UniSource asks how regulators will approach TEP rates after 2008
May 8--By David Wichner, The Arizona Daily Star, Tucson Knight Ridder/Tribune Business News
Tucson Electric Power Co. is asking state regulators to clarify how they will treat future rate-setting for the utility amid Arizona's stop-and-go move to a competitive power market.
Mild winter weather and a lengthy, scheduled outage at a key generating plant
contributed to a first-quarter loss of $3.8 million, or 11 cents per share, for
UniSource. UniSource also announced a $401 million credit agreement to cut
interest costs at TEP.
In a request filed with the ACC on Wednesday, UniSource asked how the panel
will approach TEP rates when a rate cap ends in 2008.
The 1999 settlement envisioned a move to market-based rates as regulators
were moving to establish a competitive electric market in the state.
But in the wake of the 2001 California energy crisis, Arizona regulators
backed off from rules requiring utilities to spin off their power plants from
their transmission operations.
More recently, the Arizona Supreme Court in January let stand a Court of
Appeals decision striking down key elements of the Corporation Commission's
deregulation rules.
TEP wants to go to market-based rates for power generation after 2008, as
promised in the 1999 rate settlement. TEP rates cannot go up before 2008 but can
be reduced.
"Rate check" is under way TEP is undergoing a "rate
check" to make sure its rates are not too high. The utility has filed
documents supporting higher rates.
"I think it's in the best interest of the public and the shareholders to
know how they are going to treat us," Unisource Chairman and CEO James
Pignatelli said Thursday in a conference call with analysts.
A move to market rates would require a 10 percent to 15 percent rate
increase, Pignatelli said, adding that any increase would be subject to
regulatory approval.
Pignatelli said company officials briefed commissioners on the request before
filing, adding that he hopes to have an answer within a year.
ACC spokeswoman Heather Murphy said the request will go to the panel's staff
and an administrative law judge for analysis and recommendations to the full
commission as part of the rate-check case, with hearings tentatively set for
September.
Clearing up the rate picture ahead of 2008 is a good idea, a financial
analyst said.
"It's a good move because there's a lot of speculation out on the
street, trying to ascertain what the regulatory setup will be post-2008,"
said Maurice E. May of Power Insights in Westport, Mass.
Early-year loss called traditional UniSource's first-quarter loss of $3.8
million compared with net income of $6.4 million, or 19 cents per share, in the
first quarter last year. Pignatelli noted that the utility holding company
traditionally reports a loss in the first quarter and makes up the difference in
the hot summer months.
But a six-week outage at TEP's Springerville Generating Station to install
pollution-control equipment required TEP to buy replacement power and cut
wholesale sales. TEP posted a first-quarter loss of $4.7 million, compared with
earnings of $800,000 last year.
Millennium Energy Holdings, which oversees UniSource's unregulated energy
investments, reported a $2.4 million loss in the first quarter of 2005, compared
with prior-year earnings of $2.1 million, including a $3 million gain from an
asset sale. Pignatelli said UniSource continues to divest its interests in
Millennium.
UniSource's management reaffirmed its estimate that 2005 full-year earnings
will be between $1.50 and $1.75 per share.
TEP's new $401 million credit agreement will save the company about $5.5
million annually on a pretax basis, UniSource Chief Financial Officer Kevin
Larson told analysts.
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