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Corporation Commission approves APS rate decrease, company prepares to sue

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Posted at 8:59 PM, Nov 02, 2021

PHOENIX — The Arizona Corporation Commission (ACC) gave final approval to a $119 million revenue decrease for Arizona Public Service (APS) on Tuesday.

The 3 to 2 decision is the culmination of a rate case that was a re-do of sorts to the company's controversial 2017 case in which a rate increase and redesign caused confusion amongst rate-payers and potential over earnings for APS.

None of the commissioners that approved the 2017 rate hike are still in office.

In its current case, the company had originally asked for a $184 million revenue increase and later reduced the amount to $169 million which APS said would raise the average customer bill by about 5%.

Commissioners instead voted to reduce the revenue requirement by cutting the company's return on equity from 10% to 8.7% and not allowing the company to recover $215.5 million in pollution control investments in its Four Corner Coal Power Plant, deeming at part of the investment imprudent. The company spent $400 million.

In October after it was clear disallowance was a very real possibility, CEO Jeff Guldner proposed to forego all earnings from the investment if they would be allowed to recover the cost of debt used to finance the project, resulting in a $111 million revenue decrease. That was rejected by Commissioners.

On Tuesday APS said it is prepared to sue, calling the decision "short-sighted" and arguing it will hinder the company's ability to invest in infrastructure because if the company does not recover investments and returns as expected its costs of borrowing is increased which presumably would be passed on to ratepayers in a later rate case.

In a statement, the company said, "Though customers will see some near-term benefits, the overall outcome will raise costs for customers in the long run and put our state’s economic future at risk – leaving us no choice but to take legal action."

Prudency of the upgrades to plants had been a point of contention for the duration of the rate case.

During proceedings conservation group Sierra Club argued that APS knew, or should have known, that there were less expensive alternatives prior to investing more money in the coal plant. An administrative law judge agreed and recommended that the investments were not prudent and that their costs should not be allowed to be charged to ratepayers. APS defended its investments maintaining that they were necessary to provide energy during summer months and argued they had already been deemed prudent in its initial request to begin construction.

In 2013 APS purchased a majority stake in the plant from Southern California Edison and between 2015 and 2018 installed Selective Catalytic Reduction pollution controls to fulfill a settlement with the U.S. Department of Justice and Environmental Protection Agency for alleged violations of the Clean Air Act.

In March 2021, the company announced plans to drastically reduce its capacity to only operate during the hottest months of the year by fall 2023 and will be completely retired by 2031. The closure was originally planned for 2038 but was moved up as part of the company's 100% clean energy plans.

Chairwoman Lea Marquez Peterson (R), Commissioners Anna Tovar (D), and Jim O'Connor (R) voted in favor. 

"This is a monumental bipartisan decision for the entire state of Arizona and its economy. APS has not seen a rate decrease since 1996. And today with our amendments, we have voted on an approximate $119 million revenue decrease to base rates, providing relief to captive customers," Marquez Peterson said. Commissioners Justin Olson (R) and Sandra Kennedy (D) voted against for different reasons. Kennedy lamented the partial allowance of pollution control recovery and that some customers would likely still see a slight increase in their bills.

Olson did not believe the payments to Navajo Nation are constitutional.

APS' analysis for residential ratepayers shows slight a bill decrease for about 70 percent of customers but a slight increase for about 30 percent.

Also approved in the rate case is a change in the On-Peak plan. The current 3 p.m. to 8 p.m. hours will be replaced by a 4 p.m. to 7 p.m. window, but APS said that could take up to 10 months to implement. Other rate impact items will be in effect at the next billing cycle in December.

A monthly grid-access charge for solar customers was eliminated and $10 million in funding to the coal-impacted Navajo Nation was approved. It will be paid out through a surcharge in customer bills over the next three years.

Those payments along with a $115 million in rate adjusters for fluctuating costs for things like fuel, Abhay Padgaonkar, said customers are breaking even.

"It's a denial of a rate increase rather than a rate decrease," he said. Padgaonkar served as an expert witness in the formal complaint hearing that triggered the current rate case.

The company was ordered to file the case after concerns that it had over earned as a result of the 2017 rate case.

Some customers complained that their bills were higher than expected. APS customer and consumer advocate Stacey Champion filed a formal complaint in 2018 to have the rate case re-heard. After a hearing, the Commission ordered a third-party audit which determined the company over-earned in 2018 by several million.

The company denied it was over earning but later disclosed that its rate comparison tool to help customers find their most economical plans actually steered some to more expensive plans.

That revelation resulted in refunds to customers and a settlement with the Arizona Attorney General's Office.

Champion told ABC15 she believes Tuesday's decision will send a huge signal to utilities around the country.

"Though APS customers won't see as big of a bill decrease as I would like, I believe the Commission's 3-2 vote on this rate case will send shockwaves to other badly-behaving utilities across the country," she said.

What's yet to determined is how the lawsuit from Arizona's largest utility would affect the implementation of the changes. But Champion said she's ready to move forward.

"APS made this bed, and hopefully they can change for the better moving forward. I'm ready for a new chapter," she said.

(This story has been updated to reflect the impact of approved rate adjustors on customer bills and to specify the percentage of customers who will have an increase or decrease in monthy bills)