East Valley Tribune
March 29, 2005
By ED TAYLOR

The Arizona Corporation Commission approved a electricity rate increase for Arizona Public Service on Monday, bringing an end to nearly 15 years of declining electric rates in the APS service territory.

The exact amount of the increase will depend on several variables, but it is likely to amount to at least 8.9 percent to be implemented in two stages, and will bring the utility an additional $175.5 million in annual revenue.

The increase in the monthly electric bill for an average residential customer will vary depending on the type of rate plan used by the customer and the amount of consumption. But APS executive vice president Steve Wheeler said the average bill will rise by $6.46 a month to reach $78.55 if the various adjustments are implemented as expected.

Utility officials and ACC commissioners said the rate increase was justified by skyrocketing fuel prices and the expense of providing electric service to a rapidly growing number of customers.

"We have the second fastest growing territory in the country, and with that is the necessity to invest hundreds of millions of dollars a year in new wires and facilities," Wheeler said. "We also face pressure on operating costs such as higher fuel, pensions, benefits and other costs."

The exact amount of the increase approved by the commission can't be determined for sure because it will depend on the future direction of fuel prices and other variables.

The decision for certain includes a 4.21 percent, or $75.5 million, rate increase effective April 1.

The utility also was authorized to collect an additional 4.5 percent increase, or about $100 million, beginning in April 2006 - if the cost of fuel and purchased power at that time cannot be accommodated with the initial 4.21 percent increase. That additional increase is subject to review by the commission.

The commission's decision Monday allows the utility to recover even higher costs beyond the second-stage increase if the commission determines that is necessary.

Wheeler said the utility expects at least the second stage increase will be required next year because of the rapid run up in fuel prices, particularly natural gas, during the past year.

"The amount in the base rate (the first 4.21 percent increase) was based on historic (cost) levels, and prices have gone up a lot since then," he said.

The company originally requested a base rate increase of nearly 10 percent in June 2003 but agreed to reduce that to 4.1 percent in a settlement with the commission's staff, consumer groups and other intervenors in the case.

The 4.1 percent increase also was recommended by an administrative law judge.
Both of those settlements included provisions for additional increases due to inflationary fuel costs.

Even including the approved increase, commission member Bill Mundell said APS rates are still less than in the late 1980s, thanks to a 16 percent decline in rates since the early 1990s.

"Nobody enjoys rate increases . . . but this is a case where ratepayers have been given every protection we can reasonably give them," Commissioner Marc Spitzer said at the conclusion of a full day of deliberation on the rate plan.

Commissioner Kris Mayes supported the decision, even though she said the rate increase could reach as high as 13 percent if warranted by higher energy costs.

"This resolves a lot of longstanding issues and brings finality to questions that could have resulted in a quagmire of litigation," she said. The only commissioner to vote against the proposal was Mike Gleason, who said it imposes too many costs on APS ratepayers.

"I think there are several things that will cost the ratepayers a lot of money," he said. "There is a lot of good stuff in here, but I think we could have done better."

In addition to authorizing the rate increase, the commission's order calls for APS to obtain more of its electricity supplies from alternative energy sources and to increase spending on energy conservation. Also it requires the utility to work on improvements to electric service in rural American Indian communities.