At the time the rules were put in place, the expectation was that the wholesale market would develop over the following years. As California has shown, the market hasn’t developed as expected and without change to the competition rules we’ll be required in 2003 to obtain all APS customer power from the wholesale market. Acquiring all of APS’ customer power needs in today’s wholesale market is simply not possible.

    Under our proposal, the competitive bidding would begin in 2003 with a 270-megawatt auction. The same amount would be added each year through 2008. By that time, competitive bidding would supply at least 1,620 megawatts – nearly 25 percent – of APS customer needs. At that point, the market should be mature enough to supply that amount without distortion.

    For our customers, this plan offers stable and predictable prices from a diversity of fuel sources, and reliability that cannot be obtained elsewhere in today’s wholesale market. We have an obligation to keep the lights on. That’s an obligation we accept and our customers expect us to keep. But without this or a similar plan, we think the cost of keeping the lights on will be more than our customers will want to pay.

    For our shareholders, the plan provides a solid generation earnings platform plus the ability to sell extra capacity and energy in the wholesale market. The end result will be a generation component comprised of substantial owned assets, considerable earnings strength and opportunities for profit in the wholesale market. 

    For regulators, our reliability plan protects customers from price volatility and guarantees reliable power while preserving an orderly progression toward an increasingly competitive wholesale market in the Southwest. 

    During the Arizona restructuring debates, we were adamant about not divesting our power stations and exposing APS customers to an untested wholesale market. It was clear, few customers – and almost no residential and small business customers – had the technology or expertise to respond to real-time power prices, alter their usage and “hedge” their market risk. Dealing with market risk for our customers and shareholders is our job, and we expect to meet their demands.

    As they consider our plan, the ACC – like many state commissions in the wake of the California experience – is taking another look at the existing competition rules. We can’t say at this time how far this “look” will go. While the commissioners have not indicated a need for sweeping change, they are prudently responding to the same environment and the same concerns that led us to propose our regulatory plan for reliability, price stability and competition.