Meeting Growing Energy Needs Requires Improved Electricity System

Phoenix–Consumer demand for electricity is projected to increase by 50 percent in the next 20 years and Arizona’s existing power infrastructure cannot meet those demands.

A new report from the Goldwater Institute, “Opening the Grid: How to Recharge Arizona’s Electricity System for the 21st Century,” lays out a clear path for meeting increased energy needs.

“If Arizona doesn’t restructure its electricity system, it will have lasting consequences on the economy. Having access to relatively inexpensive energy to power businesses and homes is a key component to future economic growth,” said Nick Dranias, constitutional policy analyst with the Goldwater Institute. “Fortunately, there are no constitutional impediments to restructuring Arizona’s electricity market for free and open competition.”

Opening the Grid” was written by Stanley S. Reynolds, professor of economics and the SRP Professor of Technology, Public Policy and Markets at the University of Arizona and Andrew N. Kleit, professor of energy and environmental economics at Pennsylvania State University.

The report explains how electricity restructuring has worked in Britain, Texas and Pennsylvania and how it can work in Arizona. As a result of restructuring, Texas increased generation capacity by 35 percent between 1998 and 2006 with much of that increased capacity coming from renewable sources that consumers are choosing to purchase. In Britain, restructuring lowered utility rates by 30 percent.

The report also explains how to avoid the pitfalls of failed restructuring efforts that have taken place around the country. California’s experience in particular raised questions about the viability of competitive electricity markets. The primary cause of the California’s failed effort at restructuring can be avoided in Arizona. California’s effort failed because long-term contracts between power generators, suppliers, and consumers were prohibited or discouraged, allowing for vast changes in prices.

To restructure Arizona’s power system, this report recommends:

· Eliminating the monopolies on retail electricity where consumers are assigned an electricity company based on their address and opening up the market to competition. This would allow consumers to choose their utility company. 

· Breaking electricity bills out into separate charges for transmission, generation, distribution and system operations. This would provide consumers with the information they need to make an informed decision about how they buy and consume electricity.

· Lifting price controls on wholesale electricity and stopping cost guarantees to generating companies. Instead generating companies should operate like other non-monopoly companies and keep the profits they make and be responsible for losses they incur. The paper also recommends lifting price controls on retail electricity after a transition period.

The report details the interim steps that would have to be taken to protect consumers while the transition away from an electricity monopoly is occurring. “Restructuring isn’t something that will happen overnight, but it must happen if Arizona’s electricity industry intends to meet the demands of the 21st-century consumer,” said Mr. Dranias.

Opening the Grid” is available online or by calling (602) 462-5000. The Goldwater Institute is a nonprofit public policy research and litigation organization whose work is made possible by the generosity of its supporters.


  1. The “study” does not address some basic facts about deregulation experiences that are used as positive models. The closest example to AZ is the TX one because they are at least seeing population growth, unlike PA. What the report does not make clear is that not only has TX rates gone up when it was claimed rates would go down, but rates in areas of the state that have not been deregulated have had much lower increases. In other words, it is likely that deregulation in AZ would mean higher rates than if we continued with the current system, at least based on the most relevant example the GI “study” points to.

  2. Nick Dranias says


    Thanks for your comments. Actually Profs. Reynolds and Kleit addresses all of the restructuring experiences that have relevancy to Arizona, including Texas, Pennsylvana, the UK and a number of other countries. They also explain that the California debacle resulted primarily from the inability of customers to lock in low rates through long term contracts; this put suppliers and distributors in the driving seat and enough of them abused that market power to crash the system. That mistake won’t be repeated. Moreover, the truth is that Texas rates have barely increased, the actual graph shows something close to a flatline. And the main increases are likely attributable to renewable energy mandates. But in exchange for minimal rate increases, Texas’ generation capacity has exploded. And this portends lower rates over time. By contrast, with legal cartels and rate caps, generation supply cannot keep up with demand. This because there are not price signals sufficient to direct adequate investment in capacity. And in the long run, regulate rates will rise far more than market rates, which are disciplined by the threat of market entry. Just take a look at the latest SRP increase, and you’re seeing the wave of the future for regulated utilities. Its simply inevitable without adequate capital investment; and there will never be adequate capital investment without rates that bear some immediate reality to actual supply and demand.

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