APS bid for rate hike faces hard
sell
Utility is reviving attempt to cover non-energy costs
55 commentsby Ryan Randazzo - Mar. 26, 2008 12:00 AM
The Arizona Republic
Arizona Public Service Co. is reviving many of the hot topics from its contentious rate-hike hearings last summer in its latest plea for higher prices.
APS' stock and finances, not to mention its reputation in the investment community, have suffered since the company didn't get all it wanted with a 6.8 percent increase granted last year.
Now, it's seeking an 8.1 percent rate increase across all customer categories, which would raise rates 9.3 percent on most houses and apartments, 5.4 percent on businesses and 4.3 percent on industrial facilities, according to APS. OAS_AD('ArticleFlex_1')
The rate-increase request was filed Monday with the Arizona Corporation Commission, which likely will take more than a year to decide the case. APS, which has 1.1 million customers, wants the change effective July 1, 2009.
Company officials said earnings don't keep pace with the expense of building electric infrastructure to match the state's growth; but much like its last rate request, APS also is seeking revenue to cover:
Employee cash and stock incentives.
Spending on the power system in the lag time between its benchmark for the rate increase and when it actually goes into effect.
The company's supplemental-retirement plan for senior management.
Half of its lobbying expenses.
"APS should not be required to tolerate an inherently confiscatory rate-setting process that produces hundreds of millions of dollars in earnings shortfalls and jeopardizes the financial well-being of the company," it said in testimony filed Monday that seeks to justify the $265.5 million requested for all expenses.
The testimony reflects a second attempt to collect on items not allowed in the last case.
Wall Street analysts who track and comment on the stock of APS' parent company, Pinnacle West Capital Corp., have hammered company executives since the last rate case regarding their relationship with regulators, going so far as to track the political aspirations of corporation commissioners to predict if they still will be in office to decide the looming rate hike.
The commission is composed of five elected officials who regulate utilities.
"I guess you definitely need better treatment than in the past two years to kind of continue to keep your financial ratios," analyst Andrew Levi from Brencourt Advisors in New York told Pinnacle West executives in January.
Three of the five commissioners face term limits this year, meaning APS will have to plead its case to a majority of newcomers.
A fourth commissioner, Kris Mayes, is deciding whether to run for another office and could give up her seat, removing her from the rate case.
"This weighs on my decision," Mayes said of the new rate request. "It certainly would appear that APS is pancaking rate cases, stacking cases one on top of each other."
Mayes said she doesn't think the APS filing itself is legal because the rates set last summer haven't been in place a year yet, meaning the utility doesn't have a full test year to base its case. She doesn't favor the forward-looking proposals from the utility to set its rates.
"I think what APS should do is pause and allow a year to pass before requesting another rate increase," she said.
She said she is unlikely to vote in favor of increases for things like stock compensation.
"I don't know how many times we have to say no to that kind of stuff," she said.
If Mayes leaves, Commissioner Gary Pierce will be the only sitting official to see the case through. He said that having three or four newcomers review the hike could take more time, if the hike is approved at all.
"A rate-hike request does not always result in a rate hike," Pierce said. "These things are not automatic. If they have evidence in support of some of these things, we'll be able to look at that."
Since the previous rate case, APS has blamed lower earnings partially on its low rate structure. Its stock has fallen, and Fitch Ratings services downgraded the company's short-term debt. Two other major credit agencies, Moody's and Standard & Poor's, also have negative outlooks for the company.
The weak financial position also led the company to skip a raise on the annual stock dividend last year, the first time since the early 1990s that it hasn't increased.
Company officials are worried credit ratings will slip further, raising the cost to borrow money and build needed electricity infrastructure.
"Going to a junk rating would dramatically affect our interest costs, which would find its way eventually to customer bills," Chief Executive Don Brandt said.