Arizona Corporation Commission Recommends APS Reduce Its Electricity Rates

The staff of the Arizona Corporation Commission is recommending that Arizona Public Service reduce its electricity rates by about 8 percent.

The recommendation came in response this week to a request by APS, a unit of Phoenix-based Pinnacle West Capital Corp., that it be allowed to raise rates by nearly 10 percent.

Recommendations do not have to be accepted by the five-member commission, which regulates utility rates in Arizona, but it will force APS to gather more evidence to justify an increase.

APS spokesman Jim McDonald said the company is disappointed in the report, adding that "we will, of course, vigorously make our case before the commission."

At issue is how the company will pay for five new power plants that it built when regulators were pushing for greater competition in the electric industry. The company says the plants, which are owned by Pinnacle West Energy Corp., a separate subsidiary of the parent company, should be included in the APS rate base because they were built primarily to serve APS customers.

But the staff said that is not in the best interest of customers because other sources of electricity may be available that are cheaper. By eliminating the plants from the rate base and making other adjustments, the staff calculates that APS could reduce its annual revenue by $142.9 million.

APS figures it needs $175 million more. In a report filed Wednesday with the U.S. Securities and Exchange Commission, APS said it would consider any decision that prevents it from recovering the cost of the power plants to be a "regulatory taking." Also weighing in is the Residential Utility Consumer Office, which represents the interests of residential customers in matters before the corporation commission. The agency said APS rates should be reduced by $53 million, about 2.8 percent.

While agreeing with the commission staff that the power plants shouldn't be included in the rate base, the office also said APS' budget for energy-conservation programs, currently $6 million a year, should be increased to $30 million -- an expense not included by the commission staff.

A public hearing on the rate case will be heard by an administrative law judge on April 26. A final decision is expected by the commissioners later this year.