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<title>Arizona: Commission Implements Rules Permitting Phase-In of Retail Competition</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="81%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p> </p>
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<p><b><u>September 1998<br>
</u><font face="Arial"><big><big><big>Arizona: Commision Implements Rules
Permitting Phase-In Of Retail Competition<br>
</big></big></big></font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
08/98</em>)</font></p>
<font FACE="Palatino" SIZE="2"><p ALIGN="JUSTIFY"></font><font face="Arial">On August 10,
1998, the Arizona Corporation Commission (the "Commission") adopted rules that
permit the phase-in of retail competition beginning January 1, 1999 with full competition
to be available to all ratepayers by 2001. The rules require competitive electric
suppliers to file tariffs with the Commission containing the maximum rates to be charged
by the supplier and the terms and conditions of the contractual arrangements.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The rules provide that on January 1, 1999, twenty
(20%) of the customers whose peak demand is 1 MW or greater shall be able to participate
in the competitive market and twenty percent (20%) of aggregated customers whose demand is
between 40 KWs and 1 MW may also participate in the competitive market. The rules also
state that one-half of one percent of all residential customers may participate in the
market on January 1, 1999. Each quarter, an additional one-half of one percent of the
residential customer base will be eligible to participate. Full competition will be
implemented on January 1, 2001.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The rules provide that all competitive electric
suppliers, including aggregators, must obtain a certificate of convenience and necessity
(the "Certificate") from the Commission. To obtain the Certificate, the supplier
must provide the Commission with a description of: the electric services to be provided; a
tariff which states the maximum rate and the terms and conditions that will apply; and
certain financial documentation, including the supplier’s most recent income
statement and balance sheet and projected financial statements. Under the rules, the
Commission may refuse to issue the Certificate to a supplier if the supplier fails to
demonstrate that issuance of the Certificate will serve the public interest. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The rules also require each supplier to file all
long-term contracts with the Commission. If any such contract does not comply with the
rules or with the supplier’s approved tariff, then the contract will not become
effective until it is approved by the Commission. A supplier’s request for changes in
the maximum rates or changes in the terms and conditions of service in its tariff must
also be approved by the Commission prior to becoming effective.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The rules provide that after January 1, 2001, the
distribution company shall be the supplier of last resort and must provide standard offer
services to all requesting ratepayers under a regulated rate. The energy obtained by the
distribution company to service the standard offer can be obtained either through
purchases on the spot market or through a competitive bidding process. The rules also
require each utility to file a report by September 15, 1998 detailing how it will reduce
the rates to all standard offer customers by three to five percent. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Beginning January 1, 1999 the rules state that the
energy portfolio of all competitive suppliers must contain at least .2% supply from new
solar energy resources. The solar energy can either be purchased or generated by the
seller and includes photovoltaic and solar thermal resources. The rules define new solar
resources as those installed on or after January 1, 1997. This solar portfolio requirement
increases annually such that by 2003 a supplier’s portfolio must include at least one
percent from new solar resources. For 1999 and 2000, the solar portfolio requirement
applies only to competitive suppliers. After 2000, however, the requirement is generally
applicable. If a competitive supplier fails to meet the solar portfolio requirement, then
the Commission may impose a penalty and may void the supplier’s contracts.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Utilities will have a reasonable opportunity to
recover their unmitigated stranded costs under the rules. In a prior order, the Commission
ruled that 100% recovery of stranded costs would be guaranteed if the utility divested
itself of its generating assets. The rules provide that stranded costs will be recovered
by a transition charge that will only be paid by customers who participate in the
competitive market. The rules note that reductions in energy demand caused by
self-generation shall not be used in the calculation or recovery of stranded costs.</font></p>
<p><font face="Arial">Competitive suppliers serving customers with a demand of 1 MW or
less must provide these customers with the following information: the price to be charged
for energy; the average energy price by customer class; and fuel mix characteristics and
emission characteristics of the supplier’s portfolio. In addition, the rules provide
that suppliers must include this information in a prominent position on their written
marketing materials. </font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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