The Rate Making Process

Presented to RUCO Workshop May 2013

Chuck MiessnerPricing Manager APS

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Rate Making Process - General

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Costs Rates

Utility electric rates are designed to recover the costs to serve customers.

Costs include fuel and operating costs as well as investments in capital infrastructure for power plants, transmission and distribution lines and other equipment.

Costs include an authorized return on the invested capital, which provides an opportunity not a guarantee.

Fuel and operating costs are recovered as a pass through.

Rate Making Process – Rate Increase

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Costs Rates

As costs increase over time, APS must request an increase in rates with the Arizona Corporation Commission.

The new proposed rates are based on historic costs – usually two years prior to when the new rates go into effect.

APS may not recover, and rates are not designed on, long-range projected future costs.

Rates are typically revised in a formal rate case. Some costs can be adjusted annually through an alternate process (e.g. fuel).

These processes are legal proceedings where the ACC staff, customer groups, and other parties represent their interests.

Utility ServicesAverage Residential $/kWh

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-

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

0.040

0.028

0.011

0.027

0.011

0.009

0.012

Taxes and Gov't fees

Public Programs

Metering

Distribution

Transmission

Power Plants

Fuel, O&M

Costs are assessed for the services provided to customers. Rates are developed for each service.

Customer Rate Classes Examples

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ResidentialTime-of-useTime-of-use, demandInclining block

BusinessExtra-smallSmallMediumLargeExtra Large

Costs are assessed and rates are developed for each customer rate group

Rate Design - Charge Types

Energy$ per kWhTotal usage in a monthUsed to recover operating costs such as fuel and O&M

Demand$ per kWMaximum draw in any hour during the monthUsed to recover infrastructure costs for power plants and transmissionand distribution lines

Basic Service Charge (BSC)$ per month, regardless of usage or maximum drawUsed to recover metering and billing costs and distribution infrastructure costs

Utility Costs vs. Charge TypesResidential Inclining block, TOU-Energy Rates

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Cost ChargeBilling Elements Type Type

Base Rates:Metering and Billing Capital MonthlyDistribution Capital kWhTransmission Capital kWhPublic Benefits Programs Fixed Budget kWhPower Plants Capital kWhFuel, O&M Operating kWh

Adjustments:Renewables Fixed Budget kWh, CappedFuel Operating kWhDSM Fixed Budget kWhEnvironmental Improvement Surcharge Capital kWhTransmission Capital kWhLFCR (Public Benefits Programs) Capital %

Taxes and Government Fees:Regulatory Assessment Fee Pass through %Franchise Fee Pass through %Sales Taxes Pass through %

APS Customers (2012)

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Total Energy SolarClass Customers GWh Customers

ResidentialIB 479,264 29% 5,047TOU-E 423,193 51% 8,680TOU-D 102,066 20% 643

Class Total 1,004,522 13,247 14,370

BusinessXS 101,321 10% 153S 17,113 18% 229M 4,281 23% 163L 980 25% 84XS,S,M,L TOU 446 3% 7XL 31 6% 0XL-TOU 39 14% 1

Class Total 124,211 14,087 637