It's easy to cuss the Arizona Corporation Commission. The name is so depressingly bureaucratic most people don't even know what it means. And when they find out what the commission does, setting utility rates in this state, the bile automatically starts to rise.
Who can forget that Arizona Public Service Company's half-million or so captive customers--including much of the Valley--pay some of the highest electric rates in the country? Or that US West has diddled local rates so a person in Glendale can't call Mesa without paying a toll?
Any time the commission is in the news, it usually means there's a new rate hike in the offing. All of which make the ACC one of the ripest targets in Arizona politics. Just ask Joe Castillo.
Castillo is challenging Democratic incumbent Marcia Weeks, chairwoman of the three-member commission, for her seat. His message, as he travels the state from one gathering of Republicans to another, is that Weeks has let the commission run "out of control." Castillo, a Democrat turned Republican, utility advocate turned consumer champion, claims "people are ready for a change," and humbly offers himself for consideration.
Castillo is betting that voters, particularly those who moved here within the last six years, will find it easier to bash the incumbent than to remember the soaring rates and rampant favoritism that marked the commission before Weeks and fellow reformer Renz Jennings took over.
Castillo's chances, in fact, depend upon shedding his record as head of the APS shareholders' association; as the spokesman for the utility's stockholders, Castillo argued for even higher rates than APS itself was seeking, and praised the diversification that left the company a whisper away from bankruptcy. The utility and its parent company, Pinnacle West Capital Corporation, began the Eighties flush with cash from generous rate hikes but ended on the brink of collapse.
Castillo presided as chief advocate for the investors throughout the company's brutal fall, but he did not utter a single complaint publicly until stock prices had skidded to a fraction of their former value and APS was mortgaged to pay off the parent company's debt. The debacle forced PinWest chairman Keith Turley into early retirement and left the company ripe for a takeover attempt by PacifiCorp, a huge Oregon-based utility.
At the very least, as the Republican nominee, he is benefiting from the influx of nearly 400,000 GOP voters who weren't around in the early Eighties, when Republicans then in control ran the commission so deeply into scandal that it became the target of a lawsuit by the state attorney general, himself a Republican.
Recent poll results, however, show almost half the voters are still undecided, possibly because the match-up generates few of the sparks that others, like the attorney general's race, have. Weeks and Castillo seldom appear together in debates, so the campaign has the feel of a tennis game on tranquilizers, with long pauses during volleys while each new assertion floats across the net in search of a return.
Candidates for corporation commission are so far down the ballot that, if history is any indication, many voters won't stay in the polling booth long enough even to make a selection. Those who do are likely to vote along party lines, which in this state usually means Republican.
The irony is that this low-profile race for an unglamorous job on a panel whose duties define the term b-o-r-i-n-g, has more direct impact on the consumer pocketbook than the election of governor and attorney general combined. Virtually everyone in the state will feel the effects of the next commissioner's rate decisions. For some, those decisions could mean the difference between life and death.
LAST JUNE, THE BLOATED, blackened bodies of an elderly Cave Creek couple were found in their trailer home, where they had collapsed from heat exhaustion after turning off the air conditioning to save money.
The coroner's report noted police findings that the couple, Harold and Helen Herr, were behind in paying their APS bill despite having drastically curtailed consumption compared with the same period last year, when they used eight hundred dollars' worth of electricity.
To anyone unfamiliar with APS, $800 sounds like the electric bill for the White House. In fact, a lot of APS customers have gotten used to spending more on electricity than on their monthly mortgage payments, thanks largely to a doubling of electric rates granted by the ACC between 1972 and 1985, when the Democratic reform slate of Weeks and Jennings gained control.
Weeks, along with Jennings, was elected on a pledge to end the wild escalation of utility rates and that, her admirers say, is just what she's done. "Marcia, in my opinion, is the gutsiest of all the corporation commissioners," says John Ahearn, who helped found the Residential Utility Consumers Office (RUCO) in 1983 to represent ratepayers in commission hearings. "She and Jennings are a team this state desperately needs."
Rate hikes have slowed to a trickle compared with the years before Weeks and Jennings took office, as have rate requests. One example of how Weeks has helped rewrite utility company mathematics: The state's four biggest utilities, APS, Tucson Electric Power, Southwest Gas Corporation, and US West, wangled rate increases totaling 169 percent in the six years prior to Weeks' election. In the six years since she took office, rate hikes for the same four companies have totaled less than 25 percent, under the national rate of inflation.
APS, which upped its rates nearly 50 percent in the five years preceding Weeks' election, has been granted less than 10 percent in rate hikes during Weeks' term. APS officials once strolled before the commission, as confident of getting what they wanted as if they were dropping off a grocery order to be filled. Those same officials now sweat under a barrage of incisive questions from Weeks, in particular, and have been granted fewer than half the increases they've sought during her term.
"I've said `no' to over $355 million in rate requests from the Big Four," Weeks says. The savings to APS customers--business and residential--exceed $150 million. Last year US West tried to argue it needed a $122 million rate increase, but wound up limping away with a rate decrease of $37 million. "In the past, the utilities always submitted inflated rate hikes for the commission to sign off on, but we go way beyond their built-in cushion and examine their claims so thoroughly that we end up cutting it to the bone," Weeks says.
