Rate Case May Change How We Pay for Power

March 05, 2016 3:00 pm  •  By David Wichner Arizona Daily Star

Arizona utility regulators are considering a plan backed by UNS Electric Inc. to fundamentally change the way its ratepayers pay for electricity — and perhaps set a precedent for similar changes at Tucson Electric Power Co. and other state-regulated utilities.

But the proposal before the Arizona Corporation Commission, which will play out over the next several months, is drawing fire from customers and consumer groups who say the plan will make it hard for ratepayers to avoid major bill increases.

At issue are so-called “demand charges,” which are on the table in a rate case filed last year by UNS, which serves about 93,000 customers in Santa Cruz and Mohave counties and, along with TEP, is owned by Canada-based Fortis Inc.

Under rates with demand charges — a common feature of commercial power rates that has never been mandated for Arizona residential ratepayers — power bills are based on each customer’s highest usage level in a billing period.

Up to now, most residential ratepayers in Arizona have paid what is essentially a two-part bill: a fixed monthly charge plus rates based on usage.

Demand charges would add a third billing element, along with relatively lower usage-based rates.

UNS originally proposed imposing a three-part bill with demand charges on customers with grid-connected solar arrays and small commercial customers to try and recover revenue for fixed costs like transmission it says those customers largely avoid.

The utility also has proposed cutting its “net metering” rate — the rate at which it credits rooftop solar customers for excess power they produce — to what it pays for wholesale renewable power.

But the Corporation Commission’s own staff went a step further, recommending that demand-charge rates be mandatory for all UNS residential customers. UNS is now backing that proposal, as initial hearings in the case began last week.

In its own rate case filed in November, TEP has proposed moving rooftop solar customers to a rate based on demand charges and cutting the credit rate for excess solar generation, but the utility has not pushed to mandate demand charges for all residential customers.

UNS says it needs to recover more revenue than it can simply from usage-based charges, citing a 4 percent decline in residential usage from 2012 to 2014, the recent loss of some major commercial customers and the addition of new power-generation resources.

“We are proposing a more fair rate design to better align rates with costs,” Michael Patten, an attorney representing UNS, said at the hearings last week in Tucson.

Under the plan, the UNS residential basic monthly charge would rise to $15 from $10 now. The average UNS home customer would pay an estimated $4.82 per month, or about 6 percent, more during a transitional period with two-part rates, then an additional $1.65 monthly if the demand charges kick in as planned by next spring, Patten said.

But opponents — including a state consumer watchdog agency, advocates for low-income ratepayers and solar-industry advocates — say the changes are too drastic and would be punitive, particularly to low-income customers.

Others say the move is premature amid separate, pending commission proceedings probing the actual unrecovered costs of rooftop solar customers.

“This case will most likely be a landmark case in the annals of the Corporation Commission,” said Dan Posefsky, general counsel to the state Residential Utility Consumer Office.

“No matter what the reason, making a completely new rate design mandatory on any group of customers, absent an emergency, is never in the public interest,” he said.

Tim Hogan, a representative for environmental and low-income ratepayer groups, noted that, partly because of UNS’s“antiquated” rate structure, residential customers will bear the brunt of the higher bills.

He noted that UNS rural customers generally earn lower incomes than their urban counterparts, as Mohave and Santa Cruz counties have seen a slow economic recovery.

AARP also has filed comments in the case, contending the move to demand charges would disproportionately affect seniors and other low-use customers.

“Through no fault of their own, we have residential customers with lower-than-average income who are now being asked to absorb an 8 percent increase,” said Hogan, who represents the Arizona Community Action Association, the Southwest Energy Efficiency Project and Western Resource Advocates.

A solar-industry advocate said the UNS plan, including the proposed net-metering cut, is simply another example of utilities attacking rooftop solar, also known as distributed generation, to protect their monopoly businesses.

“Demand charges hurt distributed generation and protect utility revenue. That’s why they’re here,” said Court Rich, an attorney for The Alliance for Solar Choice. “It’s not in their interest to let people generate some of their own power.”

Rich said cutting net-metering rates will kill off new rooftop solar development in UNS territory, citing a 98 percent drop in such installations after the Salt River Project imposed a demand charge and cut credits to solar customers last year.

But UNS’s Patten says the time is now to change the company’s rate structure.

Patten said measures are in place to minimize the impact of the new rates on customers on special low-income rates, and promised a push to educate consumers on ways to curtail their peak usage.

A UNS study of 180,000 power bills showed that about a third of customers will see a slight drop in their bills under the demand-charge plan, he added.

UNS’s proposal is also backed by the Arizona Investment Council and Arizona Public Service Co., the biggest state-regulated utility.

APS attorney Thomas Mumaw said the utility has had a voluntary residential demand-charge rate for some 40 years and about 120,000 customers use that rate.

But during a public-comment session at the outset of public hearings on Tuesday, a parade of consumers and representatives of civic and consumer groups said the imposition of demand charges on struggling residential customers would be devastating.

Tom Sheahan, a retired Mohave County sheriff, noted that his county is made up of some 40 small communities that are still struggling to recover from the recession.

“Many people there live on Social Security or have had no wage increases, so any increase to the demand charge will hit those areas very hard,” he said.

Marshall Magruder, a UNS customer who lives in Tubac, said residential customers are ill-equipped to understand special rates.

“The demand charge is not measurable by ratepayers. It’s a back-door charge that is based on company data they don’t see,” said Magruder, a retired engineer who has been active in several Corporation Commission cases.

Jim Patterson, president of Santa Cruz Valley Citizens Council, agreed. “The average residential users are not really able to gauge the additive effect on daily usage,” he said.

Hearings on UNS’s rate case are scheduled to continue before a Corporation Commission administrative judge through next week.

The judge will then issue a recommended order that the full Corporation Commission will consider, probably by mid-summer.