S2E11: Attorney Court Rich discusses how Arizona utilities worked to thwart and then overturn the state's law promoting retail competition in electricity

Court Rich, an attorney representing solar developers and others before the Arizona Corporation Commission, recounts how the state's 20-year-old law promoting retail competition in electricity was thwarted for years by the state's utilities and then, recently, ultimately repealed after an army of more than a hundred lobbyists descended on the Legislature. The bill, through some sleight-of-hand rewriting of the governing statute, was then touted by the utilities as being a consumer-protection law, in what he calls an exercise of "pure political power from the monopolies." Interestingly, he says public exposure of  Dark Money groups and the utilities' influence at the Corporation Commission has actually led to a diminution of the industry's clout with individual state regulators. That has "handcuffed them a little bit," Rich says. But the recent legislative battle, in which lawmakers ordinarily supportive of those in a diverse coalition opposing the bill changed their votes in the face of intense lobbying from utilities, shows utilities' influence with lawmakers, while somewhat diminished, was still ultimately effective.

Transcript

EMP S2E11, Court Rich, Attorney, Rose Law Group, Scottsdale, AZ

EMP: Welcome to the Energy Markets Podcast. I’m your host, Bryan Lee, and our guest today is Court Rich, an attorney and founder of the Rose Law Group in Scottsdale, Arizona, where he represents renewable energy developers and other clients before the Arizona Corporation Commission. Arizona has been a leading battleground in recent years in the ongoing debate regarding whether electric utility monopoly regulation is a better option than opening up the retail market to competitive suppliers. Court, welcome. Thanks for participating today.

CR: Yeah, thanks for having me on. I'm looking forward to the discussion.

EMP: Okay, let's set the stage here. Governor Doug Ducey in recent days signed into law legislation that bars competition in the state's electricity market. That's a huge reversal and a capstone in a saga more than two decades in the making. We have to go back to the Western energy crisis of 1999 and 2000, when California's disastrously ill-designed first-in-the-nation competitive market failed spectacularly (and) left the idea in many minds that the experience illustrated why you should not have a retail electricity market, a competitive market, rather than demonstrating the wrong way to restructure the market for competition. Arizona was poised to be among the next wave of states to open its market. But like many other states, put its plans on hold in the wake of California. In recent years, there have been commissioners on the Arizona Corporation Commission who have suggested it was time to fulfill the legislative mandate and open the state's retail power market to competition. Instead, the law was repealed. Court, how did we get here?

CR: Wow, that's an easy question to answer, right? (laughter) Boy, well, we got here – there's interplay between our rather unique state constitution. There was a recent court case from the Arizona Supreme Court that really changed sort of the perspective on how we might achieve retail competition in the state. And then there was a pretty wild legislative session this past year that involved the utilities hiring 107 lobbyists to go and try to make sure that Arizonans can never, ever have the ability to choose who serves them electricity. So where do you want me to start? There's a lot to it.

EMP: I like the army of lobbyists. That's an area I expect us to focus on going forward. But you mentioned the Supreme Court decision a few years back. There was an expectation a few years ago that the law would be put into effect and allow retail competition, but the court threw a monkey wrench in there. You want to explain that? 