When Weeks walks into a hearing, observers say, she's informed, interested and aggressive. "She's read everything on a case and it's obvious she's asked a lot of questions before she even gets into the hearing room," says Doug Brooks, RUCO executive director. "She's very conversant with all the technical issues, and covers a broad range in her questions. My impression is that she's the hardest working of the three commissioners."
Before Weeks and Jennings were elected, consumer advocates commonly encountered inattention, incompetence and outright hostility on the commission, says former RUCO director Susan Williams. Republican and former commissioner Marianne Jennings, for instance, used to wile away hearings proofing galleys for her latest book (she's written several business texts). Jennings, no relation to Renz Jennings, has since been given a seat on the board of PinWest, APS' parent company.
Nor was Marianne Jennings' flaky behavior exceptional--more than one former commission official perused the daily newspapers while sitting as a hearing officer in cases. Under commission rules, a hearing officer has much the same responsibilities as a judge, hearing testimony and recommending rate decisions to the full commission.
"Marcia is attentive and keenly present, and that is made clear from the depth of her questions," Williams says. "RUCO was not always happy with her decisions, but you had the sense she really listens."
Castillo dismisses Williams' comments, saying, "She and Weeks are personal friends." Weeks and Williams both deny his assertion, and indeed, this may be one of the few times in the commission's 78-year history that no cozy friendships exist between the regulators and those who appear before them.
The significance of Weeks' accomplishments is fully apparent only when contrasted with the antics of preceding commissions: APS and other utilities shuttled in and out of commission headquarters with new rate requests annually, and sometimes twice a year. Much of the discussion on those cases occurred in closed-door meetings between utility topsiders and sympathetic commissioners, meetings which excluded commissioners who refused to play along.
The public--and Attorney General Bob Corbin--began taking serious notice of what was going on inside the squat gray building at 1200 West Washington in 1981, with a string of shocking revelations about the incestuous relationship between the commission and regulated utilities. Largely because of the whistle-blowing of Weeks' husband Jim, then the lone Democrat on the commission, the public learned that then-commissioners Bud Tims and Diane McCarthy were about to rubber-stamp a rate hike decision that had been drafted, in its entirety, by the utility seeking the rate hike.
Corbin filed suit against the commission after failing to persuade Tims and McCarthy to throw out the case, involving Tucson Electric Power, and insist on a new application. Tims and McCarthy subsequently retained a lawyer whose firm had represented TEP for 25 years, to defend them in the suit brought by Corbin.
About the same time, Tims' long-standing family friendship with TEP lobbyist Gerald Murphy became public, as did under-the-table campaign contributions from TEP to a third Republican candidate, Clark Dierks. Jim Weeks, a longtime labor leader in Arizona, also charged that TEP president Theodore Welp had attempted to derail Weeks' opposition to a proposed power plant by promising to use union labor on the job.
Corbin declined to bring an attempted bribery charge against Welp only because a loophole in state law excluded offers intended to benefit a third party. In 1982, Jim Weeks stepped down without seeking re-election to a second term because of what he termed his "disgust" with the ethics of the commission's Republican majority.
The scandal also provoked an unsuccessful recall effort against Tims and McCarthy, who had campaigned as a consumer advocate. McCarthy and Tims both left the commission, she by early resignation, he because of a fatal heart attack, but the stinging rate hikes they had endorsed left voters still in the mood for reform. It was against this backdrop that Marcia Weeks, then a state representative from Glendale, decided to run for a seat on the commission. As a legislator, Weeks had worked with then-Governor Bruce Babbitt on bills targeting land fraud and other white-collar crime. Weeks sponsored bills to establish RUCO and prevent hidden ownership and insurance fraud; she also helped lead the fight for a state open-meetings law. "There was no open-meetings law before that," Weeks said. "We opened up state government with that law."
Handicapped by her ties to organized labor and the Democratic party, Weeks nevertheless won the 1984 corporation commission race by a narrow margin after campaigning on promises to end the spiraling rate hikes, open up the commission and improve the professional quality of its staff.
Besides stabilizing rates, Weeks reaps praise from consumer advocates for her role in dragging the rate-making process off the golf courses and out of the back room, and into the public eye. "The commission takes a lot of pains to open up the process to the public," RUCO's Brooks says. "When there's a rate case to be heard, they go where the customers are, and that's absolutely essential if you want to learn what's happening to utility customers in the affected communities."
Republican challenger Joe Castillo doesn't defend his party's record on the corporation commission. But he accuses Weeks of "grandstanding" while sweeping goofs under the rug, and claims that she ticks off a lot of people by being too confrontational toward utilities.
While Arizona's top utility executives make little secret of how Weeks grates on them, consumer advocates disagree that the sentiment is widespread among the public at large. "The average person generally thinks the utilities are not to be trusted, and that regulators should be tough and independent," Brooks observes. "Weeks definitely has that type of image."
