A wrong start on deregulation
To my surprise, a majority of the Arizona Corporation Commission appears to favor competitive electricity markets, at least in concept.
However, the details in creating such markets, and the transition from current monopoly providers, are blindingly complex. And the commission staff started the discussion off in the wrong direction with its recommendations.
The staff proposes that only large businesses be given the option of choosing a provider of electricity other than the incumbent utility.
Residential customers would remain under the existing system: a monopoly provider subject to rate-of-return regulation.
There would be one exception. A municipality could choose to act as an electricity middleman, choosing an electricity provider in a competitive market for its residents and small businesses.
Both ideas are deeply flawed and a disservice to residential consumers.
The one thing a competitive electricity market will do is drain away crosssubsidizations among classes of consumers. If A is paying more to subsidize B under the current regimen, then someone in a competitive market will offer A a lower price.
As a general rule, business electricity customers subsidize residential users. That’s a natural outcome of having politicians design rates. People vote; businesses do not. So, politicians will try to keep residential rates low by shifting some of the burden to business.
If big business can shop around for electricity, the resources for the residential subsidization will evaporate. If only big business can access a competitive electricity market, residential rates are all but certain to increase.
That’s why it is vital that residential customers also get access to the competitive electricity market from the beginning. It’s the only way for them to have a chance of compensating for the loss of the cross-subsidization.
Even a phased-in approach – business first, homes later – leaves residential users exposed.
It is impossible to know whether residential rates will go down or up in a competitive market. Odds are, some residential customers will pay less and some will pay more.
But what a competitive market does set is the right price. The current regimen contains cross-subsidizations. And the incentives in the current system are for excessive production and consumption.
In rate-of-return regulation, both the utilities and the commission prefer too much electricity production to too little. So, there tends to be a larger-than-necessary buffer.
Residential customers in particular don’t pay the true marginal cost of the peak power they consume. This results in excess consumption.
In a competitive market, price signals reconcile supply and demand without distortions. The excesses in the system are squeezed out.
A competitive market in which residents can’t participate is contrary to their interests. As is making their city government the only way they can participate.
City governments are also run by politicians. If they decide to become a middleman in a competitive electricity market, their choice of provider will be driven as much by politics as economics.
Another mistake the staff makes is applying the current renewable energy requirements to all providers in a competitive market. That diminishes the value of competition. And probably se
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Gun control will hurt law abiders, won’t stop big-city murders
After the two shootings last week, the news media and the Democrat candidates are all up in arms on gun control.
Gun registration, background checks and registering to buy bullets will be on the everyday middle-class person.
This last weekend there were five killed in Chicago and who knows how many more in other big cities. Will gun control stop those killings? I think not. verely limits the number of new providers who would enter the market.
In a truly competitive market, some providers would compete on the basis of lower costs. Some on the environmental virtues of their generation. Some would rely solely on natural gas. Others would offer pure renewable generation.
Residential customers should be able to choose for themselves, not have the choice made for them by municipal politicians.
While the support for electricity deregulation on the commission is a pleasant surprise, I remain skeptical that this turns out to be a serious effort.
This discussion only touches on a few of the blindingly complex details. Do incumbent utilities get to remain vertically integrated, engaged in generation and retail sales, or are they limited to running the distribution system? If the latter, how do they divest of their generating assets? Are they compensated for any assets that don’t have a market, and if so, how?
Is there a safety-net rate for residential costumers? If so, how is it structured and financed?
The commission is trying to construct a competitive market within a constitutional mandate that contemplates monopoly providers and rate-of-return regulation. That makes it awkward at best and unconstitutional at worst.
Still, if the commission is serious about a competitive market, residential customers should be included from the get-go, freed to make their own decisions for themselves.