Retail Energy Buyer

Subscribe to the free weekly newsletter written just for retail energy buyers

UNS Electric Gives Ground on Proposal for Demand Charges

May 18, 2016 By Cheryl Kaften

More than a year after its original filing for a rate hike in March 2015, and following considerable pushback from local residents about a mandatory demand charge that stood at the crux of the proposal, UNS Electric – which serves nearly 250,000 customers in Arizona – has backed off slightly on its requirements.

The utility now would settle for about 33 percent less in rates than it originally had requested from the Arizona Corporation Commission (Docket No. E-04204A-15-0142).

In addition, UNS Electric has made concessions on the demand charges – offering its current “plain vanilla/non-distributed generation” residential customers two payment options that do not involve such fees.

However, customers who have installed rooftop solar generation since last June still must choose from two three-part rate plans that include demand charges. And they will receive lower remuneration for excess generation. Net metering rates would drop from about $0.11/kWh to $0.06/kWh (the Renewable Credit Rate now paid by utility scale facilities).

Non-fuel revenues

According to its filing, the utility originally requested a $22.6 million increase to adjusted test year non-fuel revenues. That amount has since been adjusted downward. Since the filing of the application, the company, the commission’s Utilities Division staff, and the Residential Utility Consumer Office (RUCO) have agreed to reduce the non-fuel revenue increase to $15.1 million,

The utility asserts that “the increase is driven primarily by the acquisition of an interest in [natural gas-fired] Gila River Unit 3, [its] first base-load generating resource, as well as other rate base investments supporting the delivery of safe, reliable service.”

Demand charges

Along with a basic service charge – which is a set fee paid monthly or seasonally – most utility customers pay for the volume of energy they use, measured in kilowatt-hours (kWh) per month. Larger users of electricity also are charged for something called “demand.” To arrive at the demand charge, the electric utility uses meters that register the highest rate of electrical flow (or current) during a billing period.

Much of the criticism leveled at the UNS Electric filing was prompted by the proposed mandatory demand charges for all residential customers, by which UNS Electric would have billed customers based on their periods of highest usage in addition to overall consumption volume.

To date, a large portion of UNS Electric’s fixed costs have been recovered volumetrically, on a per-kilowatt hour (kWh) rate structure. “However, sales volumes and use per customer continue to trend downward, which has led to significant under-recovery of costs over time,” the utility claims – “particularly as the company’s cost of service has increased. The inability to recover fixed costs through volumetric rates is compounded by a confusing and ineffective inclining block rate structure where more of the fixed costs are collected at higher usage levels.”

Instead of that block rate structure – and out of compliance with the three-tier rate structure recommended by the commission staff – UNS Electric said, ” We’ve recently updated our proposal to provide most residential customers an opportunity to choose from any of five rate options. These would include traditional and time-of-use rates as well as plans with energy charges based on both monthly consumption and peak hourly energy use, or demand.”

Specifically, the five options would include:

  • A basic two-part rate (basic service and volumetric);
  • A two-part time-of-use (TOU) rate;
  • A two-part super-peak TOU rate for residential customers;
  • A three-part rate that includes a monthly basic service charge, a demand charge, and a volumetric energy charge; and
  • A three-part TOU rate that includes a monthly basic service charge, a demand charge, and on- and off-peak energy charges.

Under each of the two-part residential options, the volumetric energy rate would comprise two tiers, 0 – 400 kilowatt hours (kWh) and over 400 kWh. The proposed monthly basic service charge under all rate options for residential and small general service (business) customers is $15 and $25, respectively.

“This differs from our previous proposal, which would have required all residential customers to use rates that include demand charges,” the utility commented. “Under our new proposal, the only residential customers required to use such rates would be those who have sought to go solar since June 1, 2015. Customers who applied to install solar arrays before that date [can] choose from any available residential rate.”

New residential and small general service DG customers signing on after June 1, 2015, would be subject to one of two three-part rates; and modifications to net metering that include the elimination of banking excess generation, and the provision of bill credits for excess generation at the Renewable Credit Rate.

Residential customers who choose a plan without a demand charge would see an average monthly bill increase of $8.10, and those who opt to include a demand charge would see an $8.02 jump, according to estimates on the website of UniSource Energy Services (UES), parent company of UNS Electric.

The commission is expected to issue a decision this summer.

Leave a reply


*