PHOENIX — A proposed rate increase by Arizona’s largest power company would hit small businesses the hardest.
APS is asking regulators to approve a new rate structure that would amount to an average 13.5% increase for small businesses. That’s compared to a 7.2% increase for extra-large businesses and an 11.3% increase for residential customers.
APS says they used “a rigorous process” to determine what future rates should be based on and “the cost to serve different types of customers.” A leader of Arizona’s small business community says APS’ proposal disproportionately targets small companies and threatens to close some of them, if it is ultimately approved.
'Small businesses are operating on small margins'
APS categorizes the size of businesses based on their monthly hour summer demand of kilowatts. The for-profit utility charges residential and business customers based on formulas approved by the Arizona Corporation Commission.
“While it might appear the rate increase hits smaller businesses disproportionately, the larger businesses are actually consuming much more energy – and paying much more of the overall pie, too,” said APS spokesperson Jill Hanks in a written statement to 12News. “Arizona needs reliable and affordable energy to support businesses and residents for the long term. APS is taking steps today to ensure that business continues to thrive in Arizona.”
A board member of the Arizona Small Business Association questions why small businesses would be asked to pay steeper rate hikes. He says large companies have a greater capacity to absorb higher electricity costs.
“Small businesses have experienced huge increases in their expenses, as we all have, and a lot are operating on small margins,” said board member Rick Murray. “When you see 7% or so increase for large businesses versus 13% for small businesses, that just doesn’t look right.”
Other experts who have testified in the rate case propose smaller rate increases than what APS is requesting.
Arizona Chamber of Commerce Supports APS
In a September letter to the Commission, Arizona Chamber of Commerce President Danny Seiden said he endorsed APS’s position.
“We believe that APS’s position to recover costs for infrastructure already serving customers is prudent,” Seiden said.
Asked in an interview with 12News about the disparity between how small and large businesses would be impacted, Seiden said it’s important to know that small businesses feed off large businesses. He said he is confident APS’s proposed formula is the best plan.
“I have concerns it will hurt people across the board. But what I have a bigger concern about is that if we don’t fund, we don’t invest, we become a state that falls behind. We become a state that has blackouts and brownouts,” Seiden said.
Murray says commissioners must balance the request by APS for larger revenues, with the need for small businesses to survive.
“We know that APS needs to have a guaranteed profit at some level, but at what point is it enough?” Murray said.
'It’s no secret APS writes very big checks to the chamber'
Murray, a former board member of the Arizona Chamber of Commerce, said he suspects Seiden is inclined to support APS’ position for another reason.
“It’s no secret APS writes very big checks to the chamber, and a lot of their members write big checks to the chamber and that’s how the advocacy is developed within the chamber,” Murray said.
Seiden declined to say how much APS donates to the chamber, saying the organization’s policy is not to reveal donations.
He said APS’s financial clout did not influence his decision to support the utility.
“The chamber has in the past weighed in at the Corp Comm even for non-member companies as well. We support people who are thinking about the future of this state,” Seiden said.
Critic: Rate hike would 'pad APS’s guaranteed profits'
Arizona’s five elected corporation commissioners will likely vote in December on what, if any, level of a rate hike APS should get.
Critics say APS is simply asking for too much.
“What APS is not saying is that a very substantial portion of the rate increase will go towards padding APS's guaranteed profits,” said consumer advocate Abhay Padgaonkar, who calls the hearing a question of “greed versus need.”
APS is seeking a Return on Equity (ROE) to increase from 8.7% (in the last rate case) to 10.25%. The utility says the increase will allow APS to maintain the necessary financial footing it needs to accommodate future energy needs.
Others disagree.
Arizona’s agency that advocates for consumers, the Residential Utility Consumer Office (known as RUCO) testified during the hearing that APS should get an annual revenue increase of just $85 million. That compares to APS's requested increase of $378 million annually.
“Investors will make out like bandits,” Padgaonkar said, referring to the APS plan.
12News asked Seiden why he supports APS’ position over RUCO.
“When I listen to them (APS) say they need more investment to overall reduce costs going forward, to provide the energy that the marketplace is demanding, I believe them,” Seiden said.
APS electricity bills already went up this year
The rate hearing comes at an inopportune time for APS customers. They already saw their electricity costs go up this year after the Corporation Commission passed a plan to allow APS to recuperate higher fuel costs from customers.
APS customers paid an average of 12% more per kWh this summer compared to last summer, according to an analysis of APS quarterly financial reports.
APS says a rate increase is necessary to recover past expenses, including those incurred during extreme weather, and to maintain a strong credit rating for future borrowing purposes as electricity demand grows in Arizona.
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