Tucson Electric Powerβs proposal for new rates that would raise home bills by an average 12% or about $14 per month has hit a wall of resistance from regulators and stakeholders as hearings opened this week.
Consumer advocates say the request is too much, too soon after a 2021 rate increase, and Arizona regulators say TEP deserves an increase amounting to less than $4 on monthly home bills.
Renewable-energy advocates say TEP can save ratepayers money, as well as help combat rapid climate change, by accelerating a shift to renewable energy like solar and wind.
Tribal advocates want compensation for the economic impact of early coal-plant closures.
And those are just some of the issues that surfaced at the initial hearing in TEPβs rate case before the Arizona Corporation Commission, held Wednesday at the ACCβs Tucson office.
TEPβs request β which comes after a 6% increase that went into effect in January 2021 β would, starting in September, boost the average monthly bill for residential customers on TEPβs most popular, basic rate plan by more than 12%, or $14.11, down slightly from the companyβs original request in June 2022.
Customers on TEPβs basic residential time-of-use rate plan, which charges less for off-peak power usage, would see an average monthly bill increase of $13.48.
Small general service business customers would see an average monthly bill increase of 11.9%, medium general service customers would see an average 12.6% increase and large general service customers would get an average 5.4% increase.
Scores of TEP customers have submitted feedback opposing the increase at a series of public-comment meetings that ended with a session before the formal rate hearing on Wednesday.
βEpicβ increase
TEP customer Ellen Parrish said at the session that TEPβs rate increase proposal would be devastating to lower-income families and the utility can handle the transition away from coal better.
βI canβt see anyway TEP can spin such an epic rate increase, nearly 12%, as necessary and the best way to handle the shifting energy paradigm,β Parrish said. βFor families earning six figures the rate increase wonβt hurt, but those could be catastrophic for struggling working families, retirees like myself, and nonprofits; and businesses will certainly pass the cost along, as well.β
She and other commenters said TEP should boost its efforts to transition to renewables.
TEP has committed to generating 70% of its power from renewable resources by 2035 while reducing carbon emissions by 80% and has added significant renewable generating resources.
But the utility but has also invested in new gas-fired generation it says it needs to provide peak power when solar and wind resources arenβt producing enough energy.
Longtime TEP customer Benjamin Nead said solar energy paired with energy storage is the cleanest and cheapest way to generate power.
βItβs time for Tucson Electric Power to finally kick the fossil-fuel habit,β Nead said. βTEP is asking for a rate increase from its customers but doesnβt seem to be making any new commitments to move beyond methane and coal for power generation, and in my eyes thatβs unacceptable.β
Recouping costs
In an opening statement, TEP attorney Michael Patten said the company needs the new revenue to cover increased costs, including $1.9 billion TEP spent in the last three years on needed system upgrades.
Besides the challenges of providing service during a pandemic, TEP has faced high inflation, interest rates have increased significantly and supply chains have yet to fully recover from the pandemic, Patten said.
βDuring the past three years, TEP has worked hard to maintain and to continue to provide reliable service to its customers and has invested in infrastructure to meet the increasing peak demand on its system,β he said, adding that the companyβs requested increase would still keep the companyβs rate growth lower than the inflation.
At the same time, TEPβs peak demand has increased 6% since the last rate case, and the capacity of Western power markets continue to tighten, Patten said.
βTEP continues to need to address the increasing challenges of the tightening Western capacity markets, as well as the increasing demand on its system,β Patten said. βAddressing these issues will require larger projects with significant capital costs.β
βTo meet these needs requires a financially strong utility that can attract the necessary capital to put in place, to keep the lights on,β Patten said. βAnd keeping the lights on as economically as possible in the long term requires some foresight, and a willingness not to be penny wise and pound foolish at this time.β
Patten said much of the rate request will go to fund investments TEP has made to transition away from coal-fired generation, including the $370 million Oso Grande Wind project in New Mexico, which was turned on in 2021.
Profits and capital
Patten said regulators need to approve a higher allowable return on equity β a key measure of utility profitability β to help keep borrowing costs low to save the company and its ratepayers money.
Return on equity became a major issue in Arizona Public Service Co.βs last rate case in 2021, when regulators cut the companyβs allowed return to 8.7%, partly to penalize APS for poor customer service. APS appealed the ACC ruling and in mid-March, the Arizona Court of Appeals said that part of the profit cut was improper.
