APS seeking 14% emergency hike in rates

Arizona Republic
Ken Alltucker
Jan. 7, 2006

Citing the dramatic rise of natural gas prices and pressure from Wall Street, Arizona Public Service Co. on Friday asked the Arizona Corporation Commission to approve an emergency request to raise electricity bills 14 percent beginning April 1.

The request, coupled with the company's 5 percent annual fuel increase expected to kick in April 1, would raise the average monthly residential bill to $120 from $101, based on 1,100 kilowatt hours of use.

APS executives say they need the money to lift the Phoenix-based utility out of a financial jam that threatens to sink the company's corporate bond rating to junk status.

It's the first emergency rate-relief request sought by a major Arizona electric utility since APS did it two decades ago while building the Palo Verde Nuclear Generating Station.

"It's fuel, fuel, fuel," said Jack Davis, APS president and chief executive officer. "I know the perception is there's something else there. There's nothing else. It's strictly fuel."

APS' action is an attempt to recoup the fuel costs cited in its general rate-hike request, which was filed in November and would increase electricity bills 20 percent. Friday's filing does not address attempts to recover other costs, such as corporate profits, pension deficits and reimbursement for a power-plant purchase.

Davis and other APS executives made the emergency request in hopes of getting quick action from the commission. A general request can drag on for a year or longer. Davis said that any emergency rate increase would be subject to a refund, pending the Corporation Commission's ruling on the rate case this year or next year.

Commissioners vowed a thorough review.

"I'm sure plenty of people will say it's outrageous," said Jeff Hatch-Miller, commission chairman. "But when viewed in the context of what is going on in the national and international energy market, I can see what a difficult position the utility is in."

Commissioner Marc Spitzer said it's unusual for a utility to extract one part of a rate case, in this instance fuel costs, and seek immediate reimbursement. Consumer advocates typically shun such an approach because it hits the ratepayer but doesn't examine other ways the utility could save money, Spitzer said.

Commissioner Kris Mayes, who has been critical of APS, also said the commission first will review whether an emergency request is appropriate.

In Arizona, typically only small, troubled water companies have sought emergency relief.

These companies have been granted the regulatory break only after proving they couldn't operate without immediate cash.

"They've dug themselves into a hole, and they need to get out of it," Mayes said. "It's time to start asking APS what they're going to do to help themselves out of this situation."

Mayes said she wants APS to explore other options, including cash from parent company Pinnacle West Capital Corp., dividend cuts, corporate travel cuts or even reduced executive salaries.

Davis said the company's most pressing problem remains rising fuel costs.

APS has been trapped in a buy-high, sell-low scenario of purchasing natural gas and energy at today's soaring prices while selling it at prices that reflect mid-2003 levels.

The utility charges rates based on the cost of energy in fall 2003 when the spot price of natural gas was less than $6 per 1,000 cubic feet.

That price soared beyond $15 per 1,000 cubic feet in December trading on the New York Mercantile Exchange.

The result has been that the company is piling on debt.

APS estimates it was owed $164 million in fuel and purchased power costs as of Dec. 31, an amount that will soar to $416 million by the end of the year unless customers' electricity bills increase.

The financial imbalance has caught the attention of Standard & Poor's Ratings Services, which lowered the utility's corporate rating last month to one level above junk status.

APS suffered another blow this week when an administrative law judge recommended that the commission reject the utility's request to immediately add an $80 million surcharge that would have raised bills 1.8 percent.

APS will appeal the recommendation, and the commission has the final say.

Standard & Poor's said this week that could result in "further weakening of the financial position" of APS and Pinnacle West. Another ratings agency, Fitch Ratings, also noted the utility's financial position.

"The regulatory uncertainty and prospect of further delay to the recovery of prudently incurred power supply costs is a threat to APS and (Pinnacle West's) creditworthiness," Fitch wrote in a research note released Friday.