CR: Yeah, there's actually sort of two steps. Originally the Arizona Corporation Commission passed some rules to implement retail choice, and the utilities filed lawsuits and that went to our court of appeals that found that under Arizona’s sort of unique constitutional setup here that you can't purely let the market set rates. But what they did find is that our constitution would allow the Corporation Commission to say you know, here's a cap, a high end of a band and a low end of a band, and within that band the market can set rates. So that was, that was sort of the first thing that sort of derailed the original version of the rules that were adopted. But then recently – so you mentioned this statute that was on the books that was just repealed. A couple of years ago, there was a (state) Supreme Court case in Arizona, really dealing with nothing to do with energy. It was a water and sewer utility in the state that was rather poorly run, called Johnson utilities. And the Corporation Commission stepped in and put a manager in place to run this utility because there was literally sewage running down the streets of neighborhoods in a fast-growing part of the valley here in Phoenix. And so when they put this interim manager in place against the wishes of the owner, they filed a lawsuit that really then was a was a forum for the state Supreme Court to figure out what the authority of our  Corporation Commission really is. And during this process of this court case, the decision that came out from the from the Supreme Court really expressed a new view on the authority of the Corporation Commission and the Corporation Commission’s a function of our state constitution. So it's, some would say it's a fourth branch of government in Arizona, and it comes with its own exclusive rights. But the decision in this case said, we've got it wrong in Arizona for a hundred years and we've been giving the Corporation Commission too much authority. And in fact, the legislature has way more authority than anyone ever imagined up until that point. And so what that all of a sudden did is it meant that these laws that the Legislature passed that you mentioned (were adopted) 20 years ago, to implement competition in the state. Everyone had been thinking that those were sort of the legislature overstepping their bounds and sort of unconstitutionally speaking where only the Corporation Commission could speak. And instead, all of a sudden those laws meant something and they were binding on the Corporation Commission and meant that the Corporation Commission could no longer ignore these directives to implement competition. And so that's what sort of sparked this new round of discussion about competition in Arizona is all of a sudden we have laws that say you need it. And, you know, that's what spurred the utilities and their army of lobbyists to go and try to repeal that law.

EMP: Green Mountain Power. They played a role here at some point, right? They tried to, they made a motion or something to open up the market?

CR: Yeah. So Green Mountain Energy filed a request for a certificate, to be a provider, at the Arizona Corporation Commission. They asked them to issue them a CNN (certificate of convenience and necessity) to provide the retail service in the APS and TEP service territory and that's really what sent the utilities running to the legislature to change that law. We based that application on that existing statute in light of the Supreme Court's decision that said that essentially meant that that statute was controlling. So yeah, that's what touched off a lot of this. 

EMP: Right. So, let's step back a minute, because I want to revisit the timeline, because we're talking about 20 years here. But there are two or three large utilities in the state. There's Salt River Project, there's Arizona Public Service. Who am I leaving out?

CR: TEP. Tucson Electric Power. Salt River is a public utility. It's a government utility. So it's not investor owned.

EMP: Yeah, but like the other two, it likes its monopoly. 

CR: Absolutely. 

EMP: And well, so there have been skirmishes, in the meantime, you know, in terms of rooftop solar. Tell us what happened there a few years ago in terms of moves to, you know, I mean, it’s Arizona. Why don't you have solar? 

CR: Yeah, absolutely. Well, you know, we've been sort of the tip of the spear on the utility industry's attempts to stop consumers from putting solar on their roofs and Arizona's utilities, in particular APS, have been among the most aggressive in the country and trying to do you know, everything and anything they can to stop that from stop their customers from doing that. And so back in roughly 2012, Arizona Public Service decided so finally, they had been giving out incentives to have folks adopt rooftop solar and, you know, unlike any other incentive in the history of Earth it actually worked and made the price come down.

EMP: Excuse me, Court. that was that net metering you're talking about?

