Arizona Eagletarian

Arizona Eagletarian

Monday, October 27, 2014

Revisit Laurie Roberts' question -- WHY is APS trying to BUY itself a personal Attorney General?

Of course, that's not the exact phrasing of her question. Roberts took it back an additional step or two. Why has APS poured such large sums of what ultimately is ratepayer cash into propagandizing for Mark "I am NOT a CROOK" Brnovich? Why do they want to persistently attack the one AG candidate who actually intends to serve the PEOPLE of Arizona, Felecia Rotellini?

The social psychology research of Arizona State University Professor Emeritus Robert Cialdini has established that large donations to political campaigns are not given without firm expectation that the candidate, if elected, will reciprocate. I've established it by reference in several blog posts. That's why it's entirely appropriate to frame the question in terms of the obvious motive. We know APS has contributed heavily to Brnovich because it wants to purchase its own personal Attorney General.

So the real question underlying Roberts' concern is, "why do they want Brnovich?" I believe I answered that question adequately a few days ago.

This evening, however, I found a compelling article on that may further illuminate the situation.
By now, most people are aware that solar power — particularly distributed solar power, in the form of rooftop panels — poses a threat to power utilities. And utilities are fighting back, attempting to impose additional fees and restrictions on solar customers. These skirmishes generally center on “net metering,” whereby utilities (forced by state legislation) pay customers with solar panels full retail price for the power they produce, which can often cancel out the customer’s bill entirely. That’s lost revenue for the utility.
Net metering, however, is largely a distraction, a squabble over how long utilities can cling to their familiar business model. Larger reforms are inevitable, because the threat to utilities goes far beyond solar panels and demands a response far more substantial than rate-tweaking. Sooner or later, there must be a wholesale rethinking of the utility business model. And if utilities are smart, they’ll do it sooner. [And if Arizonans are smart, they will exercise whatever leverage they can to force APS to adapt sooner, rather than later].
To understand why, let’s have a look at two recent analyses. One examines the short-term issue for utilities, revealing the core problem lurking within. The second pulls the lens back to take in the big picture. [...]
In short, solar PV at 10 percent would reduce return on equity and earnings a lot — 40 percent in the case of the wires-only utility — but raise rates only a little [based on hypothetical scenarios in which rates are only raised a little bit]. (Why the sharply different impact on the two utilities? Because the wires-only utility only invests in wires and other distribution infrastructure, and those are the kinds of investments that solar PV renders unnecessary.) I don’t know if this is a big enough hit to constitute a “death spiral,” but it certainly isn’t good news for utilities. [...]
...Our power utilities are structured to oppose our social and environmental goals... [...] 
For better or worse, this isn’t just a problem for climate hawks. Now that solar PV and other distributed energy solutions are growing [and becoming dramatically less expensive to install and operate], it’s a problem for utilities too. Standing still is not an option. They either adapt or face the much-discussed “death spiral.” 
That’s what the second analysis is about: “Does Disruptive Competition Mean a Death Spiral for Electric Utilities?” It’s in Energy Law Journal, by Elisabeth Graffy and Steven Kihm. 
It begins with a simple premise: The growth of distributed solar PV is not an isolated or one-off phenomenon, but the leading edge of “a synergistic wave of innovations occurring in several sectors at once—technology research and development, policy development, social and cultural preferences, scientific investigation, and business.” After nearly a century spent in a zone of limited-to-no competition, utilities are entering a zone of disruptive competition, in which customers can reduce or even eliminate their dependence on utility power and grid services
Graffy and Kihm describe two broad strategies utilities might choose to cope with this wave: value creation and cost recovery. The former is more promising, but requires more substantial adaptation of institutional practices. The latter might stave off changes for a little while, but by doing so it makes utilities more vulnerable when changes become too substantial to resist. [This is why APS' strategy, a third option in this hypothetical scenario, is to capture key portions of multiple branches of Arizona government in hopes of ensuring the survival of the utility enterprise].
Needless to say, utilities are not prepared for this sh*t. At all. After a century of enjoying regulated-monopoly status, with returns guaranteed by law and expansion as far as the eye could see, utilities have virtually none of the organizational foresight and habits needed to respond proactively to disruptive threats. So at least at the beginning, they’re going for cost recovery. 
Or they are investing heavily in what they've developed as an institutional skill -- buying politicians and the bureaucrats who work with them.
It is the standard utility play and one they’re quite accustomed to. They’ve been protected from competition by regulators for decades. But in present circumstances, the strategy poses three dangers:
First, it requires successive upward recalibration of customer rates [dramatic rate increases] as system costs remain largely fixed while electricity use shifts from the grid to distributed systems. Second, it encourages utilities to defer corporate adaptation unless a deep crisis forces the issue. Third, it encourages them to take actions that slow innovation either by competitors or in the policy domain. Customer backlash, loss of regulatory support, high opportunity costs, and institutional brittleness to external shocks are all foreseeable byproducts that put utilities at greater risk.
The author of the Grist article finally touches on what has been going on in Arizona: utilities defer corporate adaptation (to the disruptive technologies) and they take action to slow innovation by insinuating themselves much deeper into Arizona government (intending to control public policy).


