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TEP Files for New Rate Design

November 11, 2015 By Cheryl Kaften

Tucson Electric Power (TEP) filed with the Arizona Corporation Commission (ACC) on November 5 for “significant updates” to its rate design and revenue requirement, which would raise the current average residential monthly bill – based on 1,150 kilowatt-hours (kWh) of consumption in the summer and 785 kWh of consumption in the winter – from $105.57 to $117.48, effective January 1, 2017.

In its filing (Docket No. E-019334-l5), TEP stated that its current rates had been established in Decision No. 73912 (June 27, 2013), based on a test year ending December 31, 2011, with rates effective on July 1, 2013.

Since its previous test year, TEP has invested about $1.3 billion to diversify its resource portfolio; maintain its existing generation fleet; upgrade, expand and reinforce its transmission and distribution plant systems; enhance customer service, and leverage the use of technology. In addition, during the same time period, TEP invested roughly $100 million in solar generating facilities.

“We’re delivering electric service to our [417,000 customers in Southern Arizona] that’s cleaner, greener and more reliable than ever before,” said TEP CEO David G. Hutchens.

However, retail sales have been lower than expected. TEP reports that its 2013 test year retail sales are nearly 3 percent below the December 3l, 20ll test year used in the utility’s last rate case. Residential usage per customer fell nearly 7.5 percent between 20ll and the test year.

The company attributes the lower receipts and declining usage-per-customer to the effects of increased conservation, energy efficiency, and distributed generation; as well as “the slow pace of economic growth in the Tucson metropolitan area.”

Indeed, TEP now claims that its rate design is outdated. “Although this historic rate design may have been appropriate in times of increasing customer usage and sales growth, as customer usage has declined, this approach has contributed to under-recovery of TEP’s authorized revenue requirement.”

What’s more, the utility noted, some customers are subsidizing others under the current rate design. “TEP has many residential and small general service customers with relatively low volumetric usage over the course of a year. However, there are times when these customers, such as seasonal residents and customers with rooftop PV systems, place significant demands on TEP’s system that the company must be prepared to meet. As a result, customers with low annual usage, but average peak demand, are not paying an equitable share of the fixed costs to operate and maintain the TEP grid…. Because of the [utility’s] volumetric rate design and the current net metering rules, a significant amount of fixed-cost recovery must ultimately be shifted to other customers.”

Specifically, TEP’s rate design proposals include:

  • Increasing basic service charges for both residential and small commercial customers;
  • Reducing the number of volumetric rate tiers for residential customers;
  • Offering an optional three-part rate structure for residential and small commercial customers that includes a monthly service charge, a demand charge, and a volumetric energy charge; and
  • Imposing a mandatory three-part rate structure on “partial requirements customers,” including new users of solar arrays and other distributed generation equipment.

In addition to these rate design proposals, TEP is suggesting modified large commercial rates and new interruptible rates. There also would be new options for ratepayers, including a “pay-as-you-go” plan that provides residential customers with an alternative to awaiting bills for previous usage.

New solar customers also would receive fair market prices for the excess energy their systems produce. Current net metering rules provide rooftop solar users with energy credits valued at nearly twice the price TEP pays for energy from larger “community scale” solar arrays. TEP is proposing to provide bill credits valued at the same price it pays for power from community-scale systems.

“Revising rooftop solar subsidies embedded in current rates would reduce costs for all other customers, while allowing greater investments in more cost-effective renewable energy resources,” according to the filing.

“If we want renewable energy to grow into a more meaningful part of our community’s energy supply, we must redirect our resources to the most cost-effective options,” Hutchens said. “The updated rates we’ve proposed will do just that, by helping us provide more renewable energy for less money.”

TEP proposed the same revisions to its net metering plan earlier this year, but agreed to defer the proposal until this rate request. The company is seeking to exempt customers who installed or requested interconnection of solar power systems on or before June 1, 2015.

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