FACING OPPOSITION
APS RATE HIKE REQUEST UNDER CHALLENGE
Arizonato raise Publicthe rates Servicefor is 1.1 facing million severe customers. opposition¶ The to state’sits requestbiggest utility last year asked state regulators to raise its rates by about $166 million annually, or about $11 per month for the average residential customer. ¶ Utilities usually don’t get everything they ask for, but in this case, some of the critical stakeholders don’t see the need for APS to raise rates at all.
The staff at the Arizona Corporation Commission and the Residential Utility Consumer Office both recommend no increase, with RUCO suggesting a revenue decrease, at least at this early stage. The language in the staff testimony, written by accountants, is daunting: “Staff’s recommended increase of $0 based on using a fair value rate of return increment of 0.50 percent represents an increase from current base rate revenue from sales to ultimate customers of approximately 0.00 percent.”
APS is scheduled to present its formal response Feb. 17. Company officials likely intend to be more persuasive than their initial request. They also have requested settlement talks with the other parties, which were to commence Jan. 12-13.
“We hope we can find common ground with others who care about Arizona’s energy future,” the company said in a prepared statement.
How rate increases are decided
The procedure works like this: First a utility applies for an increase, and then various parties ask to join the case. RUCO and the commission staff are involved in every case, while outside groups representing low-income customers, solar companies, environmental groups, large customers like Walmart and others are almost always involved in large APS cases such as this one.
They present testimony, and the utility responds. Eventually, an administrative law judge conducts a hearing and issues an opinion based on the evidence. The parties can then suggest changes to the judge’s recommendation. Finally, the five elected commissioners vote. They usually amend the judge’s order, although if a majority of parties reach a settlement, it makes the regulators’ decision easier.
During the proceedings, the parties can request information from each other through the discovery process, much like court cases, and by depositions of witnesses. APS has been fighting a request by a solar group to depose two of its key employees. APS already lost one such challenge earlier in the case.
APS rates last were increased in 2012 by a commission decision that year. The current case covers a multitude of matters, including a request to require nearly all residential customers to use “demand rates” that base a large portion of monthly bills on the highest one-hour of electricity use during peak hours in the month.
APS revenue will be scrutinized
But before diving into the details of how rates are designed and how customers are billed, regulators must decide whether the utility needs an increase in revenue.
APS’ parent company, Pinnacle West Capital Corp., earned $437 million in profits in 2015, or about $4 per share for its stockholders. Analysts estimate 2016 brought in about $3.6 billion in revenue and earned stockholders about $4 per share, though the full-year figures haven’t been reported yet.
APS is actually seeking an increase of $227.6 million in base rates, and a reduction of $61.7 million in fuel costs (thanks to lower natural-gas prices). The net is a $166 million increase.
The Corporation Commission staff submitted 655 pages of testimony evaluating everything from inflation and depreciation rates on APS equipment to the number of power poles damaged by summer storms, and the staff is at odds with several APS figures.
For example, commission staff said microgrid projects with Aligned Energy and the U.S. Marine Corps in Yuma raise regulatory concerns.
“Since these two new mircogrids will benefit specific APS customers, the customers that are directly benefited from these facilities should contribute toward the associated costs,” staff wrote.
Staff also doesn’t want to recognize revenue to pay for a $90 million solar project APS built for Arizona State University and PayPal.
“To avoid having APS’ other customers subsidizing APS’ provision of renewable energy to ASU and PayPal from that facility, both the cost of the facility and the revenue projected by APS to be received from ASU and PayPal are being removed,” staff testimony said.
Where other groups stand
Some parties to the case support the APS request, though their testimony is substantially less detailed than the commission staff and not likely to carry the same weight with the judge or the commissioners.
The Arizona Investment Council represents investors in Arizona companies and frequently sides with APS in rate requests and on other matters, such as reducing rooftop-solar subsidies.
The council’s testimony in the rate case supports APS and argues that major overhauls at the Four Corners Power Plant in New Mexico and the Ocotillo Power Plant in Tempe should be included in the increase, even though they won’t be finished before the rate case concludes.
The International Brotherhood of Electrical Workers, which represents APS linemen in its Local 387 and lineman subcontractors through Local 769, also supports the APS increase.
“It costs a great deal of money for APS to attract, hire, train and maintain a highly skilled workforce to do critically important work,” said G. David Vandever, business manager for Local 387, in his testimony. “Thus, the IBEW Locals submit, it is in the interests of the residential utility customers to pay something more than rock-bottom prices for electric service.”
Other parties in the case mostly focus on narrow aspects of the request. However, the Energy Freedom Coalition of America, representing rooftop-solar companies, suggests a rate decrease of $107.5 million for the company.
“I believe APS has made none of the requisite showings ... to justify the extraordinary rate relief it seeks,” the group’s expert witness said in testimony.
A hearing is scheduled for March 22, and the commissioners are expected to vote in June on the full case.
“We hope we can find common ground with others who care about Arizona’s energy future.” APS STATEMENT