participate in competitive markets across the United States in order to have more control over their energy expenses.”

The larger the business, the more complex the electricity supply contract can be. “Those that pay the least usually have the most complex buying practices” explains Nottingham.   “Our firm constantly monitors market conditions and develops buying strategies that utilize spot and fixed pricing, block pricing, hedging, and real time pricing in 15 minute intervals, heat rate and more in Texas and other states. We put together the strategy and ask numerous suppliers to bid their lowest price for our customer.  As a result, our customers are enjoying record low prices.” She goes on to say that although numerous states have deregulated electricity supply, each state has different rules.  With Arizona being the latest, it will be imperative that a business understands the rules of the market.  

A proposed settlement agreement in Arizona Public Service Company's rate case would allow a capped number of large power users to elect alternative generation supply under a "buy through" mechanism (Docket E-01345A-11-0224). These large power users include universities, hospitals, manufacturers, mining operations, private prisons, department stores and grocery store chains.  

The 22 page proposed settlement contains the five page “Experimental Rate Schedule AG-1”. This document details the buy through process for large commercial and industrial customers, for a period of four years, with participation capped at 200 MW. Under this rate, a third party Generation Service Provider selected by the customer would provide wholesale power to APS on behalf of the customer. APS would serve as the delivery (wires) company and bill the customer.
As the settlement is proposed, Nottingham says she anticipates a much greater demand to participate than the 200 MW cap will allow.  It will fill up and only allow a few large customers will get to access lower cost electricity but the Arizona Corporation Commission obviously anticipated a great demand because they built in a lottery selection process.  Companies who get to participate can potentially save millions of dollars over the four years. “Instead of a land rush or a gold rush, this is an electricity rush with companies rushing to secure savings. It won’t be as wild as it sounds because this is an extremely regulated process.  So, no I wouldn’t call it deregulation” says Nottingham.