Originally Published: June 26, 2016 6 a.m.
Arizona Public Service earlier this month asked the Arizona Corporation Commission (ACC) for the first comprehensive review of the company’s rates in five years.
The company is Arizona’s largest utility, serving more than 1.2 million customers throughout most of central and northern Arizona, including all of Yavapai County.
Known as a rate case, such requests are made by utilities periodically to reevaluate how the utility is billing customers.
There are two main portions of a rate case, according to APS spokeswoman Jenna Shaver.
“There’s revenue requirement: the size of the pie. And the rate design, which is how we are going to cut up the pie,” Shaver said.
The size requested this time around is $166 million annually, a 5.74 percent net increase of what APS is currently charging its customers annually.
If approved by the ACC as proposed, the average monthly bill for residential customers would increase 7.96 percent, from $139.32 to $150.41.
Just because this is what the company is requesting doesn’t mean this is what it will receive at the end of the typically yearlong rate review process.
For instance, during its last rate case in 2011-12, Arizona Public Service requested a 6 percent increase in its base rates and the case resulted in no base rate increase.
“Rates didn’t go up, but we got other things we wanted at the time,” said Jim McDonald, a spokesman for APS.
Overall, McDonald said APS rates have remained stable over the last 20 years, increasing 1.6 percent per year on average – well below the rate of inflation. Between 1996 and 2015, U.S. inflation has increased 2.24 percent on average, according to Consumer Price Index figures published by the Bureau of Labor Statistics. Inflation for 2016 is currently at about 1 percent.
“You get something for your money,” McDonald said. “Most people just think we want more money. That’s not what we’re talking about. We’re talking about maintaining the system, improving the system, and offering programs that can have a real impact on Arizona.”
What are Demand Rates?
Arizona Public Service has offered its customers to opt into a demand rate structure since the 1980s and the option has been naturally growing in popularity since — especially among business customers.
“It’s our fastest growing rate plan,” said APS spokeswoman Jenna Shaver. “We have 120,000 customers on it now.”
With this rate case, the company hopes to universalize the demand rate structure, requiring most of its residential customers to begin paying for not only the amount of energy they use, but how they use it.
Demand charges send what APS spokesman Jim McDonald calls price signals.
These price signals are designed to incentivize customers to use more energy at certain times of the day and less at other times.
Every day, energy consumption for any given area reaches a peak — when demand for energy is at its highest. This is typically in the mid-to-late afternoon.
To meet the peak demand, utilities sometimes need to turn on power generating sources that are more expensive to run.
“The basic needs of our customers are covered by plants like Palo Verde, for instance, the nuclear plant,” McDonald said. “It’s very, very cheap to generate electricity from Palo Verde. As we get more usage than Palo Verde can provide alone, we turn on plants that are more expensive to run.”
As a utility, APS is required to meet the energy demands of its customers, no matter where those customers fall within their service territory and how much energy they require.
Therefore, if the company finds that energy use during peak hours are nearly exceeding their energy production capability, then building more generating facilities is considered.
The alternative to a large expenditure like that is to find a way to reduce the amount of energy used at once during those peak hours.
“If we can manage that peak and incentivize through these price signals not to use electricity at the times of heaviest demand, we can either not turn on the more expensive units to run or we can forestall building a new unit,” McDonald said.
This in turn saves customers money, McDonald said, because all operations costs incurred by APS are passed onto the consumer.
If approved, the company will reduce the “on-peak” period by two hours each weekday, from noon to 7 p.m. to 3 to 8 p.m. and offer four new “off-peak” holidays, increasing the total number of days where peak hour pricing is ignored to 10.
The company is also proposing additional low-income customer incentives, a reduced limited user rate for those who use less than 600 kilowatt hours of energy a month, and a flat bill option for customers who don’t mind paying a premium for a stable, predictable bill each month.
For residential customers, the APS plan would:
• Offer the choice of three options with demand-based components;
• Create a new flat-bill option for customers who don’t want to actively manage their energy use;
• Provide a new rate option tailored for small-usage customers;
• Reduce the “on-peak” period by two hours each weekday, to 3-8 p.m.; and
• Offer four new “off-peak” holidays, increasing the total number to 10.
If approved as proposed, the request would enable APS to:
• Invest $3.6 billion over the next three years in upgrades and maintenance for the energy grid;
• Complete a $500 million investment to modernize the Ocotillo Power Plant with more efficient generation that reduces emissions and water use;
• Support a $400 million investment to reduce emissions at the Four Corners Power Plant and comply with more stringent federal environmental standards;
• Fund the continued development of innovative technologies such as battery storage, microgrids and advanced solar research;
• Continue industry-leading performance at the Palo Verde Nuclear Generating Station, which produces 80 percent of Arizona’s carbon-free electricity;
• Increase funding by 35 percent for financial assistance to help limited-income customers, to $48 million annually; and
• Create new economic development rates to help attract jobs and investment to Arizona.