SRP seeks rate increases
Utility says price hikes needed due to Valley growth

East Valley Tribune
By ED TAYLOR
July 16, 2005

Electric rates for Salt River Project’s residential customers would rise 3.6 percent on Nov. 1 under a proposal announced Friday by SRP’s management.

The rate increase is needed to help pay for more power plants and transmission lines planned by the utility to serve its growing number of customers, said Mark Bonsall, SRP’s associate general manager and chief financial executive.

"Our customers have been growing about 30,000 to 35,000 a year, which is quite a lot," he said.

SRP has about 850,000 electric customers in the Valley.

If approved, the average monthly bill for a typical SRP residential customer would increase by $3.96 to $104.17.

It would be the second general rate increase for SRP customers in two years.

SRP increased its basic rates an average of 1.5 percent in November.

The two rate hikes followed a 10 percent decline in SRP’s basic rates during the 1990s, which was required by a state law that partially deregulated the state’s electric utilities.

But rising fuel costs and the need to build more generating plants has caused electric rates to turn upward.
The management proposal would hit different categories of customers in different ways.

While residential rates would rise 3.6 percent, commercial rates would rise only 1.9 percent and industrial rates 1.7 percent. Overall, the increase is 2.9 percent.

Bonsall said residential rates are being raised more percentagewise to balance the rate of return on capital among the various classes of customers.

"Even after this, the residential rate of return will still be the lowest," he said.

Overall, SRP is seeking a 6 percent rate of return, which he said is needed to produce "reasonable" borrowing costs for $4.1 billion in capital improvements planned by the utility.

Major projects include a new 400-megawatt coal-fired generating plant in Springerville, installation of new emission-control equipment at the coal-fired Mohave Generating Station in southern Nevada and a new 500-kilovolt transmission line from the Palo Verde nuclear plant west of Phoenix though Pinal County to east Mesa.

During the 1990s, the utility had excess generating capacity, which reduced the need for capital expenditures and helped to keep basic rates down, Bonsall said. But that has changed as the Valley’s economic and population growth has caught up with capacity, he said.

"The base rate turned around because of the new assets we have to build or replace," he said. "New power plants cost more to build, so your cost basis goes up."

Fuel costs, which SRP figures separately and are not part of the base-rate increase proposed Friday, have risen even more sharply in the past few years and are up 11.4 percent since 2002, according to SRP figures.

When the fuel-cost increases and base -rate adjustments are combined, SRP rates today are 2.8 percent higher than in 1995 and would be up 5.7 percent if the new rate increase is approved, Bonsall said.

"That tells you most of the this (trend toward higher rates) is fuel driven," he said.

The fuel increases have been propelled by higher prices for natural gas, which accounts for about 18 percent of the energy used by SRP to generate electricity. Most of the rest is coal, nuclear and hydro power, none of which has risen as rapidly as natural gas, he said.

SRP officials plan a series of public meetings in August to hear comments on the proposal. SRP’s board of directors will hear the plan Sept. 12 and take action Oct. 3.

Tim Hogan, director of the Phoenix-based Center for Law in the Public Interest, which has legally challenged SRP rates in the past, said he plans to carefully study the latest proposal to make sure it’s fair to consumers.
In particular, he wants to determine if the greater hike for residential customers is fair. Also he said he wants to determine if the rate of return sought by SRP is necessary.

"It’s hard to say (what position the center will take) until we get the documentation and start to look at it, but in general the two questions in these cases are, is the magnitude (of the increase) justified and is it being equitably spread?" he said.

He said a close look is justified because SRP has "been generating cash hand over fist for quite awhile."

Aug. 3 Residential and Small Business Customer Meeting 6 p.m. to 8:30 p.m. Phoenix Public Library, Desert Sage Branch 7602 W. Encanto Blvd., Phoenix

Aug. 10 Residential and Small Business Customer Meeting 6 p.m. to 8:30 p.m. Chandler Parks, Recreation & Aquatics Community Center 125 E. Commonwealth Ave., Chandler

Aug. 16 Residential and Small Business Customer Meeting 6 p.m. to 8:30 p.m. SRP Project Administration Building, Mohave Rooms 1521 N. Project Drive, Tempe

Aug. 18 Commercial Customer/Stakeholder Meeting 9:30 a.m. to 4 p.m. SRP Project Administration Building, Mohave Rooms 1521 N. Project Drive, Tempe