Agency opposes APS rate hike, wants cut

Max Jarman
The Arizona Republic
February 5, 2004

Arizona Public Service Co. wants a rate increase. But if regulators get their way, the utility's 900,000 customers could, instead, see a substantial drop in their electric bills.

APS has asked the Arizona Corporation Commission to approve a 9.8 percent, or $175 million-a-year, rate increase to cover an investment in new power plants and higher operating costs. The proposal would tack $9.24 onto the average monthly residential bill.

But, the commission's staff concluded in a filing late Tuesday, that the company's rates are already too high and should be reduced by 8 percent, or $143 million per year. That would reduce the monthly bill by $7.54 for the average consumer.

In a similar filing, the consumer watchdog Residential Utility Consumer Office suggested a decrease of 2.84 percent, or $53.6 million. The proposal would reduce monthly bills $2.66.

APS said, in a Securities and Exchange Commission filing Wednesday, that it would vigorously oppose the recommendations and that the higher rates are necessary to provide reliable electric service to its growing customer base.

Stock in APS parent Pinnacle West Capital Corp. fell $1, to $37.95 per share, Wednesday, or about 2.5 percent.

The consumer office and the Corporation Commission filings act as written testimony in APS' first requested rate increase since 1991. Eventually an administrative law judge will make a final recommendation that will go before the five commissioners for approval.

Commission spokeswoman Heather Murphy noted that the administrative law judge is not bound to accept the recommendations of the staff, and the commissioners are not bound to accept the recommendations of the judge.

A final decision in the rate case is not expected until this summer.

Under Arizona's unraveling electricity deregulation plan, APS' rates have been capped until July, when new rates could take effect.

The company has asked to be able to recover from ratepayers the $900 million cost of several new power plants built under the premise of a deregulated electricity scenario and about $234 million in so-called stranded investment that the company wrote-off as a condition to deregulating its market.

APS claims that since the commission has barred it from spinning off its power plants into a separate affiliate, it should be allowed to recover the write down it took in preparation for the move.

APS also is asking for a guaranteed annual return on equity of 11.5 percent.

Given prevailing low interest rates, the commission staff recommended a 9 percent return on equity and utility consumer office suggested 9.5 percent. The commission staff and the utility consumer office recommends that the company not be allowed to put the cost of the new power plants into the rate base and that consumers would be better served by purchasing wholesale electricity on the open market instead of investing in new power plants.

By including the new plants into the rate base, the ACC staff said consumers could lose approximately $200 million in savings over the next three years.

The commission also disallowed the $234 million write-down recovery, calling the request inappropriate.