United States: Arizona Public Service Company Rate Case Proposes Changes To Net Metering And Residential Demand Charge Implementation

Last Updated: August 12 2016
Article by Thomas H. Campbell

On June 1, 2016, Arizona Public Service Company ("APS") filed an application for a rate increase with the Arizona Corporation Commission ("ACC"). APS is requesting an increase in base rate revenue of $165.9 million or 5.74% net of existing adjustor mechanisms. APS also seeks to transfer to base rates $267.6 million that is currently collected in adjustor mechanisms. When the transferred adjustor mechanism revenue is considered, the gross base rate revenue requirement increase is $433.4 million, or 15%. APS's current rates became effective on July 1, 2012, and were based on a December 31, 2010 test year. The new application is based on a December 31, 2015 test year. APS is requesting that new rates be effective on July 1, 2017.

APS maintains that the requested increase reflects investments that APS has made on behalf of its customers including significant plant additions. APS is also requesting that the ACC modify APS's residential and small commercial rate design in a manner that APS contends will encourage new distributed technologies and address the inequitable reallocation of revenue requirements caused by the current volumetric rate design and net energy metering.

In addition to the overall revenue requirement increase, some of the other highlights of the filing include:

  • APS wants to make the basic service charge more cost-based resulting in an increase for most customers;
  • APS seeks to revise its lost fixed cost recovery ("LFCR") mechanism, which is a decoupling mechanism. APS contends that it has only collected approximately 40% of its lost fixed costs under the current LFCR mechanism and proposes five changes to eliminate that problem;
  • APS proposes adjustments or changes to its power supply adjuster, its transmission cost adjuster, and its environmental improvement surcharge;
  • APS also proposes to let the AG-1 experimental rate rider for buy-through power lapse. This AG-1 tariff was used by large industrial and commercial customers.

APS believes that the current residential rate design sends inaccurate price signals to new technologies. In particular, APS expresses concern about the cost shift caused by rooftop solar under current rate design. APS maintains that this total cost shift from solar residential and commercial to non-solar residential customers already totals $42.7 million annually and believes that the total 20-year subsidy will exceed $1 billion. To address this concern, APS wants to modify its present net metering program so that excess generation is paid for at an avoided cost rate, not the retail rate.

APS also proposes adding a third billing element, called a demand charge, to all residential customers except the very smallest. The demand change is based on the highest one hour kilowatt usage during the peak hours of 3 p.m. to 8 p.m. The demand charge is currently voluntary, but would become mandatory for most residential customers under the APS proposal. The demand charge proposal is controversial, and a special workshop was held by the ACC on August 4, 2016, to discuss this issue. Numerous presentations were made on the issue. In a recent UNS Electric, Inc.'s rate case, the ACC administrative law judge rejected a mandatory demand charge proposal.

As is usual in an APS rate case, there will be many intervenors. Already, over 20 intervenors have been approved, and many more may file intervention applications. The deadline for intervention is November 10, 2016. A hearing on the APS application is currently scheduled for March 22, 2017. Prior to that time, all parties will have the opportunity to file multiple rounds of prefiled testimony. As in prior cases, some or all the parties may agree to a settlement of the rate case. If so, the parties will file testimony with respect to the settlement, and the ACC will hold an evidentiary hearing on the reasonableness of the settlement. The ACC must approve any settlement.

This rate case could have material impact on the rooftop solar industry, particularly residential rooftop solar industry. It is anticipated that many of the changes impacting rooftop solar will be actively opposed by the rooftop solar industry. In addition, as noted above, the demand charge proposal for residential customers will garner much attention and, perhaps, much opposition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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