APS cries uncle on expenses -- Regulators vow a tough review

Arizona Republic
Ken Alltucker
July 28, 2005

After spending nearly two years scrutinizing Arizona Public Service Co.'s request to raise electricity rates, state regulators this spring approved a rate increase far less than what the utility sought.

Now, Arizona Public Service says it needs more from customers to pay for escalating fuel costs and big-ticket items to ensure a reliable source of power for the fast-growing Valley.

The Phoenix-based utility last week filed for a fuel "adjuster" that would hike the typical residential bill by 2.1 percent to $110.66.

And on Wednesday, Arizona Public Service Chief Executive Jack Davis said the utility will seek another rate increase by the end of the year to help pay for the $190 million Sundance power plant purchase near Coolidge.

Davis told stock analysts Wednesday that he doesn't expect the same type of grind-it-out battle the utility endured during the last rate case. APS originally requested a 10 percent rate hike increase in 2003, but regulators instead approved an increase of 4.3 percent to $107.92, nearly two years later. It was the first rate increase the utility had won in more than a decade.

"The issues in the case will be so much less volatile than the one we just finished," Davis said. "This will be a more normal kind of rate asking, if there is such a thing."

Yet some commissioners vowed a tough review of both cases.

"Well, I've gotten the feeling that the Wall Street people want more," Commissioner Marc Spitzer said. "It's our job to represent the ratepayers."

Commissioner Kris Mayes added that both cases "seem like an awful lot all at once."

Mayes said she wants to know why the utility is requesting a rate change so quickly. Utilities typically need to show at least one year's worth of data to justify a rate increase.

"They applied for a surcharge before anyone expected, and now they want to come back for a full rate case," Mayes said. "Those are a lot of requests all at once."

APS said the requests reflect the volatile nature of the energy business. It wants the extra money for the fuel case mainly due to the higher cost of natural gas, which is used to fuel some of the utility's power plants. Natural gas and other energy costs have jumped 24 percent over the past two years, the utility said.

The main driver for the general rate increase case is the utility's purchase of the $190 million Sundance plant near Coolidge.

The plant provides enough power for 225,000 homes and is a critical component in ensuring there's enough power to match the Valley's fast growth.

The rate case revelation came during an earnings conference call of APS parent Pinnacle West Capital Corp., which reported a second-quarter profit drop largely due to a $59 million after-tax loss from the sale of Silverhawk power plant near Las Vegas.

Pinnacle West reported a second-quarter profit of $27 million, or 28 cents per share, down from $73 million, or 79 cents per share, in the same quarter a year ago.

Shares of Pinnacle West closed Wednesday at $45.60, up 10 cents.