This underscores the incredible urgency for Arizona voters to elect Felecia. The immediate future under APS controlled Arizona state government portends economic gloom, even if not doom.

Is there ANY basis for expecting an Attorney General Brnovich to do anything but the bidding of Cathi and Mike Herrod, the private prison industry and Arizona Public Service?

The one thing we can and MUST do to stave off the seriously deleterious ramifications of this near certain scenario is to elect Felecia as the next Attorney General of Arizona.


  1. From reader Kathleen W:

    APS is completely resistant to evolving their business model. Why else press surcharges on rooftop solar customers to cheat them out of any savings they might enjoy by going green? Obviously APS grudgingly accepted the REST standards to go along with the push for green energy - why would they willingly want to cut into up to 15% of their revenue stream except to "go along" and look as if they are "green partners"? In their existing model, they own all the plants, call all the shots on how much we pay. In rooftop solar, they lose control of the production and they lose the ability to sell all the power to people with rooftop panels. Now that they have approached the 15% green mandate level, they're getting squeamish about "donating" any more to the "green cause".

    When you consider the way business evolution happens in other industries, the business must adapt to technology that's going to become standard in a timely fashion to remain competitive and relevant. To fail to do so means a downward spiral out of business as they are left behind in old technology while the world advances around them. Some examples: analog to digital photography/telephony/audio-video, vast numbers of products such as gas pumps, cash registers, meters, banking terminals, scales, automobiles, even hand tools. All (and more) must continue to make adjustments to scale & scope of operations (and budget) simply because they must keep evolving with their market & the science and technology of their products.

    What exactly could drive APS to evolve when as a monopoly they have no market with any kind of market demand power demanding anything of them? Instead, they are standing on a pedestal as virtually the only providers of essential power - unless you are wealthy enough to invest in a full PV system with off grid capabilities. (continued)

    [yet, the cost for such PV systems with storage is dropping rapidly]

    1. From Kathleen W (continued):
      It is much easier to just keep running their plants and selling the power. Going green is a burden of change and a guarantee of lowered revenues ... UNLESS they do something like evolve to the reality. That might very well mean contracting their business over the years and mean more than just building solar farms from the ground up (not exactly green ripping up pristine wilderness, wasting lots of water for cooling). Evolving might even include things like growing a rooftop solar subsidiary arm to compete in the marketplace. Rooftop is actually the most efficient way to generate solar - plant them on an existing support structure like a roof, connect and make kilowatts. They could do this via leasing or selling them but it appears they are doing neither nor does it look like they have plans to do this. Monopolies must feel they are exempt from this kind evolution.

      I wish our political establishment would mandate all new homes and commercial buildings be required to have an adequate PV system to generate at least 75% of expected power use. Add incentives for retrofit solar and really accelerate towards full green power.

      Obviously, this requires APS (or others) to go along with evolution: to work on building power storage systems, to get involved in the rooftop panel industry, plan for a contraction because the truth is the role of sole power provider is going away. But they don't want to give up their cash cow, change or compete or help society "do the right thing" and get green except on the slowest possible timetable to preserve their revenue & their jobs as long as possible.

      It certainly appears they are buying their governance for one reason: to protect their golden goose so they do not have to evolve. With bought regulators in place, they can continue to string out the "we're green partners" PR message at a minuscule level for decades buying time to keep milking their cash cow. It's so much simpler to keep doing things the old way and easier to get away with that when you are a monopoly. Even more so if you own your regulators.

      We need regulators with the guts to force change including contraction - no other business gets a pass, they must evolve or die. Why should a monopoly be any different?