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ACC Judge Recommends Rate Increase for TEP Effective Dec 1st
ACC Judge Recommends Rate Increase for TEP Effective December 1

The rate settlement agreement between Tucson Electric Power Company, the ACC Staff and other parties reached earlier this year has just received a favorable recommendation from the administrative law judge.  AIC was a signatory to the settlement agreement.

 In her recommended order and opinion, ALJ Jane Rodda recommends approval of the settlement agreement and that TEP be allowed to increase its rates by 6 percent effective December 1, 2008.  For the typical residential customer, however, rates will increase by only 3.2 percent.  If approved by the ACC, the increase would be the first for TEP since 1994.  TEP also would be allowed to implement a Purchased Power and Fuel Adjustor clause to recover changes in its future fuel and purchase power costs—an important element in protecting TEP’s creditworthiness.

The ROO also adopts provisions of the settlement agreement that resolve issues remaining from a previous settlement agreement in 1999, which was intended to transition the company to competition.  Instead, the ACC will continue to regulate TEP’s rates on a cost-of-service basis and TEP agrees to forego all claims related to the 1999 settlement agreement.

Although the ROO recommends the settlement agreement, it does require that TEP credit its PPFAC with over $50 million of “fixed CTC revenue.”  The CTC or “competitive transition charge” revenue was established in the 1999 settlement agreement as a rate carve-out to gradually write off assets, as it was then thought TEP would transition to a competitive environment.

However, that transition, of course, didn’t happen and AIC believes these revenues should be retained by TEP.  We believe this is fair because (1) TEP is relinquishing all previous rights under the 1999 agreement, (2) it has not earned its authorized rate of return for the past several years and (3) TEP has been precluded since 1999 from seeking rate relief.  While TEP’s rates have remained fixed since 1999, its costs of providing service have risen dramatically.

Parties may file exceptions to the ROO by November 6, 2008.  The full Commission will consider the ROO on November 25th. 

Gary Yaquinto, AIC President