Arizona Public Service Co. is asking state utility regulators to boost its customers’ bills by about $20 a month to pay for all of the natural gas it fed its fleet of power plants in the past year.
The increase in what’s known as the “power supply adjustment” would take effect Feb. 1 if regulators at the Arizona Corporation Commission approve it, which they are likely to do.
The money utilities pay for power plant fuel and for electricity they have to buy from other companies when they don’t generate enough of their own are passed through to customers with no markup, and the increases (and sometimes decreases) are nearly automatic.
The fuel surcharge can go down if market prices for natural gas decrease. That has happened in the past, but not recently. APS reports that as of October it had $456 million in fuel expenses above and beyond the money it collects from customers each month earmarked for fuel.
That “undercollected” amount is expected to continue growing, the company said.
“These costs have risen significantly and are not going away. It’s only going to get worse,” APS spokeswoman Jill Hanks said. “Typically, prices go up and down and this has been a steep angle up, