Arizona voters may be asked to give up their power to pick utility regulators

In Arizona, voters choose the regulators who oversee many of the state's utilities — deciding everything from how much they charge customers for power to adopting renewable-energy requirements. But lawmakers may ask the public to give that power over to the governor.

Proposals in both the House and Senate would put a measure on November's ballot to have the governor, with the approval of the state Senate, appoint the five members of the Arizona Corporation Commission.

Only 14 states elect their utility regulators, with the rest having either the governor or state lawmakers appoint them, according to the National Association of Regulatory Utility Commissioners.

Whether to take away citizens' power to decide who serves on the commission is certain to be controversial, and Arizona voters decided by a wide margin they want to keep voting on the seats 36 years ago.

Proposition 104 in 1984 was one of four measures voters decided that year regarding the Corporation Commission. The measure would have expanded the commission from three to five seats (which happened at a later date) and changed the seats to gubernatorial appointments. It failed by a 2-1 margin.

But scandals have shaken public trust of the commission in recent years.

One former commissioner was charged with bribery involving an East Valley water company, Johnson Utilities, which had so many operational issues it had to be put under the management of another company. The case ended in a mistrial.

Another commissioner had to resign amid a conflict of interest complaint because she was lobbying for communications companies that the commission regulates.

And APS, the state's biggest utility, invited substantial criticism in 2014 when it secretly funded campaigns to help get its preferred regulators elected.

Enough is enough, said state Sen. David Gowan, R-Sierra Vista, who is sponsoring Senate Resolution 1048 to put the issue to voters.

"Everyone seems to agree that the commission is broken, and the voters I talk to have very little faith in it or how it functions," Gowan said in a Monday statement to The Arizona Republic. "There really isn't anything we can do from an election standpoint to fix it, so the idea is to take the special interests out of it and make it an appointed commission like most states have."

He said he has talked with people who have run for the commission and worked with the commission to arrive at the conclusion that the only fix is to appoint the regulators. His measure also would change the terms to five years from four today.

He mentioned not only did a utility get involved in the elections, but so did out-of-state interests.

Solar companies backed two Republicans in 2014. It was that involvement that prompted APS to support its own candidates.

"The solution is for governors to appoint commissioners who have the background, knowledge, and temperance to provide stability and appropriate regulation," Gowan said. "The Senate will get to review and confirm the appointees to ensure that future commissioners are of the highest quality."

He said he is willing to work with other lawmakers with similar ideas.

ROBERTS: Bill to strip voters of the right to elect the Corporation Commission? Oh $#$% no

Rep. Ben Toma, R-Peoria, also has House Resolution 2041, which would similarly lead to appointing the commissioners that he introduced with Democrat Aaron Lieberman of Paradise Valley. However, Lieberman told The Republic on Tuesday he would pull his support for now to learn more about the issue.

Toma's resolution states that not more than three commission members could be from the same political party.

Opponents of the idea say it should be rejected.

"Appointing the commissioners is a terrible idea, a pure power grab by the governor and the Republican leadership at the Legislature," said William Mundell, a former Republican member of the commission who is running for election to it as a Democrat this year.

"The framers of the Constitution wanted the commissioners elected to give them total independence from the monopolies that controlled the governor and Legislature at statehood."

He said in 1912 the railroad and oil monopolies had oversized influence on the state, and that has changed to electric utilities today.

Proposal worries commissioner

Sandra Kennedy, the lone Democrat on the current commission who garnered the most votes of any candidate in 2018, also is worried about the proposal.

She served a term from 2009 to 2012, but lost a reelection bid that year, when the Arizona Chamber of Commerce and Industry took money from APS and Southwest Gas and mailed fliers supporting the Republicans running against her.

At the time the utilities had internal policies to stay out of commission races, but that changed for APS in 2014, when it funneled dark money to benefit Republicans Tom Forese and Doug Little. Kennedy lost a bid for the commission that year, also.

"People had a real choice when they voted for me," she said of her 2018 victory. "There was no APS money in the race. There was no dark money as there was in 2014 and 2016, and the little bit of money that was there in 2012."

She said the commission should remain an elected office.

"You know our forefathers, when they were thinking of creating this fourth branch of government, they knew exactly what they were creating so the very likes of companies like APS would not have their hands in appointing the very people who would regulate them," Kennedy said.

The Arizona governor does make appointments to the commission when there are vacancies, and Gov. Doug Ducey has made three, including two of the sitting commissioners.

He appointed Andy Tobin to replace Susan Bitter Smith when she was forced to resign amid a conflict of interest dispute. And he appointed Lea Márquez Peterson when Tobin resigned. She is running for a full term this year.

Ducey also appointed Justin Olson, who remains on the commission, when Doug Little took a job with the federal government. Olson won a full term in 2018.

APS official proposed appointments

Officially, APS representatives said they have no opinion of the proposals to appoint commissioners. But an APS executive once suggested such a change to alleviate pressure from regulators.

Wall Street analysts who track the stock value of APS' parent company, Pinnacle West Capital Corp., have often over the years cited regulatory uncertainties as a headwind to Pinnacle West profits.

Proponents of appointing commissioners contend that process would provide more stable oversight. It's a familiar argument.

"This collective commission, free from the pressures of running for political office — its campaign promises and fundraising — could eliminate the anticipation and fear of unknown future utility costs by devising a long-term plan of future utility costs we can anticipate," read a 1984 advertisement for the ballot measure to appoint commissioners.

Unlike that public vote, a 2009 plan to change how commissioners were selected was supposed to be secret, but The Arizona Republic received a copy of it in 2013 and reported its contents. APS officials at the time downplayed the idea, stating that they never implemented such a plan.

The plan was presented in 2009 by a former APS employee, Jessica Pacheco, who was at the time working for the Tempe political consultancy called Lincoln Strategy.

Pacheco and another Lincoln Strategy employee made a proposal to then-CEO of the utility and its parent company, Don Brandt, to spend $4.3 million ginning up controversies at the commission to convince the public to change the state constitution and make the positions appointed.

The plan had an "end goal of changing the selection process for the Arizona Corporation Commission," the report stated.

APS officials said they opposed the plan, but they hired Pacheco as the company's top lobbyist after that pitch, and she remains there today as vice president of corporate development and external communications, working under a new CEO.

Kennedy said that is concerning.

"This was ultimately the plan that Jessica Pacheco had given to the former CEO to implement during her time of buying commissioners so that they could get their way," Kennedy said. "The question I have is, is APS still behind this bill?"

APS spokeswoman Jenna Rowell said the company has "no position" on Gowan's bill.

"We will remain focuses on working with the ACC regardless of how commissioners are selected," she said.

APS' new CEO recently made a pledge to the commission to abstain from involvement in commissioner campaigns, a promise that would be easy to keep without elections.

Reach reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.

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