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It's Time to Rethink Electricity

November 7, 2014

Arizona’s consumption of electrical power has been growing at about three times the rate of the United States as a whole. Even though demand recently has slowed as a result of the economy, experts agree eventually things will pick up. When it does, existing supplies of electricity won’t be enough to keep up.

Unless we open the market to let more suppliers in, Arizonans will be at increased risk of electricity shortages and spiraling prices. Arizonans also will miss out on the benefits of innovation in renewable energy spurred by competition for their business. That’s why the Goldwater Institute recommends restructuring Arizona’s electricity markets for competition.

Restructuring would rewrite the regulations governing Arizona’s electricity market and allow for competition among generators, distributors and retailers of electricity. It would allow entrepreneurs to open new businesses to produce, distribute and sell electricity.

The Goldwater Institute recommends restructuring in three steps. First, the electricity monopoly must be ended. Steps will be taken to prevent companies like APS, SRP and Tucson Electric Power from controlling the electricity market. Second, regulations that block new businesses from producing and selling electricity would be repealed or prevented. Third, consumers would be free to purchase electricity from any company they want or produce it themselves. You would have options in buying electricity just like you do when choosing your cell phone service.

The surest way to get the ball rolling is to make sure entrepreneurs are free to innovate in “distributed power generation.” Distributed generation is when a source of electricity is built near the place it will be used and the power is sold to those nearby users, bypassing the grid except for backup purposes.

An example is the recent effort by Solar City to put solar panels on the roof of a school to supply its electricity needs. Technology in this area – particularly in solar, waste recycling and nuclear – is improving rapidly. But the Arizona Corporation Commission is considering regulating distributed generation like a standard electricity company, which would significantly undermine this progress.

Opening our electricity market to competition will increase the amount of energy available and will stabilize rates, ultimately driving them down. The competitive electricity market in Texas, for example, increased generation capacity by 35 percent from 1998 to 2006. In Britain, a similar expansion in capacity ultimately lowered rates 30 percent in 10 years.

The bottom line is that more competition and more supply will keep rates lower than what monopolies charge. You may remember California’s failed attempt at energy restructuring. You can rest assured those mistakes won’t be repeated. California did not give consumers maximum freedom to choose their rates, making it illegal to lock in low rates with long-term contracts. Knowing this, utilities raised rates to the max. The Goldwater proposal gives consumers total freedom to lock in low rates as a hedge against the possibility of future price increases.

On Thursday, State Rep. Lucy Mason will convene a bipartisan group of legislators at the Capitol to hear from experts who will explain how electricity restructuring has worked in other states and how it can work in Arizona.

A successful restructuring effort will unleash entrepreneurs to freely generate more electricity to meet demand and to innovate in developing energy sources of all types, especially green, while maintaining stable prices. Restructuring, when done right, has never failed. Indeed, it has been successful in Texas, Pennsylvania and Britain. It will succeed here, too.



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