Castillo also contends that with Marcia Weeks at the helm, the commission's staff really runs the show, as well as running off at the mouth. "The staff recently made remarks publicly about the APS situation which were an embarrassment," Castillo says, referring to statements by Gary Yaquinto, head of the ACC utilities division, questioning the validity of APS claims in its most recent rate proposal. "In effect, the commission has relinquished control to the staff," Castillo asserts.
At the same time, he criticizes Weeks for a recent action in which she set aside a negotiated agreement between the ACC staff and US West and demanded that the phone company yield an additional $3.9 million in rate concessions. "Everything was settled and then she comes in at the last minute and grandstands," Castillo says.
Weeks offers no apology, saying, "I felt the phone company was getting too much money for touch-tone service and said so. They accepted the amendment and the agreement was approved, so whatever you want to call it, I saved the consumer another $3.9 million and I'm proud of it."
Brooks and former RUCO director Williams both say Weeks has helped to assemble a brilliant utilities division staff, giving the corporation commission for the first time an independent, authoritative voice in appraising rate requests. "Marcia's greatest accomplishment is the excellent staff she's helped hire, and Castillo's biggest danger as a longtime APS advocate is that he will immediately remove Yaquinto and dismantle the staff," Williams says. "That would be the true devastation, and one can hear it in the criticism of staff that he's making."
"Our opinion of how this commission has done for the consumer is very good," Brooks says. "One index of that is how many of their decisions we appeal, and we've appealed only one in the last two years."
end part 1 of 2
Castillo's complaints, however, closely mirror opinion within the nation's financial markets. The consensus among Wall Street utilities experts is that, from an investor's point of view, the Arizona Corporation Commission is among the five worst regulatory agencies in the country because of its stingy attitude toward rate hikes.
The impact has been especially harsh for Southwest Gas, which recently sued the commission to overturn a decision giving the utility less than one fifth the rate hike it had sought, says Foster Corwith, first vice president for research at Dean Witter Reynolds Incorporated in New York City. "The action of the commission in the most recent rate case so damaged prospects for Southwest Gas that I don't think we can even count on dividends being maintained," Corwith says. "The rate decision also was directly responsible for the company's debt rating being downgraded to BBB-, just one step above speculative [junk bond] debt."
Corwith predicts that Southwest Gas customers ultimately will pay the price for the commission's actions now, because the lowered bond rating means the utility will have to pay higher interest rates any time it must borrow money to expand or improve its system.
It is less easy to draw conclusions about the commission's impact on other big Arizona utilities. Utility analysts say the financial problems of APS and TEP cannot be laid at the commission's door, but result instead from mistakes by company management.
US West, the phone company, has lost little from the rate cut it was forced to take, but this is mainly because Arizona represents only 14 percent of the utility's customer base, analysts say. However, Wall Street experts agree with company officials that the rate rulings don't allow the company enough money to invest in new technology that, in other states, has led to lower costs and rate reductions.
Perhaps the most revealing comment about Weeks and the impact of reformers on the corporation commission comes from Dennis Steinberg, the PacifiCorp vice president who helped design that company's takeover effort of PinWest earlier this year. Asked why PacifiCorp was not more hesitant to get involved with a regulatory agency that Arizona utilities consider "politicized" and "anti-industry," Steinberg replies, "We had heard the stories and we were concerned, so one of my first jobs was to go through every one of the rate cases handled by the present commission and to determine if the decisions made sense, or if they seemed based, perhaps, on other considerations.
"I looked at literally thousands of pages of documents and my determination, and what I reported to my bosses, was that the decisions reflected sound logic and a businesslike attitude," Steinberg says. "I felt this was a commission we could work with."
THE ODDEST THING about the race for corporation commissioner is how miscast the main actors are. Somehow, in American politics, the challenger is always expected to be feisty and pugnacious, while the incumbent is made ponderous by success and the trappings of office.
In this case, however, the characters have been reversed, which is only one of the peculiar things about the candidacy of Joe Castillo. Castillo assures campaign audiences that he is "independent" and "outspoken." But he was so loyal to management during his long association with Arizona Public Service Company that one former APS insider says, "We always felt we could count on the shareholders association to toe the party line."
Castillo says, "With me, what you see is what you get," yet he has recast his political identity more times in the past ten years than most people do in a lifetime.
What can be seen, at present, is a soft-spoken man, reasonably successful as a small-business man, who has fought whatever battles he faced as a Hispanic Republican with a minimum of public fanfare. "I was professional about it, I didn't scream and shout, and they respected me for it," says Castillo, describing one such bout, when he challenged the failure of the Arizona Republican party to include any Hispanics in its delegation to the 1988 national convention in New Orleans. (Castillo did not succeed in getting a Hispanic added to the delegation, but says he won reforms that will ensure future representation.)
His political involvement includes providing campaign support for a range of conservative Republicans, such as Fred Koory and Burton Kruglick, who ran unsuccessfully for governor and mayor, respectively. Castillo also was appointed by former Governor Evan Mecham to the board of the Arizona State Hospital.
