Arizona Shouldn’t Kill Electric Choice Before It’s Even Begun
Hopes that Arizonans may soon finally be able to choose their own electric provider may be dimmed this week. Twenty years ago, the Arizona legislature passed the Energy Competition Act which provided that “a competitive market shall exist in the sale of electric generation services” in the state. For two decades the Arizona Corporation Commission, which oversees the state’s electricity market, refused to implement the law, which nonetheless remains on the books. Recent court decisions have raised questions about whether the Commission can continue to simply ignore the law like this, and last fall Green Mountain Energy filed a petition with the Commission asking to be allowed to compete in the retail electric market.
The move clearly spooked incumbent electric utilities, who mobilized an all-out effort to preempt the petition with legislative action. The result was HB 2101, which would repeal the legislative basis for retail choice and incidentally also hamper the development of rooftop solar in the state. The bill initially went down to defeat in the Arizona House. There must have been some arm twisting behind the scenes, as the bill was brought back from the dead and successfully voted out of the chamber. On Monday the bill will be voted on in the Arizona senate, and if it passes it will go to the desk of Governor Doug Ducey, who has five days to sign or veto it.
Opponents of giving Arizonans a choice in electricity have sought to portray retail competition as something scary and dangerous. Chief among the supposed boogeymen is Texas, where last year power plant failures left millions in the dark and cold for days on end. I am Texan who suffered through the events here last February, and I would not want anyone to have to go through anything remotely similar. But claims that the Texas blackouts had anything to do with retail electric choice are false. In fact, retail choice has been a boon for Texas consumers, and would be for Arizonans as well.
How can I be so sure? While Texas is known as a retail choice state, this isn’t totally true. When the state switched to competition two decades ago, certain parts of the state were granted exemptions from the change, remaining under the only monopoly utility model that Arizona has now. For example, San Antonio operates a city-owned electric utility providing exclusive service to its residents and owning its own power plants. Other parts of the state are part of electric cooperatives, which own generation and exclusively provide power to members. The fact that the state is divided up in this way means we can see what impact, if anything, competition had on the blackouts.
When researchers looked at this issue, they found that non-competitive electricity entities did not outperform their competitive peers. In fact, they performed worse. With the exception of companies that exclusively generate using wind power, monopoly utilities had a higher percentage of generator outages than their competitive counterparts.
What about costs? You may have seen stories after the blackouts about customers with $10,000 dollar electric bills. Those customers had signed up with a single small electric provider who offered to pass through costs to customers from the real time wholesale electricity market. That company is now out of business and their business model has been banned in Texas. But it’s important to remember that plans like this never accounted for more than a tiny fraction of overall electricity customers. According to testimony from then Texas PUC Chair Diane Walker, of the roughly seven million electric customers in Texas, only around forty thousand were subject to this type of indexed pricing. The vast majority were and are on fixed rate plans.
Critics of competition like to cite a flawed Wall Street Journal analysis from last year. The story tried to compare electric prices in competitive and non-competitive parts of Texas, but forgot to account for the fact that some parts of the state had higher electricity prices before the advent of competition. When this correction is made, it turns out that prices in Texas’ competitive areas have fallen since they switched to competition, while areas that remained under the monopoly utility model have seen prices rise slightly. As Texas’ Public Utility Commission noted in 2019, “rates in the [Texas] competitive market have decreased by 31% since the transition to the competitive market [and] remain lower than the national average.”
Competition may also protect customers from some of the financial pain from the blackouts. Shortly after the February outage, San Antonio’s utility CPS tweeted that “we understand that it would be unacceptable to have customers bear the costs on their monthly bill, so we are working diligently to find ways to spread those costs to 10 years or longer to make it more affordable.” CPS faced blowback for this, but they were just being honest. Under a monopoly model, all costs are passed on to its captive customers through rate increases. By contrast, a competitive provider who tries to raise rates risks having customers go to alternative suppliers.
Texas’ system isn’t perfect, and hopefully others can learn from its painful experiences. But Arizona shouldn’t take away the wrong lesson from the event. Texas’ grid failures were not the result of retail electric choice, and like the 13 other states that have electric competition, Texas benefited from not being locked into a single electric provider.
Image credit: JSirlin