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Q&A: About The Arizona Corporation Commission

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Did you know that the Arizona Corporation Commission plays a powerful role in our State's economic health and vitality? This year's election of new Commissioners places Arizona's capacity to fund and finance critical infrastructure needs for today and the future at stake.

 

Q&A: ABOUT THE ARIZONA CORPORATION COMMISSION

 

What is the Arizona Corporation Commission and what does it do?

 

The Arizona Corporation Commission (ACC) is the state agency that regulates utility companies, polices the sale of securities within Arizona and oversees the corporate status of Arizona and foreign corporations. The ACC also has certain regulatory responsibilities concerning the safety of railroad and pipeline operations in the State. The breadth of its regulatory scope is substantial and its decisions involve complex accounting, engineering, legal, financial and economic considerations.

 

The ACC was established by the Arizona Constitution in 1912 and certain of its powers are constitutionally defined. With that foundation, the ACC not only sets the rates charged by utilities but also determines policies which have a significant impact on their ability to attract capital so they can provide services to customers.

 

So, the ACC is not only important but also powerful?

 

Yes, it is both. For example, as the agency that regulates utilities, it is required to balance the interests of utility customers and investors. The Commission must establish utility rates that are just and reasonable to the consumer, but which also allow the utility to recover prudent costs, attract new capital and earn a reasonable return on invested debt and equity.

 

As a shareholder or investor in an Arizona utility, is the ACC required to protect my investment?

 

Strictly speaking, no. But, the ACC is required to balance the interests of investors and customers when deciding utility rate matters. In part, it does that by allowing only prudently incurred costs of operations to be passed through in customer rates and also by giving the company the opportunity to earn a reasonable return on invested capital.

 

As a utility customer, is the ACC required to keep my rates low?

 

No. Again, the Commission's job is to balance the interests of investors and customers. It also has to take into account factors other than just rate levels � things like whether these rates will provide enough money so the utility can deliver safe, reliable and adequate service.

 

How many commissioners serve on the ACC and what are they paid?

 

The Corporation Commission is comprised of five commissioners who are elected to four-year terms. Commissioners may not serve more than two consecutive terms. Only 12 other states elect their regulatory commissioners. Thirty-seven states have commissioners who are appointed by either the governor or legislature.

 

The salary for commissioners is established by the Legislature in conjunction with a recommendation by the Governor and the Commission on Salaries for Elective Officers. In 2008, the annual salary for serving on the ACC is $79,500.

 

What are the qualifications for becoming a Corporation Commissioner?

 

Arizona law does not provide any special qualifications for the office of Corporation Commissioner.

 

How does the Commission determine the rates that utility companies can charge their customers?

 

It's a multi-step process. The Constitution requires that the Commission determine the "fair value" of the utility company's property. This fair value then becomes the rate base upon which the Commission determines a reasonable rate of return. The company's overall revenue requirement is a combination of the prudent costs (or the company expenses) of providing service plus a reasonable return on this fair value rate base. The final step in the rate process is to allocate or "spread" this revenue requirement among the various classes of customers to determine the rates which will be charged each class.

 

A utility company typically applies to the Commission for a rate increase when it is unable to fully recover its costs of operations and/or the rate of return on its investment falls below an acceptable level. Certainly, some of the largest issues in rate cases are costs of operations, inflationary pressures and the need to be able to borrow enough money and attract stock investments sufficient to build plant to continue to supply reliable service.

 

How long does it take the ACC to reach a decision on a utility company rate case?

 

The process for reaching a decision on a rate case is complex. For many utilities, it can take the ACC a year or two to conclude the process. While the ACC has to thoroughly investigate utility requests, it also is aware that too prolonged a decisional process can lead to the erosion of the company's financial health and loss of any realistic chance to actually earn the rate of return it authorizes.

 

Of course, the time it takes the ACC to process a rate case also depends on its workload in all areas of its responsibilities, including non-utility matters.

 

Does the Commission have a staff?

 

Yes. In 2008, the Commission has 321 staff positions within seven Divisions to assist in carrying out its workload. Personnel within the Utilities and Legal Divisions are devoted primarily to the regulation of utilities. Other Divisions include: Securities; Corporations; Safety; and Administration.

 

How is the Corporation Commission Funded?

 

The ACC's total budget for fiscal year 2008 is $29.3 million. The largest funding source is the Utility Regulation Revolving Fund, which contributes $14 million, or about 48 percent of the total budget. The monies in the Utility Regulation Revolving Fund are collected from assessments on the utility bills of ratepayers and are apportioned by law to the ACC and the Residential Utility Consumers Office. These utility regulatory fees fund the Utilities and Legal Divisions and portions of the Hearing and Administration Divisions.

 

The ACC also receives appropriations from the State General Fund ($5.9 million), the Securities Regulatory and Enforcement Fund ($4.0 million), the Public Access Fund ($4.4 million), the Securities Investment Management Fund ($0.9 million) and the Arizona Trust Fund ($50 thousand).


Gary Yaquinto, AIC President