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APS: New Rate Format is Essential for Success

By Ryan Randazzo, The Arizona Republic

 

Officials at Arizona Public Service Co.'s parent company said Thursday that their prosperity hinges on an improving economy and, eventually, regulatory approval to increase profits while decreasing total power sales.

APS can ask state regulators at the Corporation Commission for a rate increase next year, and likely will take the opportunity to ask for a "decoup- ling" mechanism in its rates. That would allow APS to increase rates and maintain its profits even as it enlists new technology to reduce power consumption.

For now, the company is investing in efforts such as low-power light bulbs and rebates for customers who tune up their air-conditioners, and taking the hit when those customers buy less power from the utility.

But that could change under a decoupled rate structure.

In July, the commission voted to require regulated electric utilities to reduce the amount of power they sell by 22 percent by the year 2020 by helping homeowners and firms save energy.

The move parallels a national push to increase energy efficiency and cut back on building multimillion-dollar power plants and transmission lines - which ultimately are financed by customer rate hikes.

APS officials support the rules but want to maintain their revenue even as they sell less power.

"From APS' perspective, the commission must implement an effective decoupling mechanism or similar device in the next APS rate case if APS is to achieve the rigorous energy efficiency standard contained in the rules," said Don Brandt, president and CEO of APS' parent company, Pinnacle West Capital Co.

He said the company has been participating in public meetings with the commission to discuss decoupling, and noted that Chairwoman Kris Mayes issued a draft statement supporting decoupling for utilities.

"We view many of the commission's activities as signaling positive developments for Arizona's regulatory environment," Brandt said.

The policy statement from Mayes cited a Lawrence Berkeley National Laboratory study that said customers of APS and Tucson Electric Power Co. could save $5.2 billion through 2030 with energy-efficiency promotions at the utilities, even if rates increased through decoupling.

"When looking at decoupling, it makes complete sense for us," said Credit Suisse analyst Kevin Cole, who, like others tracking Pinnacle West stock, had questions about the policy Thursday.

"Are investors better off in the long run with you pursuing a decoupling scheme?" analyst Greg Gordon of Morgan Stanley asked Pinnacle West officials.

Company officials responded that decoupling would allow them to continue their company's growth as the economy improves and their customer count rises.

"It's been important from our perspective pursuing decoup- ling that we didn't trade away any of the intrinsic value of our company, and that is the long-term growth profile," Brandt said.

Pinnacle West reported Thursday that it improved its quarterly profit by 14.3 percent excluding a gain related to its discontinuing real-estate segment.

The company's earnings were helped by a rate increase that became effective this year and warm weather, although a decrease in per-customer power use held profits down a bit.

For the third quarter, Pinnacle West earned $226.7 million, or $2.08 a share, compared with $198.4 million, or $1.96 per share, in the same quarter last year.

Excluding a $7.2 million gain related to the real-estate subsidiary the company is discontinuing, the company earned $233.9 million for the quarter.

Revenue rose to $1.14 billion from $1.09 billion in the same quarter last year.

Analysts, who usually don't focus on one-time charges, expected the company to earn $2.01 a share on revenue of $1.13 billion.

Weather in APS territory from July to September was not as warm as last year - the average daily temperature was 94.1 degrees compared with 94.6 degrees last year - but daily humidity was 5 percent higher, the company reported.

"Although the recession has slowed our historically robust growth patterns, Arizona retains numerous qualities that make it a desirable place to live and do business," Brandt said. "Its past record of strong growth remains an attractive, distinguishing characteristic for our company."

 

Read more: http://www.azcentral.com/arizonarepublic/business/articles/2010/10/29/20101029biz-aps1029.html#ixzz14GOXo06i