CR: No, no, this is cash incentives. We'll pay you a few thousand bucks if you put solar on your rooftop. And so you know, those incentives work. They would go down every year. And finally they went away. And APS looked around and said, my gosh, we're not paying incentives anymore, but people are still putting solar on their roofs. How do we stop this? You know, they're not beholden to the incentives. And so that's when the utility industry, you know, nationally took another look at rooftop solar and said, we got to figure out an argument against this and they started making these arguments about cost shifts. And they started attacking things like net metering. And, you know, really, it was just an attempt for them to try to control the market and come up with new, you know, new angles and new ways to argue against, you know, their consumers. They don't want their customers generating their own electricity. They want to generate it all for you. So that fight became really hostile back in 2012, 2013. And, you know, APS came out and proposed a $50-a-month charge on rooftop solar customers. Just for the mere fact that they existed, you were supposed to pay fifty bucks a month. I was fortunate enough to be able to work on that and beat that back and got it down to I think it was about a $4-a-month charge is what we ended up with in Arizona for a long time. Even though the utility couldn't prove it. They couldn't prove anything about it. They couldn't prove that there were any additional costs incurred because people had solar. They couldn't demonstrate any anything that they had to do that increased costs for anyone. But yet the commission, it was just pure politics. You know, they didn't do what APS wanted, but they did put in place a small charge. Incidentally, in the last APS rate case, APS was still unable to demonstrate even one dollar of increased costs that they get from the rooftop solar industry as a result of any of that and we were able to get the commission to finally look at it and go, gosh, you know, you've had, but you've had 10 years now to try and prove at least one dollar of these costs you've been alleging and you still can't do it. So we're going to get rid of this charge. And so now there's no charge on new rooftop solar customers in Arizona. But there's all sorts of other shenanigans that the utilities have tried to try to slow or stop that market along the way.

EMP: Yeah, well, the Edison Electric Institute a decade or more ago put out a report making the case for net metering being a subsidy that the rich enjoy and the poor get penalized by. And that's played out in battles state-by-state all across the country. And I guess you guys were one of the first?

CR: Oh yeah. And EEI’s perspective was pretty telling. I mean, it was, hey, we don't want to end up like the phone companies, right? I mean, that was basically the point of that paper they put out, Disruptive Challenges, I think they called it, back in 2012 or ‘13. And it was, you know, but let's think about that. The only people that didn't want the phone companies to end up like, you know, the Ma Bell phone companies was that company. Like it's been great for everybody. Like there's not one person that hasn't benefited from that happening. You know, we've all got our cell phones, we've all got all these great things we can do, that no doubt we wouldn't have been able to do if it was just one company, you know, not holding back innovation and not letting us benefit from all the options that are out there.

EMP: Yeah, we've had a lot of discussions on the podcast over the past couple of years about how Judge Green opening up telecom competition unleashed this torrent of innovation that, as you mentioned, we all benefit from today. We're walking around with computers in our pockets. And, you know, and in the meantime, there's been a perennial debate in the electric industry, well, how do we get this technology into electricity? And it just seems that the number one culprit is monopoly utilities, protecting their fiefdoms. Do you agree?

CR: Absolutely agree. Yeah, for sure. I mean, if they if they can't figure out a way to own it, profit off of it, they have no interest in it happening, period. Especially if it gives their customers even the smallest chance of not being completely reliant on them. And that's I don't blame them. I mean, that's their business. They I would be doing the same thing. But their lack of transparency about it and their, you know, the propensity to lie about what they're doing and why is sometimes shocking even to me at that point. 

EMP: Yeah, it also preempts the adoption of low-capital investments, because unless it's a huge capital investment, they don't have a lot of interest in making the investment because they don't get the return on it.

CR: Yeah, for sure. I mean, we've got all sorts of examples of utilities, you know, even trying to take advantage of the fact that there is a private industry like rooftop solar that's out there. And then the utility is convincing policymakers that they should be building rooftop solar also, even though it's, you know, one of the main benefits of rooftop solar is that it's not the utility that's building it. They don't need to put the capital up, their ratepayers don't need to pay the return on investment for that, but somehow, you know, we've got a few utilities in Arizona that have convinced the regulators that actually the, the utilities should be building some of that also, which is just, it's silly. I mean, you've got an entire competitive industry lined up that compete against each other to drive those prices down. And now you've got the regulated monopolies stepping into that world with an unfair advantage, first of all, in competing against the private sector. But then also they have no motivation to drive those prices down, obviously, as you know, but that's a that's been a big issue in Arizona as well.