Castillo, a high school graduate and native of Tucson, built a blueprint and drafting supply business from scratch. Two of Castillo's grown sons help run the business, Astro Blueprint & Supply Company, enabling him to campaign almost full-time.
"I'm steady, dependable, and I've been a fiscal conservative forever," Castillo says, and he believes these qualities are in short supply on the Arizona Corporation Commission. "By me being elected, there would be a change in attitude on the commission. Whether it's true or not, people feel [Weeks and Jennings] are antibusiness and anti-industry.
"I feel I will bring trust and objectivity to the hearing process," he says. "I will do what is best for the state as a whole. There is not an objective manner on the corporation commission now."
Castillo comes by this insight from his vantage point as a former chairman and director in the APS investors' group, now known as the Pinnacle West Shareholders Association. Castillo, in fact, has occupied leadership positions in the association dating back to 1982, when it was formed and funded by APS management to lobby for the rate hikes that ensure fat dividends and robust stock prices. "I think [Weeks'] claim of limiting rate hikes is a ploy," Castillo says. "She's voted for every rate request that's come down the pike."
In response to records showing that Weeks approved fewer than half what the utilities have requested, he claims, "Historically, utilities have asked for twice what they need, and let the commissioners look good by cutting down the request. It's a game that's got to stop."
This is not a complaint Castillo was ever heard making as head of the shareholders association, the position he occupied during the two most recent APS rate hearings in 1985 and 1987. To the contrary, Castillo, using money provided by APS, hired a lawyer and filed voluminous testimony arguing that the company deserved every cent it was seeking. In February 1987, the association's expert witness went so far as to assert that APS deserved more than it was seeking in rate increases.
Castillo acknowledges that the shareholders association submitted testimony during rate hearings, but claims it was only supporting "what was fair and reasonable." He minimizes his own role, saying his main duty was "keeping the membership informed about what was happening with management and with the ACC." Consumer advocates, however, say it's a barefaced attempt to bury his own record of uncritical boosterism.
"The shareholders association was set up to counteract RUCO in rate hearings," says Susan Williams. "Castillo used to come out with incredibly vicious letters against [John] Ahearn, the first chairman of RUCO, very similar to what he's now saying about Weeks . . . `Who are these loudmouths, these troublemakers?'--that sort of thing."
Castillo claims to have operated independently of APS, but in 1984 APS vice president Henry Sargent admitted during a rate hearing that the company had paid for the shareholders association's expert witness and that Sargent himself had reviewed the group's testimony in advance. APS officials claimed it was mere coincidence that the shareholders' testimony plugged vital gaps in their own arguments.
RUCO officials were so incensed by the complicity that they attempted to have the investor group's testimony excluded, saying, "APS and the association must be made to realize that this is not simply a high-stakes poker game--and APS cannot `buy' another seat at the table."
By far the most serious threat to shareholder interests in recent times has been the disastrous diversification set in motion by Turley in 1986, which left the company more than half a billion dollars in debt by January 1990. Castillo contends that, despite representing more than 13,000 small shareholders in the association, he had no power to dissuade management from making expensive blunders like the purchase of MeraBank for twice book value, or grandiose power-plant expansion in the face of shrinking growth projections. Weeks and Jennings were so worried about the potential harm to APS from the PinWest diversification that they convened a special hearing, but Castillo and the stockholders voiced no concern there, either.
"We didn't have direct input at the commission hearing on diversification, because it wasn't a commission hearing in the usual sense," Castillo recounts. "Of course, at the time everything was going great and everyone thought it was a reasonably good deal, including the commission."
Williams says Castillo's remarks are "absolute nonsense." "RUCO brought out the potential dangers of diversification, and Weeks was probably the strongest spokesperson of all about the potential dangers," she says. The corporation commission, however, had no legal authority to stop PinWest's diversification spree, while Castillo had the right--indeed the duty-- to challenge anything that might threaten the company's stability.
"At the time, you didn't hear any representative of the shareholders association reflecting any analysis of the potential negative impact to members," Williams says. "The association leadership voiced very strong support for APS' diversification efforts and was an active opponent to the commission's efforts to regulate the acquisitions.
"Castillo and the shareholders association were basically a cheering squad for the whole adventure," Williams says.
Castillo, of course, doesn't see it that way. He claims that he recognized the PinWest board was no longer acting in the best interests of the shareholders as early as 1986 or '87--two years before the May 1988 annual meeting in which outraged shareholders, including Castillo, openly demanded blood. Castillo says he could see the company was headed for trouble long before that, but preferred to take a low-key approach, and so shared his concerns privately with former PinWest chairman Keith Turley.
"We compiled a list of grievances and presented them to Turley," Castillo asserts. But he can neither recall the board's reaction, nor produce a copy of the correspondence. "Turley said he would take them to the board, but I don't know if he ever did. He never got back to us on that."
Castillo has a long list of complaints about Weeks' record, but when it comes to specifics, most of his claims hinge on a curious rearrangement of the facts. For example, Castillo disputes Weeks' claim that she gave APS less than 10 percent in rate hikes, saying APS rates have actually risen 15 percent during her term. What he doesn't mention-- or didn't until she challenged him publicly--was that the additional 5 percent represented rate hikes granted before she took office.
