Home customers of Tucson Electric Power will see their bills rise an average of about $11 per month starting next month, under new rates approved Tuesday by state regulators.
The rate increase approved by the Arizona Corporation Commission was less than TEP’s original request for an average home bill increase of about $14 monthly.
And it’s far less than a revenue increase recommended by a commission hearing judge that would have boosted home rates by nearly $18 per month, or more than 14%, by shifting more costs from business to home customers.
That proposed bill increase was too much even for TEP, which countered with a proposal that would raise home rates an average $10 to $11 depending on determination of a key profit measure.
Though regulators have been moving to reduce historical business rate subsidies of residential customers, TEP acknowledged concerns over rate shock for home customers, who recently began paying an extra $10 a month to reimburse TEP for spikes in natural gas and wholesale power costs.
Commissioner Lea Marquez Peterson, the utility panel’s only member from Southern Arizona, successfully introduced an amendment to lessen the impact on residential ratepayers by spreading more of the cost to business customers.
She estimated her amendment would cut the average monthly home bill increase to just over 10%, instead of 14.7% recommended by ACC Administrative Law Judge Belinda Martin, who said her intent was to reduce business subsidies of residential rates.
“This is important to lessen the rate shock and the impact on the residential customers, and to promote gradualism,” Marquez Peterson said.
Under the new rates, the basic monthly charge on home bills will rise by $2, to $15 for the basic plan and $13 for time-of-use rates.
Low-income customers on TEP’s Lifeline rates will see their monthly bill discount increase to $20 from $18 per month.
On business front, the average bill for a typical Small General Service customer on the basic pricing plan will increase by 7.6%, or about $12 per month, TEP said.
The average bill for a typical Medium General Service customer will increase by 9.5%, or about $445 per month, while average bills on TEP’s Large General Service pricing plans will increase by 3.6%, or about $494 per month, though that will vary widely depending on usage, the company said.
Marquez Peterson’s amendment passed on a 4-1 vote, with the ACC’s lone Democrat Anna Tovar voting against it based on her opposition to the proposed return on equity. The amended order passed on a similar party-line vote.
State regulators increased TEP’s allowed return on equity — a key measure of profit based on invested capital — to 9.55% after the company agreed to accept less than it wanted.
TEP had requested a return on equity of 9.75% — down from 10.25% originally — arguing that it needed a higher return to keep up its credit ratings.
TEP President and CEO Susan Gray told the commission that a 9.4% return on equity would be among the lowest in the nation.
“It’s hard for me to understand why, as a company that provides consistent reliability and high customer satisfaction, why we should be further penalized,” by a low return on equity, Gray said, adding that would “send a troubling signal to the company and the capital markets.”
The return on equity authorized for TEP in its last rate case was 9.35%, but after a downward adjustment related to an incremental adjustment for changes in the fair value of assets, the company’s effective authorized return was 9.15%.
Several parties including RUCO had recommended a lower return on equity, citing good credit rating and TEP’s success at reducing debt through refinancing before interest rates rose.
On Tuesday, TEP agreed to accept a return on equity of 9.55%, without any adjustment for fair-value changes, at the urging of Commissioner Nick Myers.
Under Marquez Peterson’s amendment and that return on equity, TEP attorney Michael Patten said, TEP home customers will see an average monthly bill increase of just over $11.
Meter fee dropped
After prodding by a solar industry group, TEP asked to drop a $2.23 per month meter fee imposed on customers with rooftop solar systems since 2018 to pay for more costly, bidirectional smart meters, though since 2019 TEP has been replacing all of its meters with the smart models.
The Arizona Solar Electric Industries Association pushed the ACC to order TEP to also refund customers some $1.5 million in meter fees it contends were unnecessary, noting that the company didn’t move to drop the fee until the group called the company on it.
TEP opposed the refunds, arguing that the meter fee was appropriate at the time to pay for the extra cost of the meters and approved by the ACC, and that refunding the fees would amount to impermissible “retroactive ratemaking.”
The Corporation Commission agreed to drop the meter fees as part of the final rate order but did not require TEP to refund the fees.
In other actions as part of the TEP rate order approved Tuesday:
Myers successfully pushed an amendment removing a 5% discount on standard time-of-use rates TEP has been offering to customers who own and operate electric vehicles, arguing it was an unfair subsidy. That was approved on another 4-1 vote, along with an amendment freezing a time-of-use “super off-peak” rate for EV customers to force new customers on a time-of-use plan including demand charges based on monthly usage peaks.
The commission rejected a move by Tovar, RUCO and other parties to technically keep the rate case open for a “phase two” proceeding to possibly revamp a surcharge that reimburses TEP for fuel and wholesale power costs in excess of forecasts.
In April, the ACC approved an increase to the so-called Purchased Power and Fuel Adjustment Clause that will cost home customers an average $10 per month for a year to reimburse TEP for more than $100 million excess costs from natural gas and wholesale power costs that spiked in 2021.
The commission rejected pleas by the Hopi Tribe, the Navajo Nation and citizen groups to require TEP to contribute to help communities near coal plants closed or set to close, or to require the company to hold further meetings on the coal community transition issue. TEP said it is providing targeted aid so far totaling about $1 million but has not issued plans for a larger aid program.
Chairman Jim O’Connor said the tribal communities benefited from the utilities’ power plants for years, and burdening ratepayers with coal-community aid costs was “unjust and immoral.”
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