EMP: Well, let's get back to the army of lobbyists, shall we? Arizona like most other states that I've observed over the years, the major utility companies have great sway over not just the Legislature, but the regulatory commission. In this case, the Arizona Corporation Commission. We saw in Virginia where, when California happened, Virginia like Arizona was another state that was poised to move to competition. The Legislature acted to put that off and then ultimately, they basically handcuffed the Virginia Corporation Commission in terms of their regulatory powers. And they've got pretty much an unregulated monopoly now occupying Virginia. It's an amazing situation. Talk to me about the utilities’ clout in politics in and in the regulatory decision making at the ACC. The ACC is elected, correct?

CR: Yeah, that's right. We're one of the one of the few in the country with an elected regulatory commission and that certainly opens the door for all sorts of political pressures that you might not see at that level in other states. I would say you know, the, as it does, in many places, the political pendulum swings from one side to the other. And APS spent, you know, a good 15 years or so, just with their pedal to the metal playing full politics at the Corporation Commission, spending millions of dollars (unintelligle) regulators, you know, launching Dark Money campaigns, all sorts of things that they were involved in to try to influence policy and it was really successful for a time. But they've now been exposed on a lot of that and it's created a situation where it's somewhat toxic at the Corporation Commission would be an outward supporter of APS at this moment. For some, and that's, you know, obviously I think that's a welcome thing for customers and consumers and people in Arizona. You know, APS got caught spending millions of dollars on the campaigns in 2014 and lying about it. They told the newspaper that it wasn't them and they welcomed, you know, whoever was out there spending that money, only later to get exposed or having been the one that did it. And so, you know, that that has handcuffed them a little bit. Their new CEO has said we won't play in commission politics. But it hasn't stopped them at all, even a little bit on the legislative side, and they're probably, you know, the top or among the top donors to every single legislator in the state of Arizona. And not every, but certainly the overwhelming majority of them. The extent that there are some that won't take money from the utilities, and I think that's a that's a welcome – welcomed by me anyway and many (a good) thing for elected officials to do, but those that do, that will take their money, they're more than happy to give it.

EMP: Yeah. Well, I guess, going back to your statement about the CEO and Corporation Commission politics, you don't need to engage in ACC politics if you have the Legislature in your pocket.

CR: Yeah, that's I mean, on an issue like retail competition, it certainly helped them. I mean, we saw – we had a – the coalition we put together of folks that were against this bill that eliminated retail competition was – it couldn't have been broader. We had libertarian think tanks and far right activists and we had, you know, environmental activists and all that sort of political left. And you ended up with this mixture of otherwise very conservative Republicans that are pro-competition, anti-regulation, you know, that voted with the utilities for some reason, and then you had a few Democrat elected officials that broke with overwhelming support for the renewable energy industry that they otherwise would have supported and voted again with the monopoly utilities. And so I mean, really the only explanation for that, you know, it's just pure political power from the monopolies. And that's just the bottom line, when you can take people and get them to vote the exact opposite of their political philosophies, you know, that's saying something.

EMP: Well, how much were you outspent by the utilities, your coalition? Was it 10 to 100 to one? I mean, it's money we're talking about as well. You know, money equals influence.

CR: Yeah, I mean, this wasn't a, you know, a high-profile (issue) like I've been involved in where you got television commercials and all that stuff. This was more of, you know, just hand-to-hand lobbying in the hallways in the legislature. They had 107 lobbyists. We only have 90 legislators. The bill failed in the House on the floor. And then they brought it back, and it passed after they, you know, whatever they did to flip a few votes. It went over to the Senate. There’s only 30 senators. And so at this point, it's in the Senate, they got 107 lobbyists, and it fails again on the floor in the Senate. And they bring it back and they're able to swing a couple folks after a couple of months of just working relentlessly. So you know, I think the fact that it was so hard for them, just in the fact that they, you know, basically they were the only one 50% of the floor votes they got shows what a piece of garbage the bill really was. And everybody knows it. And it was just a matter of they were going to wear down the legislature until they passed that bill. And that's what happened.

