Arizona Commissioners File Drafts To Implement Retail Electric Choice For All Customers

One Draft Would Rely On Utility Competitive Affiliate To Serve Non-Shopping Customers

All Suppliers Would Be Required To File Range Of Rates With ACC For Approval

"Written" Authorization Required For Customer Switch

Alternative Draft Would Limit Choice To Customers 100 kW Or Larger

February 11, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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Arizona Corporation Commission Chairman Robert Burns and Commissioner Justin Olson have filed two proposed drafts to implement retail electric choice in Arizona

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Draft "A" would implement electric choice for all customers in affected utilities, while Draft "B" would include eligibility restrictions discussed further below

Under Draft "A" the utility would not provide supply to customers after a brief transition, with the utility's competitive affiliate designated to serve customers who have not made a choice. Draft "B' would place the utility in the default supplier role.

Burns and Olson wrote, "We would like to emphasize that these two proposals are only drafts and as such will require modifications, however, we also believe that they are a good starting point. Hopefully, interested parties can file comments to these two proposed drafts prior to the Commission's February 25, 2020 workshop, in order to allow the Commissioners to have a more productive discussion regarding the drafts."

Neither draft includes a proposed start date for retail electric choice

Neither draft would compel utilities to divest their generation (though, as noted above, Draft "A" would not allow utilities to supply customers at retail)

Neither draft would compel utilities to join an RTO or similar wholesale market, though they would require utilities to offer non-discriminatory access to transmission and distribution

Both drafts would apply to "Affected Utilities", which is defined as the following public service corporations serving electric load in Arizona but excluding any with more than half of its customers located outside of Arizona: Tucson Electric Power Company, Arizona Public Service Company, UNS Electric, Arizona Electric Power Cooperative, Trico Electric Cooperative, Duncan Valley Electric Cooperative, Graham County Electric Cooperative, Mohave Electric Cooperative, Sulphur Springs Valley Electric Cooperative, Navopache Electric Cooperative, Ajo Improvement Company, and Morenci Water and Electric Company.

However, for Affected Utilities organized as Cooperatives, the members of the Cooperative may vote to maintain their current service and not adopt retail choice

Salt River Project is not included in the definition of Affected Utilities.

Generally, utilities other than Affected Utilities would not be permitted to compete for customers outside of their service areas unless they voluntarily adopted retail choice in their own service area, though the draft rule has specific provisions for each type of utility (jurisdictional, etc.)

As further noted below, the draft requires, "written authorization" for a switch in the customer's electric supplier.

The draft also includes a definition for community choice aggregation and contemplates service under CCAs, but the definition (nor any other part of the rules) does not specifically address opt-out municipal aggregation nor how opt-out aggregation would conform to the written authorization provision discussed below

The drafts are discussed further below

Draft "A"

Under Draft "A", all customers of the Affected Utilities would have the opportunity to purchase electricity from their choice of electric service providers.

Ninety days after the start of competition (which is TBD under the draft), the Affected Utilities shall cease providing direct electric service to customers.

Customers who have not chosen a competitive electric service provider will be placed on electric service with the competitive affiliate of their former Affected Utility. Note that this assumes the utilities are interested in creating a competitive affiliate to serve customers who have not made an affirmative choice (or would compel such action regardless of the utilities' preference); the rule does not specifically contemplate another entity being designated to serve this role

The draft provides that an Affected or Incumbent Utility's competitive electric affiliates or an affiliate of which it is a member shall not be permitted to offer Competitive Services in any other Affected Utility's service territory until the Commission has ordered the service area of the potential competitor's affiliated Affected Utility opened to competition.

Under the draft, competitive affiliates would be subject to charging a Price to Beat for three years. Competitive affiliates would continue to charge the same Commission approved rates for a period of three years, the draft states. After three years, the Price to Beat would be lifted and the affiliates would be able to charge under their Commission approved competitive tariff.

The rules do not specifically address if a customer could return to the Price to Beat after initially switching away

Retail suppliers would serve as Providers of Last Resort (POLRs), for situations in which the customer's ESP (electric service provider, or retail supplier) fails to provide service to the customer or fails to meet its obligations.

Retail suppliers would be designated as POLRs by the ACC in a process similar to Texas, with eligibility based on market share.

The draft states that, "POLR shall provide service to customers using a market-based, month-to-month product." The POLR shall use the same market-based, month-to-month product for all customers in a mass transition that are in the same class and POLR area, the draft provides

Concerning the provision of delivery service by the Affected Utility, the Affected Utility would be permitted to include in its tariffs, "deposit requirements and advance payment requirements for Unbundled Services."