Castillo also criticizes the recent settlement between the commission and US West, in which the utility sought $122 million in rate hikes and was ordered to reduce its rates by $37 million and required to promise not to seek another rate hike before 1991.
Castillo claims the settlement actually ignored one of the consumers' biggest gripes, the tolls for local calls imposed by the phone company. "On the one hand, she appeared to do something pro-consumer by getting a moratorium on new rate hikes, but at the same time this agreement prevents the commission from addressing the problem of interzonal tolls until the next full-fledged rate hearing at least three years from now," he says.
The rating experts at RUCO shake their heads in disbelief at Castillo's interpretation of the phone-company settlement. "If you want to characterize a $37 million rate reduction as a lost opportunity . . . that's what Castillo is doing," Brooks says.
"We just had a two-week hearing, one of the most contentious I've ever been through, on the topic of interzonal calls," he adds. "It wasn't ignored [in the recent agreement], it was recognized as being too complex and controversial to settle by agreement, so it was set aside for separate hearings." Rate reforms recommended by the staff and RUCO are now under consideration by Weeks and the other commissioners. Castillo also attempts to link Weeks, through her husband Jim, to the obscene rate hikes granted in the six years before she took office. "Marcia fails to mention that her husband was a member of the commission that approved most of those 169 percent rate hikes," Castillo charges.
Yet he acknowledges under questioning that he "doesn't know" if Jim Weeks voted with the majority in those cases. (Jim Weeks opposed all but 11 percent of the rate hikes granted during his six years in office, commission records show.)
Castillo is banking on the populist discontent with high utility rates, and the preponderance of registered Republicans, to carry him past Weeks in the November 6 election. He says many people, "especially Republican women," consider Weeks too mouthy and aggressive.
"She criticizes the utilities publicly, before knowing all the facts, and there's no room for that when we have a hearing process," Castillo says. Despite Castillo's claim that he stands for the average Arizonan, his statements more frequently echo the grumbling coming from utility boardrooms around the state. If Castillo stands for anything, say his critics, it is opportunism.
"If I was a voter, I'd be kind of suspicious of a guy who'd represented the stockholders for years, and then jumped over to the consumer side just when the ship was going down," says state Senator Jaime Gutierrez of Tucson, who has known Castillo since the latter was a Democrat representing southwest Tucson in the state legislature during the late Sixties and early Seventies.
Castillo was the first Hispanic elected to the Arizona Legislature, and says he was a loyal Democrat until he began to feel the party was taking Hispanics, and him in particular, for granted. "Hispanics are really token in the Democratic party," Castillo says.
Castillo claims he decided to switch to the Republicans in 1978 when former Governor Bruce Babbitt declined to reappoint him to an advisory post he had held under Governor Raul Castro. Gutierrez, however, says Castillo had fallen out of favor with the Democrats long before then.
"Before moving to Phoenix and becoming a Republican, Joe was defeated twice in primary races," Gutierrez says. "That tells you something about how he was viewed by fellow Democrats."
Castillo was generally a moderate while in the state legislature, but became increasingly allied with Tucson developers after winning a seat on the Pima County Board of Supervisors in 1972. As battles over urban sprawl in Tucson heated up during the Seventies, Castillo alienated growth-control proponents and gained a reputation for shooting off his mouth.
In one controversial 1973 remark, for instance, Castillo, who represented the economically strapped neighborhoods of South Tucson and west Tucson, suggested closing Davis-Monthan Air Force Base to solve traffic problems. "At least it would make the environmentalists happy," he quipped.
"Davis-Monthan was one of the biggest employers in Tucson and the impact on public opinion was enormous," Gutierrez recalls. "The closest thing to it in Phoenix would be suggesting we shut down Arizona State University."
It was not the first time Castillo's judgment had been questioned. Former Planned Parenthood lobbyist Priscilla Robinson recalls how Castillo reacted when she sought his support for an abortion reform bill during his stint in the state legislature. "I was talking to him about the problem of teen pregnancy, and its effect on the lives of these young girls," Robinson says. "He rocked back in his chair and said, `You know, it's the most natural thing in the world for an eighteen-year-old girl to become pregnant.' He simply didn't see it as a problem."
"He's no dummy, but he's always got an agenda, so you don't really think of him weighing both sides of a problem," Robinson says. "All the time he was in the state Senate and on the board of supervisors, he was always a spokesman for somebody, usually big business.
"There's nothing in his history or record that would give you any confidence that he would be a consumer advocate," Robinson says.
In 1976, Castillo ran for re-election to the Pima County Board of Supervisors and was defeated in the primary by Democrat David Yetman, who campaigned as an advocate of urban planning and environmental protection. Two years later, Castillo attempted to recapture his seat in the state legislature, but was defeated by Gutierrez.
Soon afterward, Castillo moved his family to Phoenix and switched his registration to Republican. "I felt I could make an impact in the Republican party," he says.
His former Democratic colleagues are more cynical. "Joe understands which side his bread is buttered on," Gutierrez says. "If you're a Hispanic with a small business, you'd have a much more difficult time breaking into the Phoenix establishment as a Democrat."
