No Time to Power Down

Posted on March 05, 2002 | Type: In the News
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Nothing demonstrates better how feeble electricity deregulation has been in Arizona than the Corporation Commission's recent rejection of the proposed Toltec power station in Eloy. If the electricity market is open for competition, why do government regulators still prohibit private companies from providing electricity services to customers?

In reality, the Commission did not deregulate Arizona's electricity market. Instead, it merely restructured that market so customers are now served by two types of companies: generation firms that create power and wire companies that deliver the juice to our homes. The conventional wisdom was that generation would be deregulated, while wires would remain under the control of state and federal regulators. However, as the Toltec decision shows, the market for generation is far from free.

The Corporation Commission's decision on the Toltec plant was based on the arbitrary criteria "need." The Commission felt that "energy was not immediately needed." This is an echo of the 1930s, the heyday of centralized planning, when committees of government experts attempted to steer the economy, determining what goods consumers needed and what goods producers should supply.

Decades, if not centuries, of experience have proven that vision to be a failure. The experts' record in energy planning is especially abysmal. Exhibit A: the gas lines of the 1970s. Exhibit B: California, 2001.

Moreover, the concept of need is economic nonsense. The commissioners may feel that presently all Arizona's power needs are met. However, if supply were increased and prices fell, residents would likely make use of the newly generated power for standard consumption, industry, for uses we have not yet imagined. On the other hand, if bureaucratic tampering were to double the price of power, Arizonans would probably "need" a lot less power.

In 1997, when it discontinued its Integrated Resource Planning regime, the Corporation Commission seemed to have abandoned the Soviet-style approach to central planning. However, a commissioner with political or regulatory power is like a barroom brawler with a knife in his pocket: sooner or later, he will be tempted to use it. With the power to regulate sitting in its pocket, the Commission couldn't resist using it against the Toltec plant. The concept of "need" was merely a hunting license-a way for opposition groups to kill the plant.

The Corporation Commission's actions bode ill for the state's economic future, because electricity is the lifeblood of the new economy. Computers need it. Multi-media entertainment centers need it. Fabrication plants need it to make the microchips that now go inside practically every product more complicated than a spoon.

The Toltec plant was a merchant plant, part of a new generation of electric utilities that could help make Arizona the heart of the new economy in the West. Unlike traditional utilities that generate electricity to serve specific geographic areas, independently-owned merchant plants sell power to the highest bidders, whether in Arizona, California, Oregon or elsewhere. Arizona is an ideal location for power generation with its abundant land, proximity to current-hungry California, and a major hub of the Western transmission grid already within its borders at Palo Verde.

Merchant utilities also provide well-paying jobs and could boost the depressed rural areas of the state. Eloy, for instance, where the Toltec plant would have been built, has an unemployment rate of 11 percent.

Opponents of new generators, such as the Sierra Club, worry that Arizona will use its resources to produce electricity for other states and Mexico. They have expressed the concern that we will become an "energy farm." And yet, we already are a "cotton farm" and a "citrus farm" for other states. Unless we want to subsist as hunter-gatherers, we have to use our state's resources to provide goods to non-Arizonans. In return, they will use their resources to provide goods to us.

Years ago, Arizona school children learned about the five C's of state commerce. At one point, the list included cotton, citrus, cattle, copper, and climate. As the state continues to diversify, there is no reason why the free market should be blocked from adding another C-for current-to our commercial portfolio. The Corporation Commission should not stand in the way of a promising new industry.

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