What is going on with Ariz.’s regulators?

Source: Edward Klump, E&E News reporter • Posted: Tuesday, October 23, 2018

By most any measure, the Arizona Corporation Commission is having a brutal year.

One controversy after another has hung over or around the commission — from a trial involving a former chairman to the executive director’s abrupt exit to fallout from a high-profile rate increase.

Last week — somehow — the temperature rose even more.

First, the ACC voted 5-0 to ask the state attorney general to investigate Commissioner Andy Tobin over the potential use of state resources related to his opposition of a renewable energy ballot measure (Energywire, Oct. 16).

Then the Energy and Policy Institute, a renewable energy advocacy group, published a report linking Commissioner Justin Olson’s comments during a May briefing with financial analysts to talking points from Arizona Public Service Co. (APS), the state’s largest electric utility company. It’s owned by Pinnacle West Capital Corp.

Tobin and Olson defended their actions and said they were committed to good governance, even as they acknowledged they could’ve handled things differently.

Yet the notion suggesting ACC is a partisan commission that can’t be trusted to fairly regulate powerful utilities is becoming a defining narrative for the all-male, all-Republican panel. The commission’s reputation is the elephant in the room.

“Arizona has always been political,” said Charles Fishman, an equity analyst with Morningstar Inc. But he said the state’s regulators seem to invite more controversy than in other states with elected utility regulators.

Olson was appointed by Gov. Doug Ducey (R) last year to replace Doug Little, who left for a job with the Department of Energy. Olson is up for election Nov. 6.

Two commissioners will be chosen this year from a group of candidates that includes Olson, Rodney Glassman (R), Sandra Kennedy (D) and Kiana Sears (D). Neil DeSanti (R) is a write-in candidate. Tom Forese, the ACC’s current chairman, failed to advance in the Republican primary this year.

The recent report about Olson stemmed from a public records request and a comparison to his comments from a talk with a Credit Suisse Group analyst, according to David Pomerantz, the San Francisco-based executive director of the Energy and Policy Institute.

“Commissioner Olson essentially took APS’s policy positions and adopted them whole cloth without” in many cases “really even a pretense of applying his own critical thinking to them,” Pomerantz said.

Olson took issue with the report, saying it cherry-picked positions where he agreed with APS and ignored multiple areas where he has disagreed. The commissioner said he has been acting in the best interest of ratepayers.

“I’ve been nothing but independent of APS, and for anyone to argue otherwise is absolutely inaccurate,” Olson said during a Friday interview.

Analyzing comments

Olson is a former member of the Arizona House of Representatives. The Energy and Policy Institute’s report includes interactions between Olson’s office and Amanda Ho, who’s with APS and used to work at the commission. In one email, Olson thanked Ho for a call. In a text message, he thanked her for pulling together information.

The discussion with Credit Suisse featured utility-scale solar, and EPI pointed out that Olson echoed a point APS has made: that it’s a cheaper option than rooftop solar. He acknowledged, however, that rooftop solar is popular among utility customers in the state.

EPI, citing Pinnacle West data, has said interest in rooftop solar installations declined after the commission implemented a new rate structure for APS. A company slide showed lower monthly application levels for residential solar after earlier spikes.

Olson said APS reached out to his office in advance of the Credit Suisse call. Olson sent over questions, and APS responded with its views. Olson said no other entity reached out before the analyst call to volunteer information.

“In hindsight, if I had known that it would be misconstrued to be giving the impression that I’m inappropriately repeating positions that APS has, then I would have approached the call differently,” Olson said.

But he said positions he shared with Credit Suisse were accurate and “consistent with the positions that I’ve developed at the commission by receiving information from all interested parties.”

Olson said he frequently receives input from a number of parties, including solar interests, and has an “open-door policy.” He said he strives to keep rates as affordable as possible while retaining safe and reliable public services.

“The fact that APS provides at times information that is accurate” and “consistent with my view should not be something that is cause for alarm,” Olson said.

Pomerantz said Friday that Arizona commissioners have a history of close and inappropriate relationships with companies they regulate, pointing in part to a “rapidly swinging revolving door” involving the commission and utility interests.

