Staff Responses To The Questions Attached To Commissioner Irvin's Letter Of

February 7, 2002


I. Arizona Independent Scheduling Administrator

1. Please address whether Arizona's Constitution prohibits the Commission from giving up any authority with respect to the pricing of services by public service corporations which occur solely within the state.


Arizona’s Constitution states that the Commission "shall have full power to, and shall, prescribe just and reasonable … rates and charges…." Arizona Constitution Article XV, § 3.

Arizona law does not expressly address whether, and to what extent, the Commission may refrain from exercising this authority. However, it could be argued that the Commission’s plenary and exclusive ratemaking authority includes the power to choose to refrain from acting in appropriate circumstances.

Whatever the precise legal answer to this question, it is clear that the line between state and federal jurisdiction shifts and becomes obscured by retail competition. A state embarking on retail restructuring is taking the significant risk of greater loss of jurisdiction than it may have anticipated or desired.


2. Should Arizona be willing to let the federal government take over pricing jurisdiction (market-based rates) for all retail transactions which occur in the state, or is this an inevitable (and proper) result of opening retail markets to competition?


It would be inappropriate and outside of FERC’s jurisdiction for it to assert jurisdiction over all aspects of retail transactions. FERC would not have jurisdiction over the pricing of distribution services in a competitive retail energy market. FERC would have jurisdiction over wholesale energy sales and transmission services in interstate commerce.

Divestiture, as a practical matter, will result in loss of Commission jurisdiction because it changes the focus of energy sales from retail to wholesale. Loss of jurisdiction is one of the greatest disadvantages and risks of moving to retail competition, and should be weighed carefully by the Commission. One thing is clear: the state can decide whether and when it wishes to allow restructuring and to take this risk.

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