Since its initial filing, TEP has lowered its requested return on equity from 10.25% to 9.75%, which Patten said is slightly lower than the average return on equity awarded to investor-owned utilities in 2022 and will help the company maintain its credit rating. Regulators approved a 9.35% return on equity in TEPβs last rate case.
TEP also has proposed a new mechanism to begin recouping costs for large new projects put into service between complex rate cases, similar to what the ACC has allowed for small water companies to avoid costly rate cases.
Patten said the companyβs proposed βsystem reliability benefitβ mechanism will help mitigate βregulatory lagβ for large capital projects that improve grid reliability and βhelp to smooth out the lumpy rate increases that those large capital expenditures can create,β while giving the company a way to pass through to customers any tax credits related to those projects.
Cutting back
Wednesdayβs proceedings kicked off several weeks of evidentiary hearings before ACC administrative law judge Belinda Martin, who will weigh TEPβs request and testimony filed by parties to the case and ultimately make a recommendation to the full Corporation Commission for a final decision this summer.
The commissionβs Utilities Division staff has proposed slashing TEPβs proposed rate increase by nearly 75%, to an average of $3.77 per month or an increase of 3.1% for home customers on the basic rate plan. The average monthly bill for customers on the residential two-part time-of-use rates would increase by $6.05, or 5.1%.
The commission staff supports TEPβs request for a $2 increase in the basic monthly service charge, to $15 per month for most home customers, which customers must pay no matter how much energy they use.
The Residential Utility Consumer Office, a state agency that represents ratepayers in rate cases, has recommended cutting TEPβs rate request by nearly one-half, which would still result in a monthly increase of about $10 per month for most home customers.
But RUCO wants to limit the increase in the residential basic service charge to 55 cents, to $13.55 per month.
RUCO attorney Jon McCarty said TEPβs requested increase would add another burden on residential ratepayers, especially after TEP recently filed separately to recover another $148 million in fuel and purchased-power costs through a surcharge that is reset periodically.
βTEP customers are not in a good situation here,β McCarty said in RUCOβs opening statement. βAnd given the potential rate increases, the commission must prioritize the ratepayers interests in this rate case.β
Among other issues in the case:
Coal compensation
Community groups based in the Four Corners area want TEP and other utilities to provide funding to help communities impacted by the early closures of coal-fired power plants on tribal lands.
Four groups intervening in TEPβs rate case β the San Juan Citizens Alliance, Dine C.A.R.E., TO NizhOni Ani, and the Black Mesa Trust β cite TEPβs partial ownership of the now-closed Navajo Generating Station and the San Juan Generating station in Arizona and the Four Corners power plant in New Mexico, which is partly shut down.
TEP has said it will follow the lead of other coal-plant owners in determining possible future transition funding for communities affected by coal closures but has opposed including it in the pending rate case.
Boosting batteries
TEP must do more to support rooftop solar and home energy storage, said Court Rich, an attorney representing the Arizona Solar Electric Industries Association.
Rich said the group has proposed as part of the rate case that TEP adopt a βbring your own deviceβ program that offers compensation to customers who buy their own home battery systems.
βThat compensation we provide that customer is less than the cost that the utility would have otherwise had to incur if it bought its own battery or had to procure peak power those times, so this is just a way to save money,β Rich said.
Buy-through power
Two independent energy producers want TEP to improve and expand a pilot energy βbuy-throughβ program, known as MP-EX for βMarket Pricing-Experimentalβ approved in the last rate case that allows large industrial customers to buy power from independent power producers.
Representatives of Calpine Energy and NRG say the program is too restrictive.
The ACC staff has recommended filing a report on the MP-EX program before making and changes or expanding the program
Low-income help
TEPβs proposal would increase the discount on its Lifeline rate plan for customers making up to 200% of the federal poverty level by $2, from $18 to $20.
Tim Hogan, an attorney representing the low-income advocacy group Wildfire, said that while that offsets the proposed increase to the basic service charge, TEP should look at changing the program.
Hogan, of the Arizona Center for Law in the Public Interest, said TEP should consider setting up two tiers of customers based on income, with customers of least means getting more help, or establishing a discount of 25% per bill rather than the flat $20 discount.