RECENT POLLS INDICATE that 44 percent of the voters still haven't picked a favorite for corporation commissioner, a good indication that a lot of folks may be planning to blow off the race without casting a vote.
Lurking in the wings, however, is the upcoming APS rate case--the largest single increase ever sought by an Arizona utility--which will be decided by the commission in the next few weeks. The $271 million rate request APS filed in January would boost residential rates by nearly 25 percent. A homeowner who uses 925 kilowatt hours a month would see the electric bill jump from $88.97 to $110.84 in the next two years.
With this kind of money at stake, the question voters have to ask themselves before they sit out this race is, "Am I feeling lucky?"
Castillo's complaints, however, closely mirror opinion within the nation's financial markets. The consensus among Wall Street utilities experts is that, from an investor's point of view, the Arizona Corporation Commission is among the five worst regulatory agencies in the country because of its stingy attitude toward rate hikes.
The impact has been especially harsh for Southwest Gas, which recently sued the commission to overturn a decision giving the utility less than one fifth the rate hike it had sought, says Foster Corwith, first vice president for research at Dean Witter Reynolds Incorporated in New York City. "The action of the commission in the most recent rate case so damaged prospects for Southwest Gas that I don't think we can even count on dividends being maintained," Corwith says. "The rate decision also was directly responsible for the company's debt rating being downgraded to BBB-, just one step above speculative [junk bond] debt."
Corwith predicts that Southwest Gas customers ultimately will pay the price for the commission's actions now, because the lowered bond rating means the utility will have to pay higher interest rates any time it must borrow money to expand or improve its system.
It is less easy to draw conclusions about the commission's impact on other big Arizona utilities. Utility analysts say the financial problems of APS and TEP cannot be laid at the commission's door, but result instead from mistakes by company management.
US West, the phone company, has lost little from the rate cut it was forced to take, but this is mainly because Arizona represents only 14 percent of the utility's customer base, analysts say. However, Wall Street experts agree with company officials that the rate rulings don't allow the company enough money to invest in new technology that, in other states, has led to lower costs and rate reductions.
Perhaps the most revealing comment about Weeks and the impact of reformers on the corporation commission comes from Dennis Steinberg, the PacifiCorp vice president who helped design that company's takeover effort of PinWest earlier this year. Asked why PacifiCorp was not more hesitant to get involved with a regulatory agency that Arizona utilities consider "politicized" and "anti-industry," Steinberg replies, "We had heard the stories and we were concerned, so one of my first jobs was to go through every one of the rate cases handled by the present commission and to determine if the decisions made sense, or if they seemed based, perhaps, on other considerations.
"I looked at literally thousands of pages of documents and my determination, and what I reported to my bosses, was that the decisions reflected sound logic and a businesslike attitude," Steinberg says. "I felt this was a commission we could work with."
THE ODDEST THING about the race for corporation commissioner is how miscast the main actors are. Somehow, in American politics, the challenger is always expected to be feisty and pugnacious, while the incumbent is made ponderous by success and the trappings of office.
In this case, however, the characters have been reversed, which is only one of the peculiar things about the candidacy of Joe Castillo. Castillo assures campaign audiences that he is "independent" and "outspoken." But he was so loyal to management during his long association with Arizona Public Service Company that one former APS insider says, "We always felt we could count on the shareholders association to toe the party line."
Castillo says, "With me, what you see is what you get," yet he has recast his political identity more times in the past ten years than most people do in a lifetime.
What can be seen, at present, is a soft-spoken man, reasonably successful as a small-business man, who has fought whatever battles he faced as a Hispanic Republican with a minimum of public fanfare. "I was professional about it, I didn't scream and shout, and they respected me for it," says Castillo, describing one such bout, when he challenged the failure of the Arizona Republican party to include any Hispanics in its delegation to the 1988 national convention in New Orleans. (Castillo did not succeed in getting a Hispanic added to the delegation, but says he won reforms that will ensure future representation.)
His political involvement includes providing campaign support for a range of conservative Republicans, such as Fred Koory and Burton Kruglick, who ran unsuccessfully for governor and mayor, respectively. Castillo also was appointed by former Governor Evan Mecham to the board of the Arizona State Hospital.
Castillo, a high school graduate and native of Tucson, built a blueprint and drafting supply business from scratch. Two of Castillo's grown sons help run the business, Astro Blueprint & Supply Company, enabling him to campaign almost full-time.
"I'm steady, dependable, and I've been a fiscal conservative forever," Castillo says, and he believes these qualities are in short supply on the Arizona Corporation Commission. "By me being elected, there would be a change in attitude on the commission. Whether it's true or not, people feel [Weeks and Jennings] are antibusiness and anti-industry.
"I feel I will bring trust and objectivity to the hearing process," he says. "I will do what is best for the state as a whole. There is not an objective manner on the corporation commission now."
