Customers of Tucson Electric Power will see an average increase of nearly $10 per month on their home bills for the next 12 months after state regulators decided to let TEP recover millions of dollars in excess costs for fuel and purchased power sooner, rather than later.
The Arizona Corporation Commission’s 3-2 decision on Thursday came despite pleas by consumer advocates to stretch out TEP’s cost recovery to impose less of a burden on ratepayers already struggling with inflation.
The increase to the so-called Purchased Power and Fuel Adjustor Clause, a pass-through billing surcharge that repays TEP for excess fuel and wholesale power costs not included in base rates, will increase the average TEP residential bill by $9.87 per month over the 12-month period.
That’s about 2 cents per kilowatt-hour and an increase of 8.3% — on top of the average $6.36 customers currently pay for the usage-based surcharge.
TEP’s business-class customers will see commensurate based on their usage.
But under a plan advanced by the ACC’s utilities division staff to ease the burden on customers, the surcharge rate will be higher in the winter months and lower in the summer when bills are typically surge.
That will result in an average home bill increase of $7.47 from May through September and an average $11.57 increase from October through April.
Alternatives rejected
Commissioner Lea Márquez Peterson — a Republican and the only commission member from Tucson — offered an amendment to spread the increase in the fuel surcharge out over 18 months for an average monthly bill impact of $6.33.
But the commission’s other three Republican members rejected that amendment, arguing the growing undercollected deficit and interest over the extended time would only cost ratepayers more in the long run.
The panel also rejected an amendment offered by Democrat Commissioner Anna Tovar to spread the payout period over 24 months to soften the “rate shock” on ratepayers.
Commission Chairman Jim O’Connor and members Nick Myers and Kevin Thompson voted in favor of TEP’s request, as modified by the staff proposal, to allow the company to recover its undercollected fuel balance over 12 months.
“The longer we stretch this out, the more money we are taking out of the ratepayers’ pockets,” Myers said, noting the proposed increase was not out of line with recent increases approved by the commission.
Consumer advocates, including the state Residential Utility Consumer Office, the Arizona Public Interest Research Group Education Fund and the statewide anti-poverty group Wildfire asked the commission to stretch out the surcharge increase to lessen the bill impacts for consumers already coping with higher costs.
They noted the ACC voted to increase TEP’s fuel surcharge by $4 in April 2022, and customers are now facing TEP’s pending request for a 12% general rate increase after a 9.7% increase in 2021.
“Having 24 months to balance out the undercollection allows a greater opportunity for ratepayers to pay their bills directly and enables eligible ratepayers time to seek and receive financial assistance to pay their bills while still allowing the company to receive what it is owed,” Diane Brown, executive director of AZPIRG, told the commission at a meeting continued from last week.
Struggling families
Claire Michael, climate equity director at Wildfire, also backed spreading the surcharge increase out over 24 months, citing recent federal data showing that 19% of Tucson residents live in poverty, including one in four children.
“This poverty estimate does not include everyone struggling,” Michael said. “So, when considering how rate shock will affect various customers, while almost one in five people in poverty in Tucson will be disproportionately negatively impacted, many more families will also experience negative impacts.”
Responding to remarks by Commissioner Myers last week that a $17 monthly surcharge “is working one hour extra at In-N-Out,” Michael said many working-class people do not have the option of controlling their hours, and many people are seniors or disabled on fixed incomes.
“Poverty is a multifaceted issue that is influenced by a wide range of factors, making it a complex problem that cannot be solved simply by working more hours, especially considering the never ending increases in the cost of living, including energy rates and stagnant wages,” she said.
Márquez Peterson said she was in favor of extending the recovery period to 18 months to help struggling consumers, citing TEP’s pending request for a general rate increase and noting that Tucson voters next week will vote on a new city franchise agreement with TEP that would increase their bills.
That 25-year franchise agreement will raise bills for TEP customers in city limits by about $1 a month to fund underground installation of transmission lines through the midtown area and future city climate initiatives.
Cost grows with delay
During Thursday’s open meeting and discussion at an open meeting last week, O’Connor, Myers and Thompson said extending TEP’s cost-recovery period would only add to the burden on ratepayers, noting that TEP is entitled to interest on the undercollected surcharge funds.
The commission staff estimated that, depending upon how fast TEP is allowed to collect the unrecovered costs, interest costs of more than $4.5 million could accrue.
“If we don’t solve the problem sooner rather than later it’s ratepayers, with TEP as the intermediary, funding it at the cost of money which grows greater every day on a larger (uncollected) balance,” O’Connor said.
RUCO and Wildfire, together with the Southwest Energy Efficiency Project, Freeport-McMoRan Inc., the Arizona Solar Energy Industries Association and Vote Solar, backed a proposal to shift a decision on a forward-looking component of the surcharge to a second phase of TEP’s pending rate case.
But the commission rejected that after hearing from staff that the surcharge already has been the subject of testimony in the rate case, which is expected to be decided by late summer.
Thompson said he didn’t want a growing undercollected balance in the fuel surcharge account to be shifted into base rates, where TEP could potentially earn a return on their costs.
He cited TEP estimates that extending the recovery period over 18 months would shift $25 million in undercollected balance to 2024, or under a 24-month period would shift $63 million.
“My concern is only if we push it out more than 12 months the balance shift just continues to increase until everything gets paid off in full,” Thompson said.
The commission rejected the idea of putting off part of the surcharge to the rate case, but Márquez Peterson, Myers and the other commissioners said they would favor an in-depth review of the Purchased Power and Fuel Adjustor Clause funding mechanism to avoid future, sudden impacts on ratepayers.
“But I think we could have handled this differently, whether as Mr. Myers mentioned, we dive in and look at perhaps reconstruction of this in the future, which I would be supportive of. I just think this is quite a burden, and we could have handled this as a one-off case,” Márquez Peterson said.
TEP’s initial surcharge request would have boosted the average monthly home bill by $13 for a year to allow the utility to recover $148 million in costs for wholesale power and natural gas the company says have jumped about 300% since 2019.
But since the company’s initial filing in January, projected excess fuel and power costs through March were updated with actual spending figures, cutting the undercollected balance by $22 million to about $126 million.
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