EMP: You alluded to Dark Money a little while back and the, I guess, for lack of a better word, the scandal that the utility found itself in and being exposed as funding this group. Tell us a little bit more about how that worked. What was the group called and how did they advocate their position?

CR: Yeah, so APS made sort of this third-party spending a centerpiece of their campaigns against the rooftop solar industry and then their campaigns to try to pick their own regulators back in the 2014 to 2016 timeframe. You know, one of the most, sort of the most controversial thing I would say that that happened was the last time the retail competition issue came up in Arizona, the chairman of the Comp of the corporation commission at the time, Gary Pierce, his son was running for Secretary of State in the state of Arizona. And APS, we later learned, there was an organization that spent like, it was almost $800,000 in Dark Money on Gary Pierce's son's campaign for Secretary of State. It was ultimately unsuccessful. But we later learned that that money came from APS. And that is, I mean, it ABS hasn't even paid a price for that, frankly, other than the fact that, you know, maybe they their political sway has fallen. But the idea that the regulated entity is funneling dark money to the son of the regulators campaign for political office is that should just be I mean, there's nothing about that that should be acceptable to anybody. So that was, you know, sort of an example of that type of stuff they were doing. When it came to the rooftop solar industry, they, they had these, what they would they would pitch as a grassroots organization that was concerned about cost shifts and those kinds of things. And APS would express surprise that this group was involved and welcome them to the fight. And then we learned later that they were actually funding it. So there was you know, it was that. We've seen that stuff around the country. I mean, there's one utility after another that's outed for these, you know, fake supporters.

EMP: You know, we saw that in Nevada, a couple of years ago when there was an effort to change that state's constitution to allow retail competition. In order to amend the Constitution, you need to pass the referendum twice. The first time, Warren Buffett's utility kept their powder dry, and the referendum passed overwhelmingly. Seventy to eighty percent, something like that. The second time around, they opened up the money spigot and it got trounced. So we know money equals clout. But talk about the arguments that they make. Are they engaging in truthful arguments in trying to get their way with the policymakers?

CR: No. I mean, not even close. And you see this this kind of stuff around the country. So they, they propose this bill this year. That we talked about, and the bill was basically deleting a few lines of our existing statutes that said that retail competition is the policy in the state of Arizona, that the territories of the utilities are open to competition. And, so what they did is they drafted a bill that deleted those sections, but then took a bunch of sections of law that are already there today about consumer protections and those kinds of things, deleted them, but then reinserted them in a new section, and then they pitched their bill as being all for consumer protection. But it actually didn't do anything that wasn't in the law today. It would be sort of as if I introduced a statute that, like struck out the penalties for murder. And then I moved them to a different location in law and said I'm making murder illegal. That's not what I'd be doing. I would just be moving words around in statute. So the utilities, you know, took this sort of sleight of hand where they took some language over here. For example, there was language that said that, you know, SRP has to have an ombudsman that's supposed to take consumer complaints if there are any. And that was already in the law. And so SRP took that language and moved it to a different section and then said their bill is creating a situation where they will have to provide this ombudsman to hear consumer complaints. Well, no, they've been supposed to do that for 20 years. So their bill didn't do that. The other thing they did is, you know, of course, they sort of pointed to the boogeyman of Texas and said, this bill is going to make sure we don't have power outages in the state of Arizona. But their bill didn't do anything about, you know, the issues in Texas were lack of weatherization of infrastructure. But there's nothing about taking away my ability to choose who my electric provider is that's going to stop the lights from going out, you know, when we have bad weather. If they really wanted to solve that problem, they could just require additional weatherization or have a law that that requires that but they didn't do anything even remotely like that. So but that's what they pitched. They were doing, you know, their bill was going to make sure we didn't have power outages and it was going to make sure that we had all these great consumer protections, you know, that just so happened to already exist today. So that was their dishonesty went from there, but that was the base level of it all.

EMP: Yeah, a congressman once told me that fear is a great motivator and that tends to be what their strategy is in their outreach.

