Price caps – assuming they remain – present another challenge to power markets and to generators and suppliers trying to negotiate those markets. At first, the “soft” price caps imposed last year had a dramatic effect on prices, treating the entire region as one pricing point, ignoring regional differences and transmission bottlenecks. While price caps are benign in the current depressed market, over the long-term they will likely prevent price signals from attracting new capital and generation where they are needed.

    Anticipating future regulatory impacts – from federal price caps to individual state actions – is the key to success in Western power markets.

THE REGULATORY OPPORTUNITY
    If our industry learned anything from California, it is that the public will not tolerate price volatility or low levels of reliability. Regulators and politicians will act accordingly.

    To avoid that situation in our state, last October we filed with the Arizona Corporation Commission (ACC) a plan designed to provide our APS customers with reliable electricity supplies at stable prices well into the future. This plan also permits a more deliberate approach to competitive markets in the Southwest. 

    Our plan doesn’t change the substance of our 1999 Settlement Agreement, which provided rate decreases for customers through 2003, opened the door to competition for our retail customers and required that we transfer APS generation assets to a competitive subsidiary. 

    Our plan deals with current realities and provides a sure path to meeting our state’s energy needs. The plan builds toward a robust wholesale market, supporting the move to competition rather than allowing the old rules to fail.