Tucson Electric Power Co. needs higher rates to pay for more than $1 billion as it moves its power generation away from coal, the company’s CEO said as hearings on TEP’s rate case began Thursday.
But critics including the Arizona Corporation Commission staff and the state’s residential ratepayer advocate say TEP is asking too much. The company also got pushback on several related issues that ultimately affect what consumers and businesses pay for power, at the first Arizona Corporation Commission hearing on the rate request.
Meanwhile, two new issues have cropped up, as two commissioners floated last-minute ideas on home battery storage and special rates for nonprofit groups.
In April, TEP filed a rate case to raise its overall revenues by $76 million or 7.8%, including a $114.9 million increase in “non-fuel” operating revenues and a $38.9 million reduction in revenues to pay for fuel and purchased power.
The initial request would increase the average TEP home customer’s bill on the standard rate by an estimated $7.61 per month starting in May, not including several surcharges that pay for things like excess fuel costs and renewable-energy and energy-efficiency programs.
Based on comments filed by regulators and consumer groups, TEP has offered to reduce its non-fuel revenue request to $99.5 million, reducing the average increase to about 7% or $6.80 per month.
During initial testimony before an administrative law judge, Tucson Electric Power CEO David Hutchens said that though TEP’s retail power sales have fallen about 2% since its last rate case in 2017, its peak power demand has risen 9% with hotter weather and 9,000 new customers.
TEP also has invested in renewable energy and system improvements to help balance the use of intermittent solar and wind resources, as it moves forward ahead of schedule on a plan to shift to 30% renewable energy by 2030, Hutchens said.
As part of its rate request, TEP wants to begin recovering its costs for two power plants it recently acquired, a gas-fired unit at the Gila River Power Station it bought from the Salt River Project and a bank of 10 gas-burning reciprocating internal combustion engines (RICE) that are replacing two old gas-fired steam generators at TEP’s H. Wilson Sundt power plant in Tucson.
Hutchens noted that the RICE engines will help provide quick-ramping power to help mitigate the intermittent output of solar and wind farms.
“We are simply requesting to update our rate base and our operating costs to reflect the actions we have currently taken to continue to provide our customers the exceptional service to which they are accustomed, from a cleaner, more reliable energy portfolio,” Hutchens said in testimony before the administrative law judge who will make a recommendation to the full Corporation Commission.
But during opening statements taken on Thursday, the commission’s Utilities Division and the Residential Utility Consumer Office said TEP deserves far less than it is asking for in new rates.
RUCO Chief Counsel Daniel Pozefsky called TEP’s rate request “excessive and overreaching.”
Pozefsky cited TEP’s inclusion of costs for employee performance bonuses, a supplemental executive retirement plan, membership in industry groups that advocate for utilities, and the partial cost of a project to build a transmission line to Nogales that was later abandoned.
“While a lot of the requests are relatively small, when added up they result in a very large number that is overreaching, because many recommendations unfairly place all the risk and costs on the ratepayers,” he said, contending that TEP shareholders must bear the disputed expenses.
A couple of new issues emerged at Thursday’s hearing, which kicked off five weeks of planned testimony on TEP’s rate case.
Corporation Commission Chairman Bob Burns filed a letter in the case requesting that TEP consider a new program to offer interest-free loans to help customers buy home battery systems.
Commission member Lea Marquez Peterson, meanwhile, informally proposed that TEP establish a special rate for nonprofit organizations devoted to historic preservation.
TEP has not taken a position on Burns’ battery proposal, but Hutchens said it should be considered with input from other stakeholders, in separate proceedings like TEP’s annual plan to implement the Corporation Commission’s renewable-energy standard.
Of Marquez Peterson’s proposal, Hutchens said offering a discount to one kind of nonprofit could create issues with other kinds of nonprofits seeking the same treatment, while shifting costs to other customers, and suggested TEP could help historic nonprofits save money through better energy efficiency instead.
Another issue attracting criticism was TEP’s proposal for a so-called “buy through” program that would allow large industrial customers to buy power from independent power producers.
The Corporation Commission ordered TEP to propose the program, which is similar to a program piloted by Arizona Public Service Co.
In proposing a limited “Market Pricing-Experimental” or MP-EX program, TEP noted that it considers the program a form of retail competition that may be legally prohibited by a landmark 2004 state appeals court ruling that struck down the state’s nascent retail-competition rules as unconstitutional.
But a group advocating for retail electric competition and attorneys for large companies including Walmart and Kroger Co., parent of Fry’s stores, said the terms of TEP’s proposed buy-through program are too restrictive and only the largest power users would be able to participate.
Meanwhile, two environmental groups questioned TEP’s purchase of the Gila River 2 gas plant and the RICE plant at Sundt.
Representatives of the Sierra Club and Western Resource Advocates said they are dismayed by TEP’s reliance on gas, which is cleaner than coal but still contributes to climate change, when the cost of solar and energy storage is still dropping.
