APS Reaches Settlement In Rate Case, Rolls Back Mandatory Demand Charge Proposal

By Will Stone
Published: Wednesday, March 1, 2017 - 1:26pm
Updated: Thursday, March 2, 2017 - 2:41pm
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(Photo by Will Stone - KJZZ)
APS faced backlash over its demand charge proposal after filing its rate case last year.

Arizona’s largest utility has agreed not to push forward with some of the most controversial proposals to change how customers are billed.

On Wednesday, Arizona Public Service and 30 other stakeholders announced a settlement in its pending rate case at the Arizona Corporation Commission.

APS was poised to be the first utility in the country to move most of its residential customers onto a  “demand charge” — that would be a new fee based on the one hour of the month during peak when a household uses the most power. The utility had argued the charge more accurately reflects the cost of supplying power during the evenings when demand spikes. But the new charge had been broadly criticized by consumer and solar advocates who said it was unpredictable and hard for the average customer to understand.

“The settlement in this case soundly rejects the idea that mandatory demand charges are the right policy for all residential customers," Vote Solar's Briana Kobor said. "I think that should set national precedent."

Instead, most customers will go on to a time-of-use rate that increases the price of electricity during peak hours, but is not based on demand during a short window of time. Several optional demand rates will also be available.

Under the agreement, rates for APS customers will not go up as much, either. The utility had previously requested a rate hike of about $11 per month for the average customer, but instead it will only ask for about a $6 increase.

"A settlement is a negotiation and a compromise between all parties and ultimately the result is very beneficial for the customers," said Stefanie Layton, APS director of revenue requirements. "We were able to find common ground and that's significant."

The settlement also addresses one of the most contentious issues facing Arizona's energy market — rooftop solar.

Under the agreement, APS will grandfather existing rooftop solar customers at the same rates, including for net-metering, which currently reimburses customers at retail rates for the excess power they send to the grid. Once the proposed rates take effect later this year, new solar customers will be reimbursed starting at 12.9 cents/kilowatt-hour for 10 years. For each successive year, that number will step down gradually for new solar systems.

In recent years, the solar industry and utilities in Arizona have been battling over how to charge solar customers hooked up to the grid. APS contends rooftop solar customers are shifting costs onto all its other ratepayers. "We didn't eliminate the cost shift in this settlement, but we did cut it in half, which is significant progress and a gradual transition to more sustainable rate structures in the future," Layton said.

The agreement could also represent a shift in the tone of these policy debates.

An APS statement says that a "separate agreement" was reached by the utility, industry representatives and solar advocates to "stand by the settlement agreement" and "refrain from seeking to undermine it through ballot initiatives, legislation or advocacy at the [Arizona's Corporation Commission]."

That leaves out elections for Arizona Corporation Commission, which have become ground zero for the fight over rooftop solar. Commissioner Bob Burns has even subpoenaed APS and its parent company Pinnacle West for campaign finance records tied to alleged dark money spending in the 2014 cycle. Millions were spent by both industries in the 2016 race for the commission, as well.

Overall, reaction from the solar industry was cautiously optimistic about the agreement.

The Solar Energy Industries Association Vice President of State Affairs Sean Gallagher said the "solar industry didn't get everything it had hoped for," but that they "hope an era of collaboration will take hold in Arizona."

"Sunrun will stand by the terms of the settlement agreement and plans to provide Arizonans with access to rooftop solar, even though the settlement does not fully recognize the multitude of benefits that rooftop solar brings to all Arizonans," Sunrun's Chief Policy Officer Anne Hoskins said in a statement.

The settlement still needs approval from the Arizona Corporation Commission.

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