PHOENIX — A state utility regulator says the rate-setting process is subjected to improper influences, and he’s hired an outside attorney, at public expense, to look into the issue.
Corporation Commissioner Bob Burns said Tuesday that he wants to find out if the procedure for determining how much utilities can charge their customers is subject to “undue influence” that can leave ratepayers at a disadvantage.
Among other questions, he is specifically asking the attorney to review whether money spent by utilities to elect members of the Arizona Corporation Commission affects the outcome of rate cases.
The study, due in December, will be financed with commission funds. The attorney, Scott Hempling, will be allowed to charge $315 an hour with a cap of $95,000. Those dollars come from a regular assessment on all commission-regulated utilities.
Burns said he is entitled as a commissioner to hire outside counsel without the consent of the other four regulators.
He denied that the contract, announced less than a month before the Aug. 30 primary election in which he is fighting to retain his seat, is political. Burns pointed out that he has been pushing the issue of greater disclosure for months.
The inquiry would not have been necessary, Burns said, had Arizona Public Service, the state’s largest electric utility, stayed out of the 2014 races. The company will neither confirm nor deny that it provided any of the more than $3 million spent that year by outside groups to help elect Republicans Tom Forese and Doug Little to the commission.
But Little, who chairs the commission, said he finds the timing curious. “Early ballots (for the primary) go out on Wednesday (Aug. 3),” he said. “If I were a candidate and didn’t have a whole lot of money and I couldn’t do a mailer, how else would I get attention?”
Burns contends that APS has effectively tried to pack the panel with commissioners who will view its rate hike requests favorably.
Neither APS nor its parent company, Pinnacle West Capital Corp., can donate directly to candidates. They are free to give to “independent expenditure committees,” which can run their own campaigns promoting favored candidates and knocking foes.
Two of those committees, Save Our Future Now and the Free Enterprise Club, spent more than $3 million on behalf of Forese and Little in 2014. Their organizers won’t reveal the sources of their cash, saying they are legally exempt from disclosure.
No one has suggested that Little or Forese were aware of any APS involvement in their elections.
But Burns said that still leaves questions. Even a small tilting in favor of a utility can have a massive impact, he said.
The commission gets to set the rates because utilities are a monopoly: Every customer within a service area has to buy electricity, gas, phone service, water or sewer service from the utility that has been granted permission to serve it.
Commissioners look at a variety of factors in determining rates, including a fair rate of return. What is fair, however, is up to the regulators.
Burns said that in the last rate case involving APS, just a 1 percent difference in that rate of return translates out to $60 million in revenues for the company and $60 million more collected from customers.
“Get a friendly commission, get a half a percent, that’s $30 million,” he said. “It makes the $3.2 million (spent by outside groups that won’t disclose their sources) worthwhile.”
Attorney General Mark Brnovich has said it would take a vote of the full commission to force Pinnacle West to open up its books.
“What Pinnacle West Capital does with its lawfully earned profits is its own business,” Little said.
Little said that in his 18 months on the commission he has made all decisions based solely on the record.
“There have only probably been a handful of major decisions involving APS since I took office,” Little said. “And in the vast majority of those major decisions, we didn’t give them what they wanted.”
The commission allowed APS to impose only a $5-a-month surcharge on customers who generate their own power, for instance; the utility at one time had asked for far more.
