The Arizona Corporation Commission approved a 6.8 percent rate increase Tuesday for Arizona Public Service Co., which company officials said will add about $8 a month to an average residential ratepayer’s monthly bill.

The increase that was approved Tuesday and takes effect July 1 came on top of an emergency rate increase of 7.6 percent granted by the commission in May 2006. That increase, combined with fuelcost adjustments approved last year by the commission, means total rate increases of 15.1 percent for the company in the past year and a half, APS said.

The utility had requested a total increase of about 20 percent when it originally filed the rate case in November 2005.

Commissioners voted 4-1 to approve the additional 6.8 percent hike on Tuesday. They said the rate order balanced the interests of the company and its customers, allowing APS to cover the higher cost of natural gas fuel for its power plants while minimizing the impact on customer bills.

But company officials said the increase is not sufficient to keep up with growth in the APS service territory, which is requiring the company to spend nearly $1 billion annually to expand its electric grid.

Commissioners said the company can cover more of those costs through greater efficiency and gains in economies of scale.

“We have adopted a progressive cost-of-service regulation that ensures ratepayers are treated fairly as well as authorizes, but does not guarantee, that APS will earn as much rate of return as they would want,”
Commissioner Jeff Hatch-Miller said. He added that “APS will have to be lean and more productive to stay profitable under this order.”

Commissioner Kris Mayes, who was critical of APS officials during the hearing, voted to approve the rate increase because it included some features she favored, including requirements that APS abide by the commission’s newly adopted standards for producing more electricity from wind, solar and other renewable sources. She said ratepayers will avoid having to pay for future spikes in natural gas prices such as occurred after Hurricane Katrina and also will avoid having to cover $13 million in expenses related to unplanned outages at the Palo Verde Nuclear Generating Station.

Chairman Mike Gleason, who also voted yes, said his prime objective was “to keep APS a strong, healthy company” and prevent its bond rating from descending to junk bond status, which would raise the company’s cost of borrowing capital for expansion.

The only commissioner to vote against the rate hike was Bill Mundell, who said the rate hikes previously approved by the commission were sufficient. After the meeting, Bill Post, chief executive of Pinnacle West Capital Corp., the parent company of APS, said the commission had adequately dealt with the issue of higher natural gas costs. But he said the company still faces problems in financing infrastructure expansion and improvements.

APS officials estimate they will face a $172 million revenue deficiency for capital expenditures by the end of 2008, and Post said the company probably will ask the commissioners to consider other ways to deal with that deficit. “We are the fastest growing state in the nation,” he said. “This decision did not take into account future construction costs.” APS serves about 155,000 customers in the East Valley, including parts of Tempe, Scottsdale, Chandler and Gilbert.