33% RETAIL COMPETITION IN ELECTRICITY WHAT HAVE WE LEARNED IN 20 YEARS? July 23, 2019 Authored by: Lisa M. Quilici, Danielle S. Powers, Gregg H. Therrien, Benjamin O. Davis, and Olivia A. Prieto CEADVISORS.COM © 2019 Concentric Energy Advisors, Inc. 1 Table of Contents I. Executive Summary ...................................................................................................................................................... 1 A. Regulation and Restructuring ............................................................................................................................... 1 B. Survey of U.S. States .................................................................................................................................................. 1 C. Retail Rates for Residential Customers ............................................................................................................. 3 D. The Need for a Fully Functioning Wholesale Market .................................................................................. 4 E. Resource Planning and Reliability....................................................................................................................... 4 F. Generation Divestiture and Stranded Costs .................................................................................................... 5 G. Transition in Generation Fleet .............................................................................................................................. 5 H. Innovation in the Electric Industry ..................................................................................................................... 6 II. Introduction ..................................................................................................................................................................... 7 A. Background and Purpose of Report.................................................................................................................... 7 B. Arizona Energy Policy Group ................................................................................................................................ 7 C. Concentric Energy Advisors, Inc. ......................................................................................................................... 7 D. Report Methodology ................................................................................................................................................. 7 E. Report Organization .................................................................................................................................................. 7 III. Arizona’s Electric Market ........................................................................................................................................... 9 A. Introduction .................................................................................................................................................................. 9 B. Generation ................................................................................................................................................................... 11 C. History of Electric Restructuring in Arizona ................................................................................................. 13 D. Arizona Independent Scheduling Administrator Association ............................................................... 14 E. Municipalities, Cooperatives, and Tribal Systems ...................................................................................... 14 IV. Regulation and Restructuring ................................................................................................................................. 15 A. Regulated v. Restructured Electric Markets .................................................................................................. 15 B. The Role of State Regulators ................................................................................................................................ 16 C. Role of Federal Regulators ................................................................................................................................... 17 V. Survey of U.S. States .................................................................................................................................................... 18 A. Introduction ................................................................................................................................................................ 18 I Concentric Energy Advisors B. States with Full Retail Competition .................................................................................................................. 18 C. States with Partial Retail Competition ............................................................................................................ 20 1. California ................................................................................................................................................................. 20 2. Georgia ..................................................................................................................................................................... 21 3. Michigan .................................................................................................................................................................. 21 4. Nevada ...................................................................................................................................................................... 22 5. Oregon ...................................................................................................................................................................... 22 6. Virginia ..................................................................................................................................................................... 22 7. Montana ................................................................................................................................................................... 23 D. States that Considered but Rejected Restructuring ................................................................................... 23 1. Alaska........................................................................................................................................................................ 23 2. Arkansas .................................................................................................................................................................. 24 3. Hawaii ....................................................................................................................................................................... 24 4. New Mexico ............................................................................................................................................................ 24 E. Active Restructuring Initiatives ......................................................................................................................... 25 VI. Wholesale Market Considerations ........................................................................................................................ 26 A. Wholesale Market Elements ................................................................................................................................ 26 B. Establishment of RTOs/ISOs ............................................................................................................................... 26 1. History ...................................................................................................................................................................... 26 C. Timing and Steps to Create an ISO/RTO ......................................................................................................... 27 D. Cost of Implementing an ISO-RTO ..................................................................................................................... 29 E. Other Annual Costs .................................................................................................................................................. 31 F. Arizona Specifics ....................................................................................................................................................... 32 G. Resource Planning ................................................................................................................................................... 33 H. Fuel Diversity and Supply ..................................................................................................................................... 34 I. System Reliability ..................................................................................................................................................... 35 J. Price Volatility ........................................................................................................................................................... 38 VII. Retail Market Considerations ................................................................................................................................. 40 A. Impact of Restructuring on Retail Electric Rates ........................................................................................ 40 1. Residential