Protecting Ratepayers
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One of the most important roles of a Corporation Commissioner is to look out for the interests of ratepayers and consumers. This happens on a number of different fronts, but nowhere is it more evident than in the dozens of rate cases that come before us every year. In these cases, a utility, such as Arizona Public Service or Tucson Electric Power – will come before the ACC seeking a rate increase. The Constitution requires that we balance the interests of the utility and the ratepayer; indeed, the ACC is required under the Constitution to allow a utility to earn a fair rate of return on its investment. But courts have also said that great care must be taken to protect the state’s consumers in these rate cases. In this day and age, when so many Arizonans are living on fixed incomes and when so many are working harder and harder for a living, I am committed to ensuring that consumers and ratepayers get a fair deal at the Commission. Fighting for ratepayers is no less important than protecting taxpayers.

Electric Deregulation
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Following the disastrous California energy crisis of 2000-2001, Arizona wisely put the brakes on efforts to completely deregulate its electric industry. Instead, the Corporation Commission instituted what is now know as “Track B”, a process by which the state’s electric utilities are required to purchase power on the open market during a specified time of the year.

However, Arizona’s electric competition rules remain in place, and I believe it is time to begin thinking about rewriting those rules and re-instituting a form of real electric competition in Arizona that will ultimately result in lower prices for ratepayers. Competition especially works in the aggregate and for large purchasers of power (such as mines and companies like Intel).

Pipeline Safety
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On July 30 of this year, the issue of pipeline safety broke onto the Arizona scene when the Kinder Morgan pipeline, burst in Tucson, sending more than 10,000 gallons of liquid gas through the soil, 50 feet into the air and eventually onto several nearby homes. The run-off from this accident flowed down into a nearby arroyo. Very few Arizonans had ever even heard of Kinder Morgan and even fewer people were aware of where the Kinder Morgan pipelines actually lie in the ground – even those who inhabited homes directly atop or nearby the pipeline.

• More time needed for inspections

In the immediate aftermath of the Kinder Morgan burst, most Arizonans and public officials were concerned with the initial task of getting the pipeline repaired and restoring full delivery of gasoline to the Valley, where a gasoline panic had developed and where gas prices had soared to in some cases more than 4 dollars per gallon.

But later the public began to explore more deeply the question of what happened, and what could be done to prevent another burst.

Questions were naturally posed about how Arizona inspects the pipeline, and whether Kinder Morgan had neglected necessary maintenance of the pipeline. Unfortunately, the answers to these questions have been largely disquieting. The answers to the questions were new to the public at large, but they have been a source of ongoing concern at the Corporation Commission, which is tasked with the responsibility of inspecting interstate liquid and natural gas pipelines as an agent of the federal Office of Pipeline Safety.

Under the work plan that is approved as a part of the agency agreement between the ACC and OPS, state inspectors are limited in the amount of time they are permitted to spend inspecting the KM and other pipelines. In the case of KM, our inspectors are allowed to spend only 10 workdays on the line. This is woefully inadequate for an effective inspection to be done on a pipeline that is hundreds of miles long. Every year our inspectors request of OPS to be allowed to spend more time on the line and every year they are denied permission.

Between the years 1996 and 2003, ACC’s Division of Pipeline Safety inspected the 50 year old KM pipeline six times; in every instance they found evidence of general corrosion and in some cases warned that KM had failed to take preventative maintenance steps. We have in some cases specifically warned that this lack of maintenance could result in loss of life or property.

• Enforcement actions must be swifter and tougher

Unfortunately, no enforcement authority exists in the hands of the agency with the expertise and the incentive to investigate the pipelines – the ACC. Only the federal OPS can enforce a violation. Federal OPS has in the past taken up to 10 years to close out notices of probable non-compliance written by Arizona inspectors, and rarely issues fines larger than $5,000. This needs to change. OPS should and must close cases more quickly, and issue real fines with teeth. If it cannot, enforcement power should be given over to the states.

• Independent testing

In the aftermath of the Kinder Morgan pipeline burst, the federal OPS decided to allow Kinder Morgan to conduct the only metallurgical test to determine what caused the rupture. Believing this test would not carry with it the confidence of the people of Arizona, I persuaded OPS to allow us to do an independent test of what caused the pipeline to rupture. The stretch of pipe that burst has now been sent to the Oak Ridge National Laboratory in Tennessee, where it is undergoing testing overseen by OPS and ACC officials. I have asked Sen. John McCain to introduce legislation that would require an independent test – one not overseen and directed by the pipeline companies – in the case of every major pipeline accident or rupture.

• Better communications policy needed

Recently, the ACC has had fruitful discussions with Stacey Gerard at OPS who has promised to undertake a joint effort to reform the communications policy of the OPS to allow states greater latitude to release to the public information about safety inspections and accident investigations. Along with Commissioner Bill Mundell, I am in the process of drafting recommendations for a new communications policy that will allow for greater flexibility in the release of documents and communication with and between local officials.

Telecommunications
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The deregulation of the telecommunications industry has spawned incredible investment and technological advancement, and has resulted in unprecedented decreases in prices and rates for the vast majority of Americans. Now, advances such as the development of Voice Over Internet Protocol –making phone calls through a personal computer– pose new opportunities and challenges. VOIP is poised to take the telecommunications world by storm, and as regulators, we must decide how much, if any, of this new technology to regulate. For instance, should VOIP providers be required to provide the same Enhanced 911 service that landline operators must provide? And should VOIP providers be required to contribute to the Universal Services Fund, which helps pay for the build-out of telecommunications to rural and underserved areas? These and other questions must be answered, which is why I recently opened a docket on VOIP and asked my fellow Commissioners to consider commenting to the Federal Communications Commission’s Notice of Proposed Rulemaking on the issue of VOIP.

