Arizona Eagletarian

Arizona Eagletarian

Saturday, September 21, 2013

Electric Utility Deregulation and Disruptive Innovation -- UPDATED 6:25pm MST 9-21-13

With the Arizona Corporation Commission now being owned lock, stock and barrel by ALEC, it's not easy to discern when they might actually be considering something that could be good for consumers, as opposed to the ACC's corporate masters. Therefore, when the question of the ACC considering electric utility deregulation came up a few months ago, I was not necessarily surprised.  However, when I read the arguments put forward by lobbyists and public relations people (on behalf of the regulated utilities), I was immediately skeptical.

Last month, the Arizona Republic published an op-ed written by former Symington aide Jay Heiler. It begins,
More than a decade ago, the Arizona Corporation Commission abandoned a plan to impose electric “deregulation” on Arizona’s citizens and public utilities in recognition of the great risks and problems it posed. Now the ACC is revisiting that decision, at the urging of those who wish to market electricity directly to large users and some of those large users themselves.
That could have been written by me, back in 2001. In fact, I did write about that very topic in a letter published by the Phoenix New Times, with pretty much that same message.
I have been reading a wide range of news, opinion and research on electric utility deregulation and the California debacle. None, however, until your stories in New Times, have, in my opinion, begun examining what any of it really means to Arizona ("Shock Treatment," Robert Nelson, February 22). I believe you hit the nail squarely on the head, on several points. For example, uncertainties and market manipulation of the fuel (natural gas) supply. That is only one reason that any hope for ratepayers to see reduced electric rates when caps are lifted, beginning in 2004, is completely baseless. (my emphasis added this time, not in 2001)
Indeed, the California market was "built for sharks." The shortages were not entirely because of consumption, nor entirely real. Generating companies' arbitrary withholding of supply from day-ahead auctions caused panic conditions and was a factor in sending wholesale prices to levels more than 20 times those of the previous year, without corresponding or justifying increases in the cost of producing the electricity.
This described conditions during California's experiment with electric utility deregulation. I had first hand knowledge of the data about which I wrote then. In 2000, during the California crisis, I worked (for six months) through a temp agency for Arizona Public Service conducting accounting analysis on APS' bulk power sales and purchases with companies in California and Washington State.

Not only that, but at some point back then (2001 or 2002), I purchased my first URL for the purpose of activism and advocacy, StopDeregulationNow.org. Because the ACC did not follow through at that time, I never put any content up on the website and declined to reauthorize it when it was time to pay the fees again.

Anyway, the most obvious thing I learned about the economics of deregulation back in 2000 was that there was no way residential or small business customers would benefit from RATE deregulation. The administrative burden on the utility is tremendously higher when you have a thousand customers whose aggregate electricity consumption is one MW (megawatt) than when it takes only one or two huge commercial, industrial or governmental customers to consume the same amount. Think about reading a thousand meters and sending out a thousand bills as opposed to reading only a handful of meters and sending one or two bills.

Nevertheless, to have Jay Heiler, who represents the perspective of the ONE percent, making claims about how bad deregulation would be for ratepayers could only make me wonder. Who was at the heart of this drive to kill deregulation this time and what was the real motivation?

At the time, I couldn't find any obvious answer even though I had my hunches. Lo and behold yesterday the Arizona Republic posted an op-ed by Corporation Commissioner Brenda Burns.
... we are living in an era that is ushering in major changes in how electricity is delivered. The possibilities for modernization are endless and there are many innovations taking place which could eventually put consumers in a position to completely go off the grid. Those technologies include the Bloom Box, microgrids and storing unused solar energy.
The commission should prepare for these exciting opportunities of freedom and choice. Among other things, I had hoped that the debate surrounding electric retail competition would also include discussion of the intriguing ways we could be the vanguard by incorporating new paradigms of electric generation. Unfortunately, we have hit the “stop” button on 21st century modernization and are stuck with, for now, a 19th century model of electric service.
As technological innovations nudge consumers away from the monopoly model, the incumbent utilities will seek recovery for their investments and fixed costs. Had this debate continued, we would have been able to explore those considerations.
Generally speaking, I would NOT trust Brenda Burns on politics (ok, maybe the Ronald Reagan method, trust but verify)... well, I still have a hard time given how brazenly she has represented interests contrary to those of everyday Arizonans for so long. BUT, on this issue, her words ring like a fight bell.

