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Arizona Corporation Commission Candidate Debate, Part 2

On Wednesday I blogged about the first half of the 2010 Candidate Debate for the office of Arizona Corporation Commissioner we hosted last week.  As a recap, four candidates participated: Hon. David Bradley, Ms. Brenda Burns, Mr. Rick Fowlkes, and Commissioner Gary Pierce, who is running for re-election.  Michael Grant moderated the debate, taking questions from the live audience and webcast participants.

If you missed Part 1, read it here; you can also watch the webcast here.  Because the debate was nearly two hours long, I haven't transcribed the candidates' responses verbatim; I also omitted the questions that the candidates addressed earlier this fall in response to our questionnaire (you can read those responses here).

Michael Grant: What's your view of the commission's role: do you regulate the utility or do you run the utility?

Rick Fowlkes: As I've said before, the role of the ACC is to look out for the ratepayer, so certainly we don't want to run things for the utility companies.  While there is a monopoly system, any time a utility comes for a rate case hearing we have to scrutinize every entry on the ledger sheet and decide what should be allowed into the rate base and paid for by consumers and what should not be allowed into the rate base and set aside and paid for by stock holders.  Again, in an ideal libertarian world we wouldn't need a commission because there wouldn't be any monopolies.

Brenda Burns: Regulate, not operate.  The ACC has a role clearly in the Constitution to define fair value for the utility, to look at their expenses and make sure they're in line and determine a just and reasonable rate of return.  With regard to the other things we get into trouble when we try to micromanage.  With regard to the integrated planning resource, I think that's great; I'd love to see it because it's difficult to make decisions in a vacuum -- it's important to see where we're going.  So I'm glad to see that the ACC has reinstated that 15-year outlook.  But I would consider a very strong responsibility of protecting the ratepayer and making sure that I can say I've examined expenses and we do in fact have a healthy company that will deliver the power you need at a reasonable rate.

David Bradley: Trust but verify.  As a business leader, I know about when regulation stymies operations and when it is not sufficient and people are actually put in danger because inadequacy of rule or lack of implementation and we end up in moral hazard area when regulation isn't enough.  So it's about balance.  I would bring that business experience to the ACC oversight of utilities.  Utilities aren't evil monsters -- everyone is entitled to a profit.  But you have to realize how important and vital power is.  So there always needs to be that balance in the role of commissioner.

Gary Pierce: I once in frustration had to ask the utility, "Are we your environmental regulator?"  What we are charged with is to be the economic regulator.  We do forensic audits when a utility requests a rate increase.  We decide what should fall to ratepayers and what should fall to investors.  If we find something mismanaged, they don't get rates on that.  Which is as it should be.  The reality is that we are simply the economic regulators -- we set rates and we audit; and that's what we should stick to.

Michael Grant: What is your view of using customer energy efficiency as a way to meet future energy needs in Arizona and as a commissioner, what specifically would you do to help customers reduce their energy bills by increasing their efficiency?

Brenda Burns: Customers will want to go energy efficient when they see it saves them money.  Around the state people say "I reduce my energy use, but still pay more."  I know we just instituted the 20% reduction rule.  But the way to encourage energy efficiency is to talk to people about, for example, putting in a more efficient light bulb so they can have light on for an hour at less cost, rather than telling people to shut off the light after half an hour.  So the way to go is cost benefit and energy saving.  Energy efficiency can go a long way in reducing the cost of energy so we don't have to develop more of it -- that's the most cost effective way to go.

David Bradley: I support the energy efficiency rule.  It is important to keep it simple.  For example, turning up the thermostat on the A/C while we're gone.  It's incumbent upon the utilities to communicate to people.  For some people it won't matter.  But it is a central issue for many folks -- 18-24% of Arizonans falls below poverty line, so keeping the issue in people's faces is important for utility companies and for the ACC.  As we noted, many people don't have a clue what the commission does and what its role is and perhaps one of its roles can be spending more time communicating the need for efficiencies.

Gary Pierce: I voted for the rule.  Along the way -- these are years in developing and accomplishing -- you have to make adjustments.  We look at what rate payers are facing in their bills; if it's too intense, adjustments have to be made.  When we passed the rule newspapers said that we're forcing utilities to produce less power.  What we know is that the utilities are going to be producing more power but are going to become more efficient.  People aren't going to have to use less power to do the things they want to do, but the cost of that power is going to go down because they're going to be more efficient as they do them.  Whether it has to do with insulation or products that use less power, that's what this rule is about.  Whether 20 or 22% is right, it's as close to being correct as we can get.  I hope the ACC is wise enough to look at the rule as we go along and make adjustments as we go along.  Because these are all programs that cost money but they're designed to save us a lot of money.  Efficiency is the low-hanging fruit.  If we can avoid needing more power for the same amount of folks in the future and still provide the service they expect it benefits us all in our pocketbooks and our environment.

