Reliable power is vital in Arizona’s desert climate. Our communities depend on electricity to cool and heat our air, pump water and provide other necessities of modern life.
Thankfully, our state’s utilities are among the most reliable in the nation. Arizona customers experienced shorter power outages, on average, than those in any other state in 2020, according to the U.S. Energy Information Administration. This reliability is a key benefit of the traditional regulatory model, which lets customers and regulators hold utilities accountable for the dependability of their service.
Reliability risks are higher in deregulated markets, which have sometimes struggled to provide enough energy during extreme weather and periods of high energy demand.
Energy reserves are critical to electric reliability, as they allow utilities to compensate for power plant outages, transmission line failures or unexpected increases in energy use. While some deregulated markets have incentivized the development of adequate reserve generating capacity, others have not – with potentially tragic results.
By 2010, about a decade after deregulation in Texas, the state’s power capacity reserve margin had fallen to the lowest in the country, according to the National Electric Reliability Corporation. Despite the addition of significant energy resources since then, Texas remains at risk for energy shortages during extreme weather, such as another severe winter storm.
In Arizona, our utilities are obligated to provide enough resources to reliably serve all customers around the clock and throughout the year. This obligation doesn’t exist in much of Texas, where competitive power providers instead enjoy an “opportunity” to serve – and the option to walk away if potential profits don’t appear to justify the cost.
California has been short on power capacity for years. In the two decades since the state’s disastrous experiment with electric deregulation, California utilities have failed to invest in necessary power resources to serve the energy demand from the state’s residents and businesses.
During the “Western U.S. Energy Crisis of 2000 and 2001,” California suffered multiple large-scale blackouts caused by market manipulation from “deregulation.” California’s rules allowed energy providers and resellers to restrict power generation, reducing reliability and dramatically increasing costs for customers. The resulting crisis prompted a significant rollback of retail electric competition in the state, convincing Arizona lawmakers and regulators to suspend our own state’s plans for a restructured energy market.
Twenty years later, California again faces potential energy shortfalls due partly to the growing popularity of a “community choice” option that incorporates many elements of electric deregulation. California law allows cities and counties to form Community Choice Aggregations (CCAs) that take over responsibility for purchasing the power used by residents and businesses.
Rather than requiring resources capable of meeting their around-the-clock energy needs, California’s rules allow CCAs to contract for low-cost renewable energy instead. While this policy has driven the popularity of CCAs and has incentivized the development of new solar arrays, it has discouraged investments in around-the-clock energy resources needed to maintain reliable service for all California customers – including those served by CCAs.
The growing shortfall of reliable energy resources has become a looming challenge that threatens to extend beyond California into Arizona and other nearby states. In 2021, California utilities issued repeated calls for energy conservation to avoid the rolling blackouts that plagued the state during the hot 2020 summer. Simultaneously, the state’s grid operator was forced to curtail increasing solar energy levels to maintain reliability during midday hours when solar production outpaces customer demand.
While utilities are significantly expanding our state’s use of clean energy, they also continue to invest in reliable resources that allow safe, around-the-clock service. These investments might not be possible in a “deregulated” market that doesn’t provide adequate support for grid reliability.
Montana deregulated its electricity sector in 1997, only to abandon this model 10 years later after the promised benefits did not materialize. The state had inexpensive power, though some believed that allowing more energy producers and competition in the market could drive energy prices even lower. Local utilities, including the Montana Power Company, sold their power plants and some of their energy delivery systems to facilitate this transition.
Rather than leading to lower bills, the transition drove electric rates higher. Ten years after its experiment began, Montana ended retail choice for all but the largest electric customers in 2007. Local utilities eventually repurchased generation assets, including hydroelectric power plants and water rights, for a price of more than $800 million. The experiment resulted in customers effectively paying twice for the power assets that used to serve them.