CR: Absolutely. Yeah. One hundred percent.

EMP: I’m sure the ultimate bogeyman, the California crisis of 20 years ago, was raised as well. And Enron. Did Enron come into the debate?

CR: Yeah, sure. Every once in a while they’d bring that up too. But yeah, it was interesting, because, you know, the basis of their argument is, hey, everything's great in Arizona right now. If you bring in these other companies, you know, you're going to literally destroy the state, you know, economic development will be done. The lights will go out, you know, people will be moving from Arizona, it was just this whole, you know, hyperbole on top of hyperbole. And then what we found is really interesting that just a week, literally a week after the governor signed the bill, you know, the front page of the newspaper was reporting on a hearing at the Arizona Corporation Commission that happened where the utilities went down there and said, we're worried that in a few years, we're not going to be able to keep the lights on. So these are the monopolies that said they have all taken care of. They said we might not have enough generation to keep the lights on and we're really worried. Well, I mean, if you want more generation, there's a great way to get more people coming to Arizona to build more power plants and that's retail competition. So they you know, honesty is not their strength, that's for sure.

EMP: Well, you know, their priority is to generate revenue for their shareholders, not to generate benefits for customers.

CR: Yeah, absolutely. 

EMP: Well, Court, I've kind of run out of questions here on my little cheat sheet I’ll open up the floor to you for anything you want to bring up that you felt we've overlooked in this discussion.

CR: No, well, I will, I guess, there's some nuances to the way stuff works in Arizona. And so I think this issue isn't dead here at all. There's a couple of things that are in the future and ways to approach it in the state. But first of all, you know, it was a consolation prize, but nonetheless, with this bill there was a study committee that was put together by the Legislature to keep the discussion of potentially retail competition alive. You know, the governor, though while he did sign the legislation, his signing statement was just, it was 100% about how great competition is. Which doesn't give us a lot of a lot of consolation prize on that. But it was, you know, it was evidence that a lot of the supporters of this bill, I understand that, that it's still preferable to have competition to monopolies. And so we expect the discussion that to continue. But then by virtue of the way that our constitution works, if the Legislature doesn't tell the Corporation Commission to do something like this, and if the Legislature is silent on whether or not we have competition in the state of Arizona, which now the statutes are, so they don't say you can't have competition, they just got rid of the law that implemented it. So under our state constitution, the corporation commission could, if it wanted to, move forward with retail competition in the state. So there are you know, there's still avenues that are out there to continue that discussion. And we'll see how that plays out in the future. But, you know, I don't think it doesn't have to be done and the people in the state don't have to throw in the towel, you know, and move on. 

EMP: Well, that's good to know. I wasn't aware of that. So where are we in the ACC election cycle? Are they campaigning now or are we in an off year?

CR: Yeah, there's two of the three seats are up. There's one Republican who's not running for reelection. He's running for the U.S. Senate right now, Commissioner Justin Olson. He's probably the, well, certainly the most outspoken supporter of retail competition on the commission. So he's moving on. His empty will need to be filled. And then Commissioner, Sandra Kennedy, a Democrat is running for reelection. And she has been a very big critic of APS and has expressed openness to competition, for sure. And so, you know, it'd be interesting to see that. I think one of the one of the things that have come out of this debate that you know, the utilities may one day come to, you know, not benefit from, was they may have won this battle, but there has been such a broad base of people that have discovered this issue on both sides of the political aisle, and come out very strongly in favor of competition, because they just think that our utilities, you know, either have done too much to stand in the way of clean energy adoption, or have exploited their political ties too much or have stood in the way of progress for too long. And so you've got, you know, a really broad base of folks that are supportive of competition and hopefully, you know, on both sides of the aisle that'll play out over time as we move in that direction.

EMP: Okay, well, I think that's a good, good place to leave things here, Court. I'll let you get on with your day here. Greg. Thanks. Thank you very much.

CR: Yeah, thanks. I appreciate it. It was good discussion.

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