TEP seeks to raise customers' energy rates

Tucson Electric Power Co. is asking state regulators for a 7 percent increase in revenues in a rate case that would boost the average home customer’s bill by $12 a month by 2017.

In a request filed Thursday with the Arizona Corporation Commission, TEP also is seeking a change in its so-called net metering policy that will significantly reduce credits and add charges for customers with new rooftop solar arrays.

TEP’s filing is just the beginning of a long process in which the Corporation Commission will ultimately decide the company’s rates. That process — which will include formal hearings in Tucson — typically takes about a year; TEP wants the new rates to go into effect in January 2017.

In its rate request, TEP has proposed doubling the fixed monthly residential customer charge to $20 from $10 currently, while increasing fixed charges for business customers and increasing consumption-based usage charges. Most businesses also would pay higher bills under TEP’s rate plan.

TEP last filed for new rates in July 2012, seeking a 15 percent increase in revenue that would have raised the average home bill by $13 a month. But under a settlement with regulators and other parties, TEP was allowed to raise rates by an average of less than $4 a month starting in July 2013.

The new rates are needed to cover increased costs, including some $1.3 billion TEP has invested in infrastructure since 2011 as the utility shifts its power generation away from coal-fired sources, TEP president and CEO David Hutchens said.

Those costs included about $600 million in power-plant investments, nearly $475 million in power line upgrades and more than $100 million for new renewable energy resources, the company said.

“It’s basically reflective of a big infrastructure investment period we’re going through,” Hutchens said. “Most of it has to do with us going away from a carbon-based resources portfolio to a less carbon-intensive resource portfolio.”

Those moves include plans to exit several coal plants, investments in utility-scale renewable energy and the $219 million purchase of a 75 percent stake in a natural gas power plant in Gila Bend.

New charge for rooftop solar

The rate proposal also would raise costs for TEP customers who file to connect new rooftop solar arrays to the power grid after June 1 of this year. About 8,500 existing TEP solar customers would be exempt and keep their current rates.

For the new solar customers, TEP wants to impose a new monthly “demand charge” based on a customer’s peak power usage, and cut the rate at which TEP credits solar customers of excess power production from about 11 cents per kilowatt-hour currently to about 6 cents, or roughly what TEP pays for power from big, utility-scale solar farms.

The demand charge, which pays for fixed power generation and transmission costs, would form the third part of “three-part rates,” with the basic monthly service charge and usage-based energy charges. Though the three-part rate would be available to all residential customers, it would be mandatory for new solar customers.

Demand charges can be tricky because two customers in the same rate class using the same number of kilowatt-hours in a month could pay different demand charges, TEP noted.

TEP did not file the specific demand charges with its initial filing but plans to do so as part of tariffs, or individual rates, it plans to file in the next few weeks, TEP spokesman Joe Barrios said.

Under the proposed rate plan, including demand charges, the average new rooftop solar customer using about 900 kilowatt-hours of power monthly would save about $56 per month, compared with the average $97 that the average solar customer saves now, TEP said.

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The utility says the proposed rates are key to TEP’s plan to supply at least 30 percent of its power from renewable resources by 2030 — topping Arizona’s requirement of 15 percent renewables by 2025.

TEP, which was acquired by Canadian utility giant Fortis Inc. last year, filed the solar net-metering proposal earlier this year. But amid vehement protests from the solar industry, the company was prompted by regulators to roll the measure into a full rate case.

fight with solar industry

But TEP is in for a renewed fight with the solar industry, which has fought similar plans by utilities including Arizona Public Service Co. and the Salt River Project.

“It’s clear that TEP is implementing the utility playbook, which is to try and stop people from going solar,” said Court Rich, a Phoenix attorney and board member of the Arizona Solar Energy Industries Association.

“These are discriminatory charges and discriminatory rates that make it uneconomical to go solar.”

Rich, who also represents the solar installers’ group Alliance for Solar Choice, noted that after the Salt River Project earlier this year imposed a demand charge that boosted bills for new rooftop solar customers by $50, rooftop installations plummeted.

But Hutchens said demand charges are an effective way to encourage customers to “flatten” their load curve, or demand over time, which helps the utility keep costs down systemwide.

“To me that’s the future. I know it’s confusing from a customer standpoint, but the future is about getting the right economics, the right cost of service, to our customers,” the TEP chief said.

“We really need to flatten that load curve, because that means all of the infrastructure we have out there, the generation, transmission and distribution, is getting utilized more.”

TEP has not previously had a demand charge built into its residential rates, though it does offer time-of-use rates that reward customers for avoiding usage during peak demand times.

Some TEP small-business rates feature demand charges, and besides boosting rates, the utility is seeking authority to move some small commercial customers to rates with demand charges.

Typical business customers on TEP’s Small General Service rate would pay a projected $21 more per month, typical customers in a new Medium General Service rate class would pay an estimated $280 more per month, and customers on TEP’s Large General Service rate would pay about $1,200 more.

But large industrial customers could see their rates reduced, reflecting an updated analysis that shows it costs less to serve them, TEP said.

The rate proposal also would set up an optional “pay-as-you-go” rate plan that would allow customers to pay for power incrementally through an electronic metering and payment system while avoiding certain deposits and fees.

The plan also would create an “economic development rate” that would temporarily offer lower rates to new businesses, or to existing businesses under major expansion.