PHOENIX — The state agency charged with protecting utility consumers said a request by the power company Arizona Public Service to raise its profit margin to 10.25% is unnecessary.
Testimony filed by the Residential Utility Consumer Office, known as RUCO, recommended APS have a profit margin of 8.7% (slightly less than what is currently allowed.)
APS is requesting a profit margin of 10.25% beginning in December. The rate case at the Arizona Corporation Commission is expected to last another month.
A third opinion submitted by Commission Staff recommended the utility’s profit margin, also known as Return on Equity, be set to 9.6%.
All three recommendations are based on various factors involved in utility rate making and various expert opinions. Arizona’s five elected Corporation Commissioners are scheduled to vote as early as next month on a new rate structure.
APS says the requested increase is necessary.
“It’s critical we continue to strengthen our infrastructure to protect against extreme weather and also support Arizona’s growing demand for energy… our request focuses on ensuring our customers have the energy they need, when they need it,” APS told 12News in a written statement.
The requested increase would amount to about $15 a month more for the average residential customer, according to an Aug. 9 filing by APS.
The annual revenue increase would amount to $378 million. By contrast, RUCO’s recommended increase of 8.7% ROE would result in a revenue increase of $85 million.
The APS case is a prime example of “rate pancaking” because the commission already approved an 8% rate increase earlier this year for APS to recoup rising fuel (PSA) costs, according to a July 26 filing by RUCO.
If the current rate increase is approved, it will result in a cumulative 22% raise in ratepayers' bills.
“RUCO's position is that the 13.6% can only be properly viewed in the context of the fact that APS has recently been awarded a PSA-related rate increase estimated to increase bills by 8%,” the testimony provided by RUCO states.
“What I don’t know is where the need ends, and where the greed begins,” said consumer advocate Abhay Padgaonkar.
Padgaonkar says commissioners must decide what APS truly needs because regulated utilities inherently have a “perverse incentive” to overinvest in infrastructure, as described by a theory known as the Averch Johnson Proposition.
“The powerful economic incentive all utilities have - and APS is just one of them - is to exaggerate (projected) growth,” Padgaonkar said.
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