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Sat, March 23

Electric rate increase sought by UniSource
Higher price for electricity about a year away

KINGMAN - Just when you thought you were out of the rate-increase jungle, UniSource Energy Services filed a notice of intent with the Arizona Corporation Commission to submit a rate case application by Dec. 31 for the "establishment of just and reasonable rates."

The process, which is in its infancy, will only affect UniSource's approximately 91,000 electric customers. It's so early in the process that representatives of UNS Electric do not know how much of a rate increase they plan to apply for.

The current rates - not including any surcharges - includes an $8 fixed charge for all residential customers and two different fees that are based on usage. For the first 400 kilowatt-hours used it's $0.086815 per kilowatt-hour. After the first 400, it's $0.104050 per kilowatt-hour.

The average residential customer uses a little more than 856 kilowatt-hours a month. Based on these charges, the average residential bill is roughly $90 a month.

Representatives do have a target date for implementation. UNS Electric's proposal has the new rates going into effect no later than Jan. 1, 2014.

"This is a proposal," said UNS spokesman Joseph Barrios. "The timing of the ultimate increase is subject to change based on what the Commission has to say."

The last time UNS Electric raised its rates was 2010. Overall, it was a 4.5 percent increase for most residential customers.

The Residential Utility Consumer Office is set up by state statute to represent Arizona ratepayers.

"We're aware of the filing," said Bill Rigsby, RUCO's chief of accounting and rates. "It's highly likely we intervene in the case."

He said RUCO nearly always gets involved with the filings of major utilites. But as of right now, RUCO has no opinion on the case because it hasn't actually been filed, he said.

Once the process starts, it's a drawn out, back-and-forth discussion between the parties involved in front of one of the ACC's administrative law judges. Once the judge issues an opinion, it becomes an action item for the five ACC commissioners to vote on.

"These utilities are regulated monopolies," Rigsby said. "They're granted monopoly territory and in exchange they must provide acceptable service."

That includes charging a fair price, he said.

In its filed notice of intent, UNS Electric outlines three reasons for the proposal. First, UNS Electric wants to ensure its ability to provide safe and reliable service to its customers. Second, it wants to recover its full cost of service, including an appropriate return on invested capital. Lastly, it wants to maintain or improve its credit rating.

The company expects to raise several key issues when it submits its rate filing, according to the notice of intent.

Lost Fixed Cost Recovery Mechanism

As UNS Electric customers jump on board with programs derived from renewable energy standard regulations and electric energy efficiency rules, they use less electricity, Barrios said.

"That reduces the opportunity (for UNS Electric) to recover fixed costs," Barrios said. "Which has an impact on revenues."

This mechanism would help cover some of those costs, but it won't be based on all savings, Barrios said. It will be narrowly tailored to measurable programs that have been approved by the ACC, such as the compact fluorescent light bulb buy-down program.

Savings brought on by people turning down their thermostats, closing their shades in the summer and opening them in the winter cannot be measured for this mechanism.

Energy Efficiency Resource Plan

Currently, customers pay a surcharge for energy efficiency programs, Barrios said. The energy efficiency resource plan would propose changing the way these programs are funded.

The company is considering a proposal that treats the programs, which are based on energy efficiency rules and regulations, as a resource and a long-term investment and try to recover costs over time.

"It's just a different way to ultimately fund the programs," Barrios said.

Transmission Cost Adjustment Mechanism

The company's electric base rates include an energy transmission charge, which must be approved by the Federal Energy Regulatory Commission. The commission recalculates acceptable rates every year, but UNS Electric doesn't request ACC-approved rate changes annually.

This proposed mechanism would allow UNS Electric to more closely align its rates with those set annually by FERC without having to go through the formal rate case application process.

"(We'll be) asking the Commission to give us the OK in advance," Barrios said of adjusting transmission rates.

Proposed Capital Structure

When utility companies seek ACC approval to establish new rates, they use what is known as a test year to look at all the costs incurred during a given period. The data is then used to establish a proposed rate, Barrios said. The whole process must be reviewed and approved by the ACC.

For instance, UNS Electric's current rates went into effect in October 2010, but they're based on a test year that ended in December 2008, according to the notice of intent.

For the proposal going out at the end of this month, UNS Electric plans to use a test year that ended June 30 because it will include a year's worth of data that includes the Black Mountain Generating Station in Golden Valley, which the company officially acquired on July 1, 2011.

Fair Value Rate of Return

This is basically a statement of how UNS Electric proposes to calculate what the new rate should be, Barrios said. Like every other portion of the rate case, it's subject to review and approval by the ACC.

"They can ask us for basically anything they would like," he said.

Modifications of the Purchased Power and Fuel Adjustment Clause

As fuel prices fluctuate and the company purchases power to disperse, UNS Electric is allowed to pass the costs or savings on to the customer. It is not allowed to make a profit in this area, Barrios said.

UNS Electric captures a portion of those costs through the rate base and the other part through the Purchased Power and Fuel Adjustment Clause.

The company plans to propose that all those costs be captured through the clause rather than the rate base, Barrios said.

Each proposal leaves everything up to the ACC, Barrios said.


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