Castillo comes by this insight from his vantage point as a former chairman and director in the APS investors' group, now known as the Pinnacle West Shareholders Association. Castillo, in fact, has occupied leadership positions in the association dating back to 1982, when it was formed and funded by APS management to lobby for the rate hikes that ensure fat dividends and robust stock prices. "I think [Weeks'] claim of limiting rate hikes is a ploy," Castillo says. "She's voted for every rate request that's come down the pike."
In response to records showing that Weeks approved fewer than half what the utilities have requested, he claims, "Historically, utilities have asked for twice what they need, and let the commissioners look good by cutting down the request. It's a game that's got to stop."
This is not a complaint Castillo was ever heard making as head of the shareholders association, the position he occupied during the two most recent APS rate hearings in 1985 and 1987. To the contrary, Castillo, using money provided by APS, hired a lawyer and filed voluminous testimony arguing that the company deserved every cent it was seeking. In February 1987, the association's expert witness went so far as to assert that APS deserved more than it was seeking in rate increases.
Castillo acknowledges that the shareholders association submitted testimony during rate hearings, but claims it was only supporting "what was fair and reasonable." He minimizes his own role, saying his main duty was "keeping the membership informed about what was happening with management and with the ACC." Consumer advocates, however, say it's a barefaced attempt to bury his own record of uncritical boosterism.
"The shareholders association was set up to counteract RUCO in rate hearings," says Susan Williams. "Castillo used to come out with incredibly vicious letters against [John] Ahearn, the first chairman of RUCO, very similar to what he's now saying about Weeks . . . `Who are these loudmouths, these troublemakers?'--that sort of thing."
Castillo claims to have operated independently of APS, but in 1984 APS vice president Henry Sargent admitted during a rate hearing that the company had paid for the shareholders association's expert witness and that Sargent himself had reviewed the group's testimony in advance. APS officials claimed it was mere coincidence that the shareholders' testimony plugged vital gaps in their own arguments.
RUCO officials were so incensed by the complicity that they attempted to have the investor group's testimony excluded, saying, "APS and the association must be made to realize that this is not simply a high-stakes poker game--and APS cannot `buy' another seat at the table."
By far the most serious threat to shareholder interests in recent times has been the disastrous diversification set in motion by Turley in 1986, which left the company more than half a billion dollars in debt by January 1990. Castillo contends that, despite representing more than 13,000 small shareholders in the association, he had no power to dissuade management from making expensive blunders like the purchase of MeraBank for twice book value, or grandiose power-plant expansion in the face of shrinking growth projections. Weeks and Jennings were so worried about the potential harm to APS from the PinWest diversification that they convened a special hearing, but Castillo and the stockholders voiced no concern there, either.
"We didn't have direct input at the commission hearing on diversification, because it wasn't a commission hearing in the usual sense," Castillo recounts. "Of course, at the time everything was going great and everyone thought it was a reasonably good deal, including the commission."
Williams says Castillo's remarks are "absolute nonsense." "RUCO brought out the potential dangers of diversification, and Weeks was probably the strongest spokesperson of all about the potential dangers," she says. The corporation commission, however, had no legal authority to stop PinWest's diversification spree, while Castillo had the right--indeed the duty-- to challenge anything that might threaten the company's stability.
"At the time, you didn't hear any representative of the shareholders association reflecting any analysis of the potential negative impact to members," Williams says. "The association leadership voiced very strong support for APS' diversification efforts and was an active opponent to the commission's efforts to regulate the acquisitions.
"Castillo and the shareholders association were basically a cheering squad for the whole adventure," Williams says.
Castillo, of course, doesn't see it that way. He claims that he recognized the PinWest board was no longer acting in the best interests of the shareholders as early as 1986 or '87--two years before the May 1988 annual meeting in which outraged shareholders, including Castillo, openly demanded blood. Castillo says he could see the company was headed for trouble long before that, but preferred to take a low-key approach, and so shared his concerns privately with former PinWest chairman Keith Turley.
"We compiled a list of grievances and presented them to Turley," Castillo asserts. But he can neither recall the board's reaction, nor produce a copy of the correspondence. "Turley said he would take them to the board, but I don't know if he ever did. He never got back to us on that."
Castillo has a long list of complaints about Weeks' record, but when it comes to specifics, most of his claims hinge on a curious rearrangement of the facts. For example, Castillo disputes Weeks' claim that she gave APS less than 10 percent in rate hikes, saying APS rates have actually risen 15 percent during her term. What he doesn't mention-- or didn't until she challenged him publicly--was that the additional 5 percent represented rate hikes granted before she took office.
Castillo also criticizes the recent settlement between the commission and US West, in which the utility sought $122 million in rate hikes and was ordered to reduce its rates by $37 million and required to promise not to seek another rate hike before 1991.
Castillo claims the settlement actually ignored one of the consumers' biggest gripes, the tolls for local calls imposed by the phone company. "On the one hand, she appeared to do something pro-consumer by getting a moratorium on new rate hikes, but at the same time this agreement prevents the commission from addressing the problem of interzonal tolls until the next full-fledged rate hearing at least three years from now," he says.
The rating experts at RUCO shake their heads in disbelief at Castillo's interpretation of the phone-company settlement. "If you want to characterize a $37 million rate reduction as a lost opportunity . . . that's what Castillo is doing," Brooks says.
