In March, following pushback from members of the public and affected customers, Tucson Electric Power quietly lowered its proposed rate increase from 14% to 12.6%.
Joe Barrios, spokesperson for TEP, says the adjustment was the result of input from interveners, or participants who represent stakeholder interests.
“Particularly ACC staff and also the Residential Utility Consumer Office known as RUCO,” he said.
ACC is the Arizona Corporation Commission, the state’s utility regulator.
RUCO is a state agency that advocates on behalf of residential utility customers during rate case hearings and is one of dozens of intervenors in TEP’s current rate case.
RUCO
Cynthia Zwick is the director of RUCO. She says the office heard a variety of concerns from TEP customers.
“About data centers and what impact that might have on the case going forward, and then there were just general concerns about affordability that were expressed, as well as the formula rate that the company was seeking,” Zwick said.
Zwick says her office has recommended to the state utilities regulators that TEP should reduce its proposed rate increase to about 4.5%.
“I think 14% is too high, I think it is, I think it’s going to be a strain on an already strained community and we don’t believe it needs to be that high which is what our testimony speaks to,” Zwick said.
Zwick added that RUCO has also recommended to the state utilities regulators that they deny the electric company’s proposed formula rate program, the annual rate adjustment mechanism which would update rates every year.
RUCO did support TEP’s changes to its limited income program from a set amount to a tiered rate discount
How the rate changed
Barrios says the amended rate was determined by a change in the total revenue increase that TEP requested, about a $10 million difference, from $172 million to $162 million.
Certain operating expenses were removed from the application but equipment, maintenance and infrastructure costs remain in the amended application.
TEP says that the revised bill impact for a typical residential customer who is on a basic pricing plan is about $14 – down from the initial $16 impact associated with the proposed 14% rate increase.
Bill impacts will vary however on total energy usage.
Return on equity
Zwick says TEP is asking for a fairly significant return on equity for the company of 10.5%.
“Our concern is that that’s a huge return that does drive up costs for customers going forward,” Zwick said.
Return on equity or ROE is the allowed rate of profit that regulatory commissions permit an investor-owned utility to earn on its capital investments.
RUCO recommended a ROE of 9.2% however if the formula rate is authorized, it recommends 9.0%.
Zwick said the higher the return on equity goes, the higher the impact on rates.
Barrios says that ACC staff recommended an ROE of 9.75%.
Maye’s office disputes rate changes
Richie Taylor, communications director with Attorney General Kris Mayes’ office says that although TEP lowered its revenue increase to about 12%, the average total impact on residential customers is still about 14%.
“TEP is highlighting the lower usage figure on their website, which makes the percentage look smaller,” Taylor said.
The electric company’s website says: “New rates are expected to increase the average monthly bills of residential customers with median monthly usage of 638 kilowatt-hours (kWh) on TEP’s Basic pricing plan by about 13 percent, or about $14, when they take effect.”
The Attorney General’s Office believes that the annual average monthly usage of 805 kWh for customers on TEP’s standard residential pricing plan – which they say is TEP’s largest residential class – is a more accurate representation of residential impact.
“At that level, the increase is closer to 14.6% for most residential customers,” Taylor said.
Town halls
In April, Mayes hosted her second town hall in Tucson to hear from TEP customers regarding the proposed increase.
Mayes told AZPM that her office was collecting testimony to be submitted to the Arizona Corporation Commission to support her office’s opposition to the rate increase.
“I think we heard that the people living in Tucson are frustrated with this proposed 14% rate increase by TEP,” Mayes said.
In February, her office filed expert testimony) with the state utilities regulators that suggested the rate increase could be significantly reduced.
“Our evidence shows that TEP only needs a maximum 4% rate increase to be able to maintain its system and to attract capital and debt and that’s the case we’re going to be making through our expert,” Mayes said.
Other key findings that Mayes’ expert analysis found was that TEP’s proposed shareholder profit was higher than what it costs to attract and retain investment and under an alternative proposal, customers could save $148 million per year.
Barrios says Mayes’ expert witness makes a faulty assumption.
“That our request could be cut from 13% to 4% without risking customers’ service reliability or the ability for the company to attract the capital that it needs to continue making those investments in the grid,” Barrios said. “The expert witness has made the same argument in other rate proceedings for other utilities and other states and the approach has not been adopted by a single regulatory commission anywhere in the country.”
Where the rate case tentatively stands
- Closing arguments for the ongoing rate case will be heard on July 14
- A deadline for reply briefs is scheduled for Aug. 4
- A recommended opinion and order issued by the administrative judge on the case will occur sometime in October or about 60 days after the close of record
- Another public comment period is scheduled no later than Nov. 17
- New rates will go into effect on Dec. 1
