APS seeks rate hike to offset cost of Palo Verde outages

The Arizona Republic
Ken Alltucker
Sept. 28, 2005

Arizona Public Service wants its customers to help pick up the tab for more than $30 million the utility paid to replace energy lost this year when a string of unplanned outages at Palo Verde Nuclear Generating Station shut down the plant's reactors.

But state regulators vow to take a tough look at Palo Verde outages and at whether APS or its customers should be responsible for paying the bills associated with energy purchases needed to offset the less expensive nuclear power.

"That's a big chunk of change, and I think it warrants an independent audit of those expenses before it is passed along to ratepayers," Arizona Corporation Commissioner Kris Mayes said.

In July, APS asked the corporation commission to approve a fuel-cost "adjuster" that would hike the typical residential bill 2.1 percent and raise $100 million to offset rising energy costs. APS says the fuel-cost adjuster is warranted under terms of a state-approved rate plan that allows the utility to pass along 90 percent of fuel costs the utility has incurred since April. Fuel costs, led by a run-up in natural gas, have soared 24 percent over the past two years.

APS has been forced to find other, more expensive sources of energy this year to replace energy lost due to several outages at the Palo Verde, the nation's largest nuclear power plant, located about 50 miles west of Phoenix. The outages have proved costly because nuclear power is less expensive to generate than other sources of electricity such as coal, oil or natural gas.

Palo Verde Unit 3 shut down twice this year for the same problem: a leaking oil seal in the reactor's coolant pump. Crews first detected the problem and shut down the reactor in late May. APS fired the unit back up in early July after five weeks of repairs and maintenance only to discover that the oil seal was still leaking. The problem has since been repaired.

Unit 1 shut down mid-August after routine tests showed the reactor's diesel generator was not working properly, and later that month, Unit 2 closed temporarily for needed emergency software tests.

For a nuclear power plant that boasted a stellar operating record for much of the past decade, the past year's problems have been troublesome for APS.

In papers filed with the corporation commission, APS estimates Palo Verde's unplanned outages from April through July have cost the utility about $18.6 million in replacement energy costs. The August outages cost an additional $11.9 million.

And APS costs reflect only its 29.1 percent ownership stake of Palo Verde. Salt River Project, which owns the second-largest share of the plant, 17.5 percent, estimates the Palo Verde outages from April through August cost it $19.5 million.

It's unknown how much the outages cost the plant's other five owners.

"There is no question this has been a tougher year than most recent years," APS spokesman Jim McDonald said. "We took the units down for what we believe were important steps to protect the margin of safety, which is always going to take a higher priority than production."

Several details still must be hashed out before the corporation commission votes on the fuel adjuster. APS, Corporation Commission staff and other interested parties, including the Residential Utility Consumers Office, expect to meet in late October to discuss the details of the case.

One possible scenario would include an adjuster case that centers on fuel costs not related to the Palo Verde outages. APS would then seek the Palo Verde-related charges at a later date.

In a filing with the Securities and Exchange Commission, the utility made it clear that it fully intends to seek reimbursement for the nuclear power plant charges.

"Under ACC regulations, expenses are presumed to have been prudently incurred, and this presumption may be set aside only by clear and convincing evidence that the expenses were unreasonable, dishonest or obviously wasteful. APS believes these expenses were prudently incurred and are therefore recoverable," according to the SEC filing.