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Regulatory capture and the Arizona Corporation Commission

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The powerful giants of the fossil-fueled electricity system are facing choices to change their business models, as a result of two developments: Regulations to decrease carbon dioxide pollution, and price drops in solar energy allowing more ratepayers to install rooftop photovoltaic systems. However, many utility companies are not responding in ways that will allow customer choice and decrease pollution, and are instead turning to regulators to protect their monopolies.

Regulatory capture is a particularly apt description for the powerful electric utility industry. It occurs when an agency created to act in the public interest and regulate an industry instead advances the interest of that business, resulting in policy outcomes that favor the regulated entity.

Utilities outside of the wholesale market have virtually no competition, and some also are partial owners of coal mines, natural gas pipelines, and other infrastructure necessary to move fuel long distances. In fact, both Tucson Electric Power and the Public Service Company of New Mexico have tried to purchase the San Juan Coal Mine to continue supplying the coal-fired San Juan Generating Station.

This control over the electricity market and supply chain creates significant revenues and profit margins which in turn is used to influence state governments regulators. Arizona provides a good example of regulatory capture and how fossil fuel interests work to maintain the status quo in the utility sector.  

Regulatory Capture in Arizona

The links between influential groups such as the corporate-funded bill-mill American Legislative Exchange Council (ALEC) and the utility industry, and the introduction and passage of anti-clean-energy legislation have been well documented.

It was reported in 2013 that the Edison Electric Institute (EEI), the member organization for utility companies, helped draft an ALEC-model bill aimed at preventing the growth of solar energy. Additionally, EEI has now begun to lobby municipal leaders at ALEC's new organization, the American City County Exchange, over net metering and municipalization. Simply put, ALEC-connected legislators were and continue to use EEI-written templates and talking-points to push state legislation that benefits the utility industry.

Arizona and ALEC have a long history. Former Arizona Corporation Commissioner (ACC) Brenda Burns was on the board of ALEC for 9 years. Some of the large corporate clients in ALEC are the electric utilities industry, coal, natural gas, and nuclear industries. Ms. Burns served as ALEC's national President in 1999 and lobbied for Unocal, a company that exported petroleum, at the state Legislature where she served as Arizona State Senate President.

Burns was in a good position to advance the utility industry's interests when she was a member of the ACC from 2010 to 2014. Burns, along with former Commissioner Gary Pierce, went after solar with gusto, pushing an amendment to charge customers with solar panels a $50 additional fee every month.  

Pierce was in the news recently thanks to a whistleblower's letter sent to the ACC alleging that Pierce helped steer money to target Democratic candidates for the commission and had lunch meetings with APS CEO Don Brandt, possibly violating commission rules. The whistleblower worked as an assistant to Commissioner Pierce at the time.

If the allegations of the whistleblower prove to be true, corruption would have occurred on a level not seen in years at the ACC. Back in 1999, the FBI investigated Commissioner Jim Irvin for committing mail and wire fraud in connection with a failed gas company merger. Irvin resigned in 2003, when he faced impeachment charges.

Results of Regulatory Capture

Why are Arizona's utilities, along with EEI, pushing so hard to prevent solar energy's growth in the market? It's because the utilities make a lot more money from old, polluting power plants than they do from solar.

The results of regulatory capture are playing out right now in Arizona. The state's second largest utility, the Salt River Project, voted to add a $50 per month fee for customers who install solar. This decision will result in at least $600 extra per year for solar users. Most recently, Tucson Electric Power proposed a new net metering plan that would increase the bills for customers with rooftop solar by about $22 per month.

Solutions

The 100 year old U.S. regulatory system is showing its age, but who will push and help bring about change? Only the regulators and the utilities have enough access to the mechanisms of power to bring the change needed to advance ratepayer choices and decrease pollution.

One step to solving this problem of regulatory capture is passing legislation aimed at preventing utility companies and their parent corporations from spending millions of dollars in the elections of the regulatory officials.

Nancy LaPlaca served as Policy Advisor to Commissioner Paul Newman from 2009-2012; and is a graduate of Arizona State University's College of Fine Arts and College of Law. She is now a Senior Fellow at the Energy and Policy Institute, and a consultant working on solar policies.

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