At first glance, the proposed settlement in Tucson Electric Power Co.'s pending rate case appears to be a good deal for ratepayers.
TEP initially filed for a 15 percent overall rate increase that would boost the average monthly residential bill by about $11, citing higher costs and flat power demand amid a four-year rate freeze.
The settlement, reached between TEP and most official parties in the case before the Arizona Corporation Commission, would result in a monthly billing increase of less than $3 for the average residential TEP customer.
But some opponents have criticized a proposed increase in TEP's basic monthly service charge - which all customers pay regardless of power usage.
And though home power bills will increase less than $3 per month initially, special surcharges could boost bills overall when they start kicking in next year.
The increase in TEP's basic monthly charge is troubling because it is something everyone will have to pay, even if they cut their power usage, said Jeff Schlegel, the Tucson-based Arizona representative for the Southwest Energy Efficiency Project (SWEEP).
Schlegel, whose nonprofit group is pushing for energy-efficiency programs, noted that $3 bump to a new monthly basic charge of $10 equals an increase of more than 40 percent for that billing component.
"Our concern is that as a monthly charge, it's a fixed charge customers won't be able to avoid," said Schlegel.
"Even if you were able to change your habits, invest in energy efficiency, try and figure out a way to use less energy, you'd still pay the $3 more per month."
Under TEP's tiered rates - whereby rates per kilowatt-hour increase as a customer reaches higher usage levels - customers who use less energy will still see savings, Schlegel said.
But because of the higher basic charge, Schlegel said, "I can reduce my energy usage 10 percent, but I won't see that 10 percent reduction on my bill."
TEP spokesman Joe Barrios said the increased basic charge brings costs more in line with revenues, but conservation-minded customers will still benefit.
"That higher fixed customer charge brings fixed costs closer to fixed recovery, but there is still incentive for customers to reduce their energy consumption through energy efficiency," Barrios said.
SWEEP also opposes the settlement because it allows TEP only partial recovery of revenues lost due to lower power demand resulting from new energy efficiency programs. The group wanted wider cost recovery under a mechanism known as "decoupling," which it contends would give the utility more incentive to push for energy efficiency.
Some consumers filed comments opposing any increase, including more than 200 who sent letters to the Corporation Commission at the urging of the AARP, the nation's biggest lobbying group for seniors.
During a Corporation Commission public-comment meeting in March, several speakers opposed the proposed increase to TEP's basic service charge, while others voiced fervent support for new energy-efficiency programs.
"In my belief, the service charge shouldn't be raised at all," TEP ratepayer Michael Cole told the commissioners. "Not a lot of people in Tucson have gotten raises in the past five years."
Cole said building most of the increase into the basic monthly charge is unfair.
"The people who are using the electricity, they should pay for it."
The state agency's top utility watchdog for residential ratepayers said that the settlement overall is in the best interest of consumers.
Pat Quinn, director of the state Residential Utility Consumer Office, said the settlement represents a good compromise for consumers.
Because TEP's rates have been frozen since late 2008, while costs have risen and demand has flattened, it was clear that TEP could argue that it deserves a rate increase, Quinn said.
TEP says the current rates in place since late 2008 were based on 2006 expenses and don't reflect the significant investments and expenses the company has incurred over the last five years.
And while customer and demand growth normally keep revenues up during rate freezes, TEP's retail power sales actually fell around 1 percent each year from 2008 through 2010, before rising a scant 0.4 percent in 2011 and falling 0.7 percent last year.
Quinn said RUCO was concerned with the size of TEP's request, as well as new bill surcharges.
An existing fuel and purchased power "adjustor" rises and falls with the company's costs and represents a pass-through for the company and ratepayers.
That charge will be lower in the next year or so because of some credits included in the rate settlement, Quinn noted.
One new surcharge will help TEP recover the cost of power sales expected to be lost due to the effect of new energy-efficiency programs, which fund things like more efficient lighting and air conditioning equipment.
Another new surcharge would pay TEP's cost for complying with new environmental regulations, such as proposed rules requiring pollution-control upgrades to coal-fired power plants.
"I think with all the mandates out there from the feds and the state, what we reached in the settlement was a good comprise for residential customers," said Quinn.
RUCO likely wouldn't have signed on to the settlement if it hadn't been for annual caps set for the two new surcharges, he said.
While the fuel adjustor will fluctuate with costs, rates could go up beyond $3 once those surcharges kick in, but the caps will moderate any increase, he said.
"With the adjustors, it's kind of hit and miss, they could go up or down, but with the caps, you're not going to see any substantial increases over that," he said.
TEP's Barrios said that even if TEP were to claim recovery on millions of dollars in environmental plant upgrades, the charge to ratepayers will be pennies per month.
Quinn said RUCO also won some key concessions regarding future rate treatment, including a provision requiring TEP to use excess depreciation reserves to pay for retirement of any plants, or else refund that money to ratepayers in the next rate case.
TEP rate settlement
Key provisions of a proposed settlement of Tucson Electric Power Co.'s rate case, pending before the Arizona Corporation Commission
Base rate Increase
• TEP would receive a non-fuel revenue increase of $76.4 million (annually). The company had requested an increase of $127.8 million, or about 15 percent.
Residential bill impact
• Upon the effective date of the new rates (July 1), the average monthly bill for the typical residential customer (using an average 767 kilowatt hours of power monthly) will increase by $2.91, or 3.8 percent.
• Customers on special "lifeline" rates for low-income ratepayers - with incomes at or below 150 percent of the federal poverty level - will see higher percentage increases partly due to consolidation of older rates, but they will still pay significantly less than standard rates. Lifeline base rates haven't changed since 2000.
Rate class simplification
• TEP has proposed eliminating several old, legacy rates that are no longer offered to new customers, consolidating 17 existing residential rates into six rate classes, and consolidating 15 commercial, municipal and lighting rate classes into six classes. As part of the reallocation of revenues across classes, some customers on legacy rates would see rate changes; some small-business customers are expected to see smaller rate increases as the reshuffling balances out a current inequity.
• Low-income customers would continue to receive bill assistance.
An administrative law judge is expected to issue a recommended order in the Tucson Electric Power rate case by early June.
The five-member Arizona Corporation Commission is expected to consider the settlement at an open meeting in mid-June, when it may approve, change or reject the judge's recommended order.
Contact Assistant Business Editor David Wichner at email@example.com or 573-4181.