Why Arizona should encourage development of a open, competitive electric power market

Michael Giberson

Stanley Reynolds and Andrew Kleit have made the case for restructuring the electric power industry in Arizona to encourage development of an open, competitive electric power market.  Good stuff.  I’d especially encourage anyone interested in electric power policy to consider the authors’ eight-point list of elements required for a competitive market (pp. 19-20).

At least on my first reading, I disagreed on only two parts of the proposal.  They recommended (p. 26) a wholesale market with no price cap, no automatic bid mitigation, and no separate capacity market; I’m inclined to favor a well-designed automatic bid mitigation rule to limit the exercise of transitory market power.  In addition, they say (p. 30) that competitive energy retail companies would have to offer net metering to allow incentives for distributed generation; in my view net metering – allowing the meter to ‘run backwards’ when the retail customer produces excess power – is too crude to support a real distributed energy marketplace. If the plan brings about  competition at the retail level, then energy retailers will compete to offer attractive pricing options to distributed energy-capable customers.

The report focuses on Arizona, but it has plenty of lessons for policy in the other 49 states… well, maybe not for a model state like Texas, but for the other 48 states.  😉

The report is clear, concise, and thoughtful – outstanding in nearly every way.