On September 11, 2013, the Arizona Corporation Commission (ACC) voted 4-1 in favor of closing its investigation into deregulating the Arizona energy industry. This idea was first considered in the 1990s, but was dropped in 2004. In light of the success of deregulation in numerous states across the United States, the argument had been reopened, only to again fail to stand up to numerous legal roadblocks.

The ACC has agreed to not pursue deregulation again until these legal roadblocks are removed. In 2004, the Court of Appeals ruled parts of the state’s deregulation plans in violation of the state’s constitution, which prohibits market-based pricing without ensuring just and reasonable rates. The court also found that according to Arizona law, the Corporation Commission didn’t have the authority to require utility companies to give up their generation assets.

Deregulation was being reconsidered to open up the energy market to increased competition, lower prices, push utility providers to become more efficient, and to give individuals and businesses a choice of energy provider. In a deregulated market, the large utility companies still control the distribution of energy, but customers can choose to buy the energy supply from another provider.

Though the investigation into deregulation has ended, the ACC is looking into alternative routes to give customers electric alternatives. One of these may be to expand the AG-1 program that allows customers to buy wholesale power from providers other than the Arizona Public Service (APS), which is then sold to the customer at retail price.

Arizona first proposed shifting to a deregulated market in the mid-1990s. However, after witnessing California’s struggles with deregulation in 2000 with suspected market manipulation by retailers and the subsequent rolling blackouts and price spikes, the proposal lost momentum. Arizona stayed with a regulated configuration, and the effort was terminated by a judge’s decision in 2004.

In regulated markets, utility companies have a near monopoly over their service territory, and have used vertical integration to control every stage of the energy business from generation to distribution. Deregulation allows for smaller retail companies to compete for customers as energy providers, and limits the control held by these large utility companies. In a deregulated market, customers would be able to not only choose their energy provider, but choose among different types of rates plans, such as fixed-rate or variable-rate plans. In a variable-rate plan, consumers pay the market value for their energy usage, and may end up paying less than in a fixed-rate plan. However, a fixed-rate plan provides safety against unexpected price spikes.

Currently, there are 16 U.S. states with some form of utility deregulation. To learn more about deregulation in your area, click on one of our state links here.

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