"We just had a two-week hearing, one of the most contentious I've ever been through, on the topic of interzonal calls," he adds. "It wasn't ignored [in the recent agreement], it was recognized as being too complex and controversial to settle by agreement, so it was set aside for separate hearings." Rate reforms recommended by the staff and RUCO are now under consideration by Weeks and the other commissioners. Castillo also attempts to link Weeks, through her husband Jim, to the obscene rate hikes granted in the six years before she took office. "Marcia fails to mention that her husband was a member of the commission that approved most of those 169 percent rate hikes," Castillo charges.
Yet he acknowledges under questioning that he "doesn't know" if Jim Weeks voted with the majority in those cases. (Jim Weeks opposed all but 11 percent of the rate hikes granted during his six years in office, commission records show.)
Castillo is banking on the populist discontent with high utility rates, and the preponderance of registered Republicans, to carry him past Weeks in the November 6 election. He says many people, "especially Republican women," consider Weeks too mouthy and aggressive.
"She criticizes the utilities publicly, before knowing all the facts, and there's no room for that when we have a hearing process," Castillo says. Despite Castillo's claim that he stands for the average Arizonan, his statements more frequently echo the grumbling coming from utility boardrooms around the state. If Castillo stands for anything, say his critics, it is opportunism.
"If I was a voter, I'd be kind of suspicious of a guy who'd represented the stockholders for years, and then jumped over to the consumer side just when the ship was going down," says state Senator Jaime Gutierrez of Tucson, who has known Castillo since the latter was a Democrat representing southwest Tucson in the state legislature during the late Sixties and early Seventies.
Castillo was the first Hispanic elected to the Arizona Legislature, and says he was a loyal Democrat until he began to feel the party was taking Hispanics, and him in particular, for granted. "Hispanics are really token in the Democratic party," Castillo says.
Castillo claims he decided to switch to the Republicans in 1978 when former Governor Bruce Babbitt declined to reappoint him to an advisory post he had held under Governor Raul Castro. Gutierrez, however, says Castillo had fallen out of favor with the Democrats long before then.
"Before moving to Phoenix and becoming a Republican, Joe was defeated twice in primary races," Gutierrez says. "That tells you something about how he was viewed by fellow Democrats."
Castillo was generally a moderate while in the state legislature, but became increasingly allied with Tucson developers after winning a seat on the Pima County Board of Supervisors in 1972. As battles over urban sprawl in Tucson heated up during the Seventies, Castillo alienated growth-control proponents and gained a reputation for shooting off his mouth.
In one controversial 1973 remark, for instance, Castillo, who represented the economically strapped neighborhoods of South Tucson and west Tucson, suggested closing Davis-Monthan Air Force Base to solve traffic problems. "At least it would make the environmentalists happy," he quipped.
"Davis-Monthan was one of the biggest employers in Tucson and the impact on public opinion was enormous," Gutierrez recalls. "The closest thing to it in Phoenix would be suggesting we shut down Arizona State University."
It was not the first time Castillo's judgment had been questioned. Former Planned Parenthood lobbyist Priscilla Robinson recalls how Castillo reacted when she sought his support for an abortion reform bill during his stint in the state legislature. "I was talking to him about the problem of teen pregnancy, and its effect on the lives of these young girls," Robinson says. "He rocked back in his chair and said, `You know, it's the most natural thing in the world for an eighteen-year-old girl to become pregnant.' He simply didn't see it as a problem."
"He's no dummy, but he's always got an agenda, so you don't really think of him weighing both sides of a problem," Robinson says. "All the time he was in the state Senate and on the board of supervisors, he was always a spokesman for somebody, usually big business.
"There's nothing in his history or record that would give you any confidence that he would be a consumer advocate," Robinson says.
In 1976, Castillo ran for re-election to the Pima County Board of Supervisors and was defeated in the primary by Democrat David Yetman, who campaigned as an advocate of urban planning and environmental protection. Two years later, Castillo attempted to recapture his seat in the state legislature, but was defeated by Gutierrez.
Soon afterward, Castillo moved his family to Phoenix and switched his registration to Republican. "I felt I could make an impact in the Republican party," he says.
His former Democratic colleagues are more cynical. "Joe understands which side his bread is buttered on," Gutierrez says. "If you're a Hispanic with a small business, you'd have a much more difficult time breaking into the Phoenix establishment as a Democrat."
RECENT POLLS INDICATE that 44 percent of the voters still haven't picked a favorite for corporation commissioner, a good indication that a lot of folks may be planning to blow off the race without casting a vote.
Lurking in the wings, however, is the upcoming APS rate case--the largest single increase ever sought by an Arizona utility--which will be decided by the commission in the next few weeks. The $271 million rate request APS filed in January would boost residential rates by nearly 25 percent. A homeowner who uses 925 kilowatt hours a month would see the electric bill jump from $88.97 to $110.84 in the next two years.
With this kind of money at stake, the question voters have to ask themselves before they sit out this race is, "Am I feeling lucky?
