Staff Files Testimony in APS Rate Case
Staff Recommends $208 Million in Revenue, Not $453 Requested

PHOENIX – Staff and consultants reviewing Arizona Public Service’s (APS’) proposed rate hike issued testimony in the case today.  The staff determined in its analysis that APS should not get the $453 million revenue increase that it applied for in 2005.  Staff’s analysis concludes that APS requires $208 million in additional revenue.

Significant differences exist between the APS and Commission staff testimony.  Those differences fall in two main categories:

Fuel related adjustments

               APS requested $298 million                           Staff recommends $193 million

Non-fuel related adjustments

               APS requested $150 million                           Staff recommends $10 million

Staff’s position makes three major adjustments:

• Cost of equity.  APS wanted a cost of equity of 11.5 percent.  Staff is recommending 10.25 percent.  This represents a decrease in the overall revenue requirement of approximately $50 million.
• Cost of fuel.  APS sought an additional $298 million to pay for fuel costs related to providing power to its customers.  Staff determined that an increase of $193 million was appropriate.  The difference in the calculations largely stems from projected versus actual costs.  APS speculated that the fuel costs would be higher.  So far, actual costs are significantly less than projected.
• Pension expense.  APS alleged that an increase of $44 was necessary to fully fund pension-related costs.  Staff concludes that APS’ current pension requirements are more appropriately covered with an additional $11 million, or $33 million less than the company’s request.

The staff also recommends changes in the Power Supply Adjustor to facilitate more timely recovery of fuel and purchased power costs that APS incurs to supply power to its customers.

Staff conducted a review of the company’s fuel and purchased power procurement practices and concluded that those practices were reasonable and prudent during 2005.  Costs related to the unplanned outages at the Palo Verde Nuclear Generating Station are the subject of a separate Commission review.

The filing by the Commission staff includes testimony from 10 witnesses.

The staff testimony and all other documents related to this case are available electronically through the Commission’s e-Docket system at http://edocket.azcc.gov/edocket/.  The docket number assigned to this case is E-01345A-05-0816.  It generally takes about a day before the electronic versions of the testimony are available for viewing through e-Docket.

How will this increase affect consumers?

Staff has not filed its testimony on rate design – how the increase is shared among the various classes of ratepayers.  That testimony will be filed in September.

When will this increase affect me?

There are several more steps before any increase would be granted.  There will be a full, public hearing starting on October 10 where witnesses will give their testimony under oath.  The hearing will be at the Commission’s offices at 1200 West Washington in Phoenix.

After the hearing, the Administrative Law Judge will make a written recommendation to the Commissioners.  They will review the recommendation, draw their own conclusions and meet in a second public meeting to discuss the matter and vote on it.  It is too soon to speculate on when a final decision will come.

What has transpired up to this point?

APS filed its application for a change in rates in November 2005.  Since that time, the case has been assigned to an administrative law judge.  The judge has approved the involvement of certain groups such as the Residential Utility Consumer Office (RUCO), the Arizona Utility Investors Association (AUIA) and others.  Collectively, these groups and individuals are called “intervenors” and have been granted the legal status to file testimony and cross-examine witnesses during the rate case.

Staff, intervenors and APS have participated in a lengthy “discovery period” during which specific documents that could be meaningful to the case are requested.

Commission staff members and outside experts with experience in specific aspects of utility rate cases have conducted an extensive review and analysis of the costs, revenues and nature of the utility’s expense and revenue streams. 

What is the procedural significance of staff’s testimony?

Staff’s testimony represents the first response to the application and request by APS.  It also represents the first opportunity to see what Staff’s litigation position will be as we progress toward the October 10, 2006 hearing.

Will the Commission make a decision at the October 10 hearing?

No.  The hearing will be presided over by an administrative law judge.  She will hear testimony from each of the parties, ask questions and listen to the cross-examination of the expert witnesses.  The process is comparable to a judge presiding over a court case.  After the hearing and any briefing cycle that the judge requests, she will review the transcripts and testimony and draft a Recommended Opinion and Order (ROO).  The Commissioners make the final decision at a future, public Open Meeting.

Will the Commissioners attend the hearing?

Schedules permitting, the Commissioners are expected to attend all or portions of the hearings.  The hearing process is likely to take several weeks.

I’m not a party or intervenor.  Is there a way I can comment on the case?

Public comment may be submitted by mail or on-line.  In addition, on the day of the hearing, the administrative law judge will allow time for public comment. 

Public Comment by Mail

If you cannot attend in person, the Commission encourages the timely submission of written comments.  Be sure to reference the docket number to ensure that your comments are properly catalogued and referenced.  Docket Control requests an original and 13 copies for distribution to all the Commissioners and appropriate staff.

Arizona Corporation Commission
Docket Control Center
1200 West Washington
Phoenix, AZ  85007

Docket Number:  E-01345A-05-0816

Electronic Public Comment

You may also comment through the Commission’s “Can We Help You” page on the Utilities Division website.  Be sure to include the docket number listed above.  For instructions on filing electronic public comment, click on /divisions/utilities/cons/index.asp.

When might the Commission rule on this case?

It is too soon to tell.  Much will depend on the length of the hearing and the briefing schedule recommended by the administrative law judge.

Didn’t the Commission already grant APS an increase?

Earlier this year, the Commission approved a temporary interim rate increase designed to partially refund money Arizona Public Service (APS) has already paid for natural gas in 2005 and what APS projects it will incur in additional charges for 2006.  The increase was necessary to pay down debts that continue growing due to the unprecedented and sustained high natural gas and purchased power prices.

APS does not profit from this increase as the monies collected will be used solely to pay fuel costs.

The temporary increase represents approximately 7.6 percent on the typical residential customer’s bill.  The surcharge will end once APS collects approximately $140 million in fuel and purchased power prices.