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State Regulators: Driven By Reliability

Can natural gas supply keep up with demand for power?
Fortnightly Magazine - November 2004

practices of the market with the reliability expectations of consumers.

In 2003, the Arizona commission approved the start of a competitive wholesale power solicitation. In what is known as the Track A Order, the commission's order on the first group of issues related to electric competition, APS and Tucson Electric Power (TEP) were required to procure, through a competitive solicitation process, power to serve their customers that cannot be produced from their existing assets. The Track B Process is designed to lay a framework for the competitive wholesale market by setting parameters and procedures for wholesale energy procurement. The process also ensures for the first time that the environmental impacts of generation will be measured and evaluated. Arizona will become a national leader in balancing the environmental impacts of electricity generation against economic costs.

Arizona has had retail competition in the natural gas market for over 10 years. However, the only customers taking advantage of such competition are large users of the commodity. Due to Arizona's climate, it does not appear likely that the average small business or residential customer would experience the same benefits as a gas customer in the Midwest or East Coast.

Q: Does Arizona have in place a quota for renewable energy? If not, do you expect to implement one?

A: In February 2001, the commission voted to codify the Environmental Portfolio Standard (EPS) as a formal rule.

The EPS requires regulated utilities to generate a minimum percentage of their total retail energy sales from renewable sources, beginning in 2001. The percentage increases each year to 1 percent in 2005 and tops out at 1.1 percent in 2007. The decision applies to companies regulated by the commission that sell retail electricity in Arizona. The EPS covers solar technologies such as solar generation, solar water heating, and solar air conditioning. Non-solar technologies such as landfill gas generators, wind generators, and biomass generators are also qualifying technologies.

Beginning in 2001, Arizona ratepayers started paying a small portion of the costs associated with the increased investment in environmentally friendly technologies. I am quite familiar with pollution's "external cost." The benefits of cleaner air on human health and welfare argue in favor of the higher cost of renewable energy

Q: What is the issue of greatest importance to Arizona?

A: The commission exists, among other things, to ensure Arizonans receive "adequate, economical and reliable electric power." This mandate is the issue of greatest importance to the commission.

The balancing of competing interests, especially among rates, reliability, and rate of return on various issues are issues I believe the commission has successfully addressed, although at times amid great toil and debate. Our plate is full of issues such as natural-gas price volatility, the never-ending need for the siting of infrastructure in the face of NIMBYism, addressing the water industry's adherence to the new arsenic standard, enhancing telecommunications competition, and the pending leveraged buyout of an electric utility.

Arizona needs utility infrastructure, and Wall Street is the gateway to construction of needed capital projects.

Financial interests have been critical of congressional enactments and regulatory