‘CORRUPTION Commission’

Hal Pittman, an APS spokesman, said the company of course communicates with commissioners and staff. He said Ho responds to questions and requests for information.

“APS is a recognized expert on energy policy issues in Arizona; we implement policies set by elected officials, and our perspective is important to that process,” Pittman said in a statement.

Pittman also cited the Washington Examiner in taking a swipe at the Energy and Policy Institute, saying it’s “not a think tank, watchdog, or non-profit institute, but rather a dark money organization that attacks the interests of the energy industry.”

Pittman said the group has been a “mouthpiece of pro-Proposition 127 propaganda.” That’s the renewable energy measure that’s on the November ballot.

Pomerantz declined to disclose a list of individual donors to the Energy and Policy Institute. But he said the institute doesn’t take money from private companies or trade associations. He said money comes from foundations with interests in climate change mitigation and environmental protection.

Paul Patterson, an analyst with Glenrock Associates, said it doesn’t look good to see Olson use wording presented by an ACC-regulated entity even if his comments themselves weren’t all that objectionable. Patterson noted that Olson has sought to separate himself from controversy surrounding the commission.

“I think it’s a question of optics more than anything,” Patterson said, noting there’s “an election environment that is somewhat heated given the history with the commission” and Democratic enthusiasm nationally.

ACC drama is part of this year’s campaign season.

A Twitter account for Kennedy, one of the Democratic candidates for the ACC, retweeted a Thursday post that linked to the recent report on Olson and APS. Kennedy’s account also said Tobin did APS’s bidding by using taxpayer-funded resources in outlining his opposition to Proposition 127.

“The APS/Pinnacle West undue influence continues at the CORRUPTION Commission,” Kennedy said last week in a tweet. She is a former member of the ACC.

In terms of public trust, everyone agrees that the case of Gary Pierce, a former ACC chairman, grabbed a lot of attention. It ended with a mistrial after the jury couldn’t reach a decision, the Arizona Capitol Timesreported in July. But that hasn’t erased the memory of an indicted former regulator who was accused of taking bribes.

Also in July, Ted Vogt left as the commission’s executive director after questions arose over his wife’s employment at a firm that does work for APS. Speculation swirled about what led to Vogt’s exit, and the Energy and Policy Institute noted in a post the possibility that Vogt sought actions in conflict with APS’s interests. That was based on a report from an Arizona outlet called the Yellow Sheet Report.

Proposition 127

In a statement last year, Pinnacle West praised the ACC’s approval of an agreement that raised APS’s rates. The release touted “substantial benefits” for Arizona and an agreement that it said would minimize the effect on customers’ bills.

The rate decision fueled perceptions that the regulator bends over backward to please the state’s major utility.

Olson, who wasn’t at the ACC for the rate decision in 2017, said he’s aware of frustration over the rates.

The commissioner touted his independence by saying he has called for considering possible competition in the power sector, noting Texas’ experience. That state’s main power market includes wholesale competition and areas with retail choice. While a thorough analysis would be needed in Arizona, Olson said, there could be an opportunity to benefit ratepayers.

Olson said he wants to keep working toward having a code of ethics prohibit commissioners or candidates from taking campaign contributions from entities they regulate.

Looming in the background is Proposition 127, which would require certain regulated electric utilities, including APS, to source at least 50 percent of annual power sales from renewable energy by 2030.

Pinnacle West has spent millions of dollars to oppose the measure. The current renewable standard for certain electric utilities is 15 percent by 2025.

Olson said the issue is a point of distinction in the ACC race, as the two Republicans on the ballot oppose the proposition. Olson said a mandate is the wrong approach because of a possible increase in energy costs and the potential to make the Palo Verde nuclear power plant close prematurely.

Backers of Proposition 127 have disputed those claims, saying the proposal could save money in the long run without knocking Palo Verde offline early.

Pomerantz said most consumers don’t understand what a large impact utility regulation can have on their lives. He described the influence of APS, including a Pinnacle West decision to spend money on ACC races in at least one past election cycle.

Pomerantz didn’t back specific candidates Friday, but he said he hopes to help people make informed choices, become more engaged and keep public officials accountable.

That could mean “showing up at commission hearings that they might never have attended or making a public comment or voting,” he said.