Concerning ESP (retail supplier) rates, to address the ACC's constitutional charge to ensure just and reasonable rates, the draft would subject retail supplier rates to ACC oversight, under a range of rates. ESPs would be required to obtain a CCN

The draft would require that each Electric Service Provider shall have on file with the Commission tariffs describing its services.

The Commission would approve, in each Electric Service Provider Tariff, a maximum and minimum rate(s) for those services. An Electric Service Provider may price its competitive services at or below the maximum rates specified in its filed tariff, provided that the price (the minimum) is not less than the marginal cost of providing the service.

In establishing the range of rates, the draft states that the Commission shall determine the fair value of the company's property and shall take fair value into consideration when determining the appropriate maximum and minimum rate.

In determining an appropriate maximum and minimum rate, the Commission shall consider all the costs to Electric Service Providers and general market conditions of providing electricity in the state, the draft states

Concerning supplier licensing, the draft provides that, in appropriate circumstances, the Commission may require, as a precondition to certification, the procurement of a performance bond sufficient to cover any advances or deposits the applicant may collect from its customers, or order that such advances or deposits be held in escrow or trust. The draft does not set forth any specific financial assurance levels

Concerning customer enrollment, the draft states that, "No consumer shall be deemed to have changed providers of any service authorized in this Article (including changes from the Affected Utility to another provider) without written authorization by the consumer for service from the new provider."

A definition of "written authorization" is not included in the draft

The draft sets forth certain requirements for written authorizations, including a requirement that, "The authorization shall not contain any inducements[.]"

The draft includes various marketing and disclosure rules, generally following those in other states with retail electric choice

Of note is that, for variable plans for residential and small business customers, the draft provides that, "If there is not a limit on price variability, the EGS [sic] shall clearly and conspicuously state that there is not a limit on how much the price may change from one billing cycle to the next."

The draft would also require the disclosure statement for mass market variable rates to list a telephone number and Internet address at which a customer may obtain the previous 24 months' average monthly billed prices for that customer's rate class and the Utility Distribution Company service territory. The supplier shall also include, in plain language, a statement that historical pricing is not indicative of present or future pricing.

The draft rules would establish a rescission period of 3 business days following receipt of the disclosure statement. The rescission period begins when the customer receives the "written disclosure," the draft states

The draft rules would allow automatic renewals, and would set forth renewal notice requirements similar to those in other states

The draft provides that if a customer fails to respond to an "options" renewal notice and is converted to a month-to-month contract, "the EGS [sic] shall provide a disclosure statement under § 54.5 [sic] (relating to disclosure statement for residential and small business customers)." In such case, notice of a subsequent change in pricing shall be provided to the customer at least 30 days prior to the new price being charged.

The draft further provides that when a customer fails to respond to either of two renewal notices, a fixed term contract shall be converted to one of the following:

i. A month-to-month contract, either at the same terms and conditions or at revised terms and conditions, as long as the contract does not contain cancellation fees.

ii. Another fixed term contract, as long as the new contract includes a customer-initiated cancellation provision that allows the customer to cancel at any time, for any reason, and does not contain cancellation fees.

Draft "B"

Draft B contains generally the same proposed terms as Draft "A" discussed above except for the differences noted below

Notably, Draft B would limit customer choice to eligible customers

Draft B defines "eligible customers" as any individual customer with a monthly demand of at least 100kw or an Aggregation of customers with a combined monthly demand of at least 400kW

Under Draft B, the Affected Utilities would serve customers who have not selected a competitive supplier, under Standard Offer Service. Affected Utilities may offer only Standard Offer Service under Draft B

While the tariffs for Standard Offer Service shall not include any special discounts or contracts with terms, or any tariff that prevents the customer from accessing a competitive option, the draft would allow the Standard Offer tariff to include, "time-of-use rates, interruptible rates, or self-generation deferral rates."

Additionally, under Draft B, an Electric Service Provider that is an affiliate of an Affected Utility shall be subject to offering only the Standard Offer Service of its affiliated Affected Utility within the first two years of the effective date of the competition rules.

Draft B provides that, within one year from the effective date of the competition rules, power purchased by an Affected Utility for Standard Offer Service shall be acquired from the competitive market through prudent, arm's length transactions, with at least fifty percent through a competitive bid process, with a condition that, by 2030, 100 percent shall be purchased from the competitive market.

Draft B provides Standard Offer rates, "shall reflect the costs of providing the service," including, "Generation-related billing and collection," costs. While the rule specifically delineates various costs included in Standard Offer rates (generation, transmission, ancillaries, billing, etc.), other overhead costs (call center, etc.) are not specifically listed

The Affected Utility would serve as one of the POLRs under Draft B, but ESPs would be designated as POLRs as well, based on market share as under Draft A

Docket RE-00000A-18-0405

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