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I may not be the kind of visionary, like Bill Gates, that's got the next idea to revolutionize the workplace, or the home or the environment. But I've been both in the path of unstoppable disruptive innovation and a beneficiary of another innovation that disrupted a major industry and profession.

In both cases for me, it had to do with advances in computers. In the 1990s, I established, maintained and communicated (provided training and troubleshooting to and for accounting system users) a complex chart of accounts for a state government agency. To ensure a social service agency with more than 50 different programs maintained clear audit records on funding sources, financial commitments and expenditures (hundreds of federal grants and state appropriations, cost centers, activity and object codes), there were literally thousands of valid combinations and even more that were not acceptable.

Social workers and clerks (some clerks with only a high school education) needed guidance on using the right codes and figuring out what they were doing wrong when a one digit typo prevented them from completing required data entry tasks.

As computer system technology continued to develop, my job became expendable because it was easier for others to grasp the complexities without a guru.

Self-publishing internet blogging platforms, among other advancing technologies, have been incredibly disruptive to the journalism industry.

Cutting to the chase -- it goes without saying that the need to change HOW we generate the electricity on which we all depend is of the utmost urgency and importance. The Arizona Corporation Commission, in years gone by, has been a leader in development of Renewable Energy Standards. But there has been a lot of resistance and many setbacks and stumbles along the way.

Commissioner Burns' column sets forth what is likely the underlying reason right-wing advocates like Jay Heiler are using consumer oriented smokescreens to keep -- once again -- from having to address the inevitable problem of disruptive innovation about which investor owned utilities are deathly afraid. Deathly being the key word.

The IOUs have had well more than a decade and probably closer to two decades to change their cultures and become the visionaries that can plow away the obstacles to the next generation of electricity generating technology. Instead of becoming learning organizations, they have dug in their heels, resisted change and actually become the obstacles in their own paths. But change, especially in contemporary times, is inevitable. If they do not lead the way now, they will become victims, risk completely losing the value of their corporate equity and will indeed go the way of the dinosaur.

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By the way, the Arizona Republic and columnist Bob Robb claimed the ACC should NOT consider deregulation because the Arizona Constitution mandates the ACC set utility rates. However, if competition is opened to divergent technologies, without the ACC abdicating authority for setting rates, how is that at cross purposes to the state constitution?

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UPDATE -- the update is to include a link to Heiler's op-ed. I forgot to include that link when I first posted this last night.


6 comments:

  1. Thanks for explaining this issue in such detail. And I appreciate you sharing information about your background. The commissioners need to see the future and act accordingly or be voted out and become part of the past, along with manual typewriters and slide rulers.

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    1. The manual typewriter and the slide rule both are excellent examples of items no longer used because of technologies that made them obsolete. Thanks.

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  2. ??? I'm using my manual (an Underwood) typewriter to post this comment! (Wait, has anyone come up with a way to connect a manual via a USB connection?)

    Thanks for this essay, Steve! You have put the issue into a very readable and understandable package. (I was a little confused at first as to Heiler's/the utilities' point, and had to go read his editorial.)

    Sooo, in your opinion, IS there any way that deregulation could be achieved that would avoid the problems experienced in the past and that could work to Arizonans' benefit?

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    1. Refer to my blog post dated September 21, 2013. I'm not an engineer and not an attorney, but it seems possible to learn from the California experiment from 2000, and build something into a new structure to enable competition in retail electricity delivery to avoid the pitfalls.

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  3. Great article ...Thanks for your great information, the contents are quiet interesting.

    Electrical Services Provider

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  4. This comment has been removed by a blog administrator.

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