This post was updated Feb. 17, 2021 at 6:31 PM to reflect updated action on another bill, HB2737, that intends to add duplicative ACC oversight. See last section.

Arizona Legislators have the Arizona Corporation Commission (ACC) in the crosshairs this legislative session with a series of bills aimed directly at stripping commission  authority. HB2248 and SB1175 revoke the authority of the ACC to adopt or enforce policy related to electrical generation resources made after June 30, 2020. The bills purport to clarify the constitutional authority of the commission to regulate utilities, in the process stripping the commission of its  authority to create and enforce energy policy. Indeed the real purpose of these bills seems to be squashing the 100% clean energy rules the ACC gave initial approval to last fall and are now in the process of finalizing.

The ACC serves as chief regulator of Arizona’s investor-owned utilities, Arizona Public Service and Tucson Electric Power. The ACC is composed of five voter-elected commissioners, with three commission seats up for election at a time. The ACC’s charter includes overseeing ratemaking decisions and providing direction around energy generation resources and implementation. While the commission also hosts other responsibilities, such as presiding over water and natural gas utilities, electricity transmission and distribution networks, and railroads, it spends a great deal of time on energy issues. 

These companion bills pose a serious threat to advanced energy development and business expansion in the state. That’s because, if passed and signed by the Governor, the bills would jeopardize ACC’s proposed rules calling for a technology-neutral, 100% clean energy portfolio by 2050. Those rules were developed in the course of a nearly two-year long proceeding, which opened in August 2018. With two commission seats changing hands as a result of the election last fall, the sitting commission voted on November 23 to approve a Notice of Proposed Rulemaking for a version of the 100% carbon-free electricity rules that had the support of a majority of the incoming commission, including Chair Lea Marquez Peterson. Those proposed rules are now in a public comment period, with AEE submitting comments in support.  Commission staff will provide an official response to comments provided before January 22, before the commission moves on in the rulemaking process.

In addition to disrupting this proceeding,  the bills pose serious implications for long-term energy reliability and affordability for the state. Notably, the bills fail to outline how the state would maintain regulatory authority over the utilities to ensure a thorough decision-making process in the interest of all ratepayers. But the clear target of the bills is the clean-energy package, as HB 2248/SB 1175 do not impact ACC policy actions prior to November, including the Renewable Energy Standard set by the commission in 2006 . 

There is also considerable question about whether the bills are constitutional. The ACC’s authority is derived from the Arizona constitution, and current discussion about the bills’ constitutionality  focuses on the 2019 Arizona Supreme Court Case “Johnson Utilities v. Arizona Corporation Commission.” The case highlights the elements of authority provided by the Arizona Constitution and outlined in what circumstances the legislature can override decisions made by the ACC. Specifically, the case established that the state constitution grants the ACC “‘full power’ to prescribe rules, regulations, and orders governing PSC rates, charges and classification,” and is “self executing,” meaning the commission does not require the express permission of the legislature. 

As a consequence, HB 2248 is being held in the House Rules committee as lawmakers work to address the constitutionality  question. As well it should, because HB2248 and SB1175 would completely divorce regulation of critical electrical generation resources from ratemaking authority. This means that the ACC would not be able to evaluate whether the utilities’ chosen resource mix is the lowest cost and most efficient, thereby providing the lowest possible rates for customers. Utilities could instead choose to operate economically inefficient resources with high operating and maintenance costs in place of cheaper, newer resources, unless the legislature directs them otherwise. Not only is this method of oversight incredibly inefficient, there is no prescriptive procedure for how resource mix-selection will be evaluated by the legislature. Without clarity over the process, something severely lacking in these bills, ] utilities would receive less oversight. 

In short, HB2248 and SB1175 are bad for business and bad for ratepayers. The bills jeopardize advanced energy projects currently in development across the state. The bills will also likely drive future large-scale development of low-cost clean energy resources to other states in the southwest like Nevada or New Mexico, where there is  more regulatory certainty. That, in turn, will make Arizona be less attractive to large corporations with clean energy procurement goals looking to locate large offices or data centers in the region. This will cost Arizona critical jobs and tax revenue, particularly in rural communities that are already seeing impacts from fossil fuel plant closure and slow rebound from the pandemic. 

Lastly, the bills will hurt ratepayers by driving up the cost of electricity. ACC’s current regulations set stringent requirements for utilities to invest in energy efficiency measures, which provide cost savings to both the utility and consumer. Revoking the ACC’s authority to enact energy policy takes away its ability to set mandatory energy efficiency standards. 

Ramping up its engagement in Arizona this year, AEE testified against these bills before both House and Senate committees, but they are on the move, getting committee approval by relatively narrow votes of 6-4 in the House, 5-4 in the Senate.  AEE will continue to marshal opposition from businesses and other stakeholders to keep Arizona on the path to clean energy – and advanced energy growth – the ACC seems poised to set. 

Feb. 17 Update:
House Committee Proposed Duplicative ACC Oversight with HB2737

Yet another bill proposed this session by the Arizona Legislature takes aim at the authority of the Arizona Corporation Commission (ACC), with HB2737. This bill proposes duplicative oversight, attorney general investigations, and punitive measures for ACC activities. HB2737 proposes a pathway for a process for as few as a single legislator to demand an attorney general investigation of the ACC authority. In addition to creating the priority for this type of investigation, it creates a mechanism by which failure to comply with the attorney general’s findings within a 30 day period fast-tracks the bill to the Arizona Supreme Court. Even further, the bill proposes that if the Supreme Court finds that the ACC operated outside of its authority, a punitive reduction of 10% of the gross operating budget for the ACC will be enacted. The bill’s primary sponsor is freshman Representative Parker, an attorney and former employee of the ACC who worked as an energy policy advisor to current Commissioner Justin Olson. 

The bill was amended slightly to reduce its scope before passing out of the House Natural Resource, Energy and Water (NREW) Committee on a vote of 6 to 4. The accepted amendment modified the time period in that a legislator could instigate an investigation by the attorney general to sixty days after a ruling or decision made by the ACC. However, this does not place a limit on the number of investigations that a legislator instigates during this time period. Following passage out of the NREW Committee, HB2737 went to the House Rules Committee, where it was passed as a massive motion to move forward multiple bills at once on Feb. 15. 

We are concerned about the impacts of HB2737 on the ability for the Arizona Corporation Commission to carry out its regular operations and regulatory activities, thus jeopardizing the swift action needed to attract businesses to Arizona and keep electricity rates low for customers. HB2737 is duplicative policy. The state already has established procedures for addressing violations of order and authority of the ACC within operational guidelines of the commission. These processes provide judicial oversight of the ACC and its activities. A single legislator with a vendetta against the ACC can effectively start a duplicative process of regulatory oversight without a legislative majority on the Commission's activities. Additionally, the remedy proposed by HB2737 for finding violations of the ACC authority provides punitive measures without suggesting corrective action for the ACC. The bill does not propose guidance on how the legislature will correct the ACC, simply that an already tight operational budget will be reduced. 

AEE will continue to monitor the movement of HB2737, where the next stop is a full floor vote.

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