Natural Gas Prices/Need for Infrastructure
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• Natural Gas Prices in Northern Arizona

Natural gas prices across Arizona and elsewhere have skyrocketed. In Northern Arizona, which is served by Unisource Energy Services, natural gas prices have doubled or more. Some residents are being faced with the impossible choice of whether to heat or eat.

As a result, I recently called on my colleagues at the ACC to hold a public meeting in Prescott to hear the concerns of Arizonans on this issue and have asked the Commission to consider eliminating or delaying collection of the gas surcharge which has led to a portion of the price increase. I also believe that Unisource is responsible for failing to properly notify northern Arizonans that the increases were coming, leaving many in the position of having used natural gas to heat their homes without knowing the rate at which they were going to be charged. This must never happen again, and I have called on my colleagues to implement a new system by which notification efforts must be pre-screened and approved by the ACC.

• Natural gas pipeline

Arizona is behind the curve on natural gas pipelines and storage. Approximately 50 percent of the state’s electricity is powered by natural gas, and experts predict that our state will suffer a natural gas shortage by the year 2006. As a result, I joined with my fellow Commissioners to begin a process at the Commission that will encourage the building of a new natural gas pipeline into Arizona. My office has begun a study of the strengths and weaknesses of the various pipeline proposals.

Water Issues
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In the next several years, Arizona will confront serious challenges with regard to our state’s water supply. In response to the federal government’s decision to lower the arsenic standards for water, private and municipal water companies must retool their systems to meet those more stringent standards. Many of them will be asking the Corporation Commission for permission to raise rates in order to pay for these retrofits.

As a result, my colleagues and I are looking for ways to head off this financial water crisis before it hits. We have sent a letter to the state’s Congressional delegation and the White House asking for their help in locating funds to aid small private water companies in making the switch to the new arsenic standards. We are also supporting a bill in the Legislature that would establish a study committee to find ways to address the arsenic issue.

Environmental Portfolio Standard

At the Corporation Commission, we are moving to expand the state’s Environmental Portfolio standard, which requires the state’s utilities to produce at least some of their energy from renewable resources. Earlier this month, we voted to approve raising the percentage required from renewable energy sources up to 1.1 percent. In addition to providing cleaner, reliable energy, I believe tapping into such energy resources as solar, wind and biomass can help wean our nation off its dependency on foreign oil. In Arizona, we have no excuse for failing to harness our best resource – the sun. Solar energy can be Arizona’s Internet – a source of good jobs and an economic driver for the future.

While I believe the move to 1.1 percent was a positive step, I believe we can do even more.

In California, where that state has a goal of 30 percent renewable energy, Governor Schwartzenneger has signaled his intention to more aggressively support solar energy. Other states are also on the offensive with their EPS programs, and I believe we should be as well.

Line Siting – the Case for Local Control
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Though it has not yet made headlines, the federal government is on the verge of one of its biggest power grabs to date. Currently, the United States Senate is considering a provision, tucked away in the behemoth Energy bill, that would strip states like Arizona of the right to control where large electric power lines are placed.

Known as “line siting”, this power currently rests with a local committee comprised of officials who carefully examine requests by power companies to build power lines, taking into account such important factors as the environmental impact and whether nearby homeowners would be adversely affected. The decisions of this committee are subject to final review by the Arizona Corporation Commission.

But if the Energy Bill goes forward in its current form, decisions about line siting in Arizona could wind up in the hands of federal bureaucrats in Washington, D.C. Under the bill, a state line siting commission could be overruled by the Federal Energy Regulatory Commission (FERC), should this agency determine that their state counterparts have unduly resisted the building of power lines.

Moreover, under the Energy bill, private utilities could implement power lines by exercising eminent domain. Under this provision, a power company could declare eminent domain by gaining the approval of a single federal or state judge.

These measures are aimed at solving a problem – on the East Coast – where much of the land is in private hands, creating a patchwork of ownership that can gum up line siting efforts for years. But in Arizona, where much of our land is under federal or state control, no such problem exists. The Arizona Corporation Commission and much of the state’s Congressional delegation, have urged that these provisions be taken out of the Energy Bill. No doubt the architects of this federal power play believe they are resolving a serious problem with the development of power transmission in the East. But in so doing they are riding roughshod over a system that works – and doesn’t need fixing – in the West.

Railroad Safety
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The Arizona Corporation Commission also regulates railroad safety, and recently the Commission has made it clear that we are serious about keeping railroad crossings safe. When one railroad company refused to make needed safety upgrades to several of their crossings in the Valley, the Commission levied an unprecedented fine against them, in the amount of $100,000.

We must continue to safeguard our railroad crossings and tracks and ensure that the railroad companies are doing all in their power to make necessary improvements.

Securities Regulation
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With our significant senior population, Arizona has long been the target of so-called “boilerrooms”, operated by unsavory and unlicensed securities dealers seeking to rip-off unsuspecting investors. These schemes run the gamut, from the traditional “Ponzi” scheme, to newer frauds such as telephone booth “investments” that are really just unlicensed securities. The Corporation Commission should continue its aggressive efforts to root out these Ponzi schemes and other frauds.

The Commission was the agency that first discovered the Baptist Foundation fraud. Through the work of Commission employees, many innocent investors in this scheme have received substantial restitution.