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Ariz. regulators weigh dropping demand charge from UNS Electric rate case


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Ariz. regulators weigh dropping demand charge from UNS Electric rate case

TheArizona Corporation Commission is considering a proposed order that would dropits staff's proposal to impose a controversial customer demand charge inUNS Electric Inc.'spending rate case and instead adopt a transition plan to move customers touniversal default time-of-use rates.

AdministrativeLaw Judge Jane Rodda issued her recommended opinion and on July 20 in UNS Electric's rateproceeding. It is seen as a testcase for how the commission would decide rate cases of much largerutilities, namely Pinnacle WestCapital Corp. subsidiary ArizonaPublic Service Co. and TucsonElectric Power Co. TEP and UNS Electric are subsidiaries.

Theproposed order punted on net metering rate design issues pending the outcome ofa proceeding examining the value of distributed solar.

Theproposal for mandatory residential customer demand charges would have been amajor change from current rate design. Arizona's utilities traditionally havetwo-part rate designs based on a minimum monthly customer charge and an energycharge.

Ademand charge provides a price signal for customers to shift their energy useaway from peak demand periods. It is set based on a customer's peak energy useduring a short period when a utility's system-wide load is high. Any briefsurge in a customer's consumption at that time sets the customer's demand ratefor the entire billing period.

argued that consumerswould have to constantly monitor their electricity use to avoid getting sockedwith hefty demand charges and that most customers are incapable of monitoringtheir moment-to-moment electricity use during utility peak load periods.

Proponentscontended utilities must build and maintain their systems to meet peak customerloads and a demand charge would incent customers to lower their consumptionduring utility peak load hours and hence keep infrastructure costs in check.

Fornow it appears the opponents have won.

"Thepublic distrust or antipathy to the proposal has convinced the company and thecommission that any transition to three-part rates will require a massivepublic education effort before we can say with any degree of certainty thatmandatory residential demand rates in UNSE's service territory are in thepublic interest," the law judge said.

UNS Electricacknowledged its rate design is antiquated because it collects most fixed coststhrough volumetric rates, she noted. Yet the utility is concerned about thehigh degree of customer confusion and misunderstanding over the demand chargeproposal and asked the commission to drop the regulatory staff's proposal andadopt rate structures similar to what the company originally proposed.

However,as an interested stakeholder in the case, APS argued demand rates are fair andfar superior to traditional volumetric rates.

Roddasaid the commission was not shutting the door on demand charges for otherutilities.

"Thisdoes not mean that another utility, under different circumstances, cannot makea convincing argument that mandatory residential demand charges can be in thepublic interest," she wrote. "Our decision in this case applies onlyto UNSE at this point in time."

Thejudge called for a "more tempered path" toward a modern rate designby moving as many customers as possible to time-of-use rates, and offering anoptional three-part rate for those willing to accept a demand charge in returnfor lower volumetric rates. Rodda suggested a transition period ofat least six months for moving all residential and small general servicecustomers to default time-of-use rates.

Theorder would grant UNS Electric a non-fuel revenue increase of $15.1 millionrepresenting a 9.6% increase over adjusted test year revenues. Recognizinglarger commercial and industrial users have subsidized residential and smallgeneral service classes for many years, Rodda approved a 14.6% increase for theresidential class, which is four times the increase allocated to largecustomers.

UNS Electricsaid it spends $55 per month in fixed costs to serve the average residentialcustomer and most of that still has to be collected in volumetric rates. Theutility wanted to increase its basic residential service monthly charge from$10 to $15, but Rodda called for a $13 charge instead, saying a more gradual30% increase is reasonable.