Rick Fowlkes: I agree with the ACC's decision on this one.  Something had to be done -- for years utility companies have favored big users with lower rates; the more you use, the lower your rate.  I've talked to big companies in the state that say that at the end of the month if they haven't used enough power they turn on all the lights, turn down the thermostat because if they don't use enough power their bill will be higher than if they waste the power.  So something had to be done, but it needs to be monitored going forward.  We need to encourage utility companies to reward customers who conserve rather than penalize them.

Michael Grant: If you need to increase rates, how do we know the increase is the lowest possible increase?  

David Bradley: The central issue of the ACC is to figure that out.  It's why the ACC exists and why I would not favor letting competition handle the issue.  It's the thoroughness and transparency of the organizations that come before the ACC.  If they're not thorough and transparent, it becomes more of a task to figure out real costs.  But that's what the ACC has to do.

Gary Pierce: Looking at whether the company can attract capital at the lowest possible cost -- all the things that we do to give the company a rate that recognizes its investment -- on behalf of the consumer, that we're not overvaluing that or rewarding something that is not used and useful.  Because we use historical test years, it's not often that the company has something that they've built that is not used and useful.  I've voted no on a few rate increases.  But that's often due to policy written into the rate increase rather than financial aspects of the rate case.  I try to balance that between the company and the customers.

Rick Fowlkes: The very best way you can do that is elect a Libertarian candidate with an engineering background to the ACC.  Beyond that, competition is a better way to achieve control of the rate increases, rather than continuing the monopoly system.  There's a reason SRP has the lowest rates in the state -- they don't have to go through that expensive rate hearing process year after year.  They set their own rates and they save a little bit because they don't have to go through the rate hearing process.  We could limit that process for all of the utilities in the state and open up energy markets to providers and make companies compete for business and they'll find a way to get those costs down.  Now, they're rewarded for being inefficient.  By statute, the higher they can prove to the ACC that their operating expenses are, they're guaranteed a rate of return on that above their costs.  If they competed, they would provide better services and get costs down.

Brenda Burns: Certainly electing the right people makes a difference.  Is it best to elect people who have legislative history or someone who's been in business in the private sector?  If you can, get both.  When I'm out there I hear that people don't want to pay for bad business decisions, or Skybox tickets, or Cadillac trucks; I want to make sure that customers are just paying for the electricity they need and getting it safely.

Michael Grant: What's your position on the "free" line extension policy?  The ACC no longer allows utilities to pay for extension of facilities to utility customers.  Critics say that unfairly penalizes people who bought the land thinking they'd be hooked up.

Gary Pierce: When we first eliminated line extension in an APS case in 2007 it was done in the case.  Then times were better, and there was concern about growth paying for itself.  That can be an issue, but when you do that and eliminate all the free footage that helped keep growth alive you've said that there is no value on a customer, and I maintain that the smaller the customer base is the less the company is worth -- there is a value on each customer.  We've concluded some workshops and are looking at different opinions on the value and what we should do with line extension.  We should have done that the first time.  I voted to reinstate line extension until we get at what's a fair policy.  I want a fair number that reflects accurately the value of customers new on the system.

Rick Fowlkes: Obviously if a utility has to extend to reach new customers, someone has to pay.  If new customers don't pay, it means all customers pay and that doesn't seem fair to me. 

Brenda Burns: I do believe that the issue needs to be revisited.  When put in place, there was very little discussion.  There have been a lot of unintended consequences.  When I go to rural areas of the state, the values of their properties, what it's doing to county revenues -- they're very concerned on a number of levels.  We understand the need for cost recovery and we don't want regulatory lag to create a problem for utilities themselves.  It is the ACC that needs to deal with this.  There is interest in dealing with the issue in the legislature, but the ACC needs to repair this.

David Bradley: The principle that growth should pay for itself; I generally agree with that.  But the folks who came here before my family in the 1950s did a lot of investment.  So I am supportive of the notion that there is a distribution of the cost of growth which makes sense to me because in the long run we all benefit if it's done well. With line extension, there are many avenues for compromise -- x amount of feet or y amount of cost.  Perhaps incentives for using renewable energy.  It should be looked at again.  It's naïve to make a blanket statement that growth should pay for itself.  I'm in favor of looking at it again and hopefully change it so it is advantageous to all concerned, knowing that there is cost -- someone has to pay.

Michael Grant: There is a ton of telephone/communications competition -- traditional wired, cable, wireless, phone services through internet, email, text messages, social media messages.  Is it time for the ACC to start backing away from telephone regulation?  See Question 13 on our earlier questionnaire (you can read those responses here).

Michael Grant: Retail electric competition -- should we revisit it?  If so, how would you guard against the problems that occurred in California? (See Question 4 on our earlier questionnaire (you can read those responses here).

Written on Friday, 24 September 2010 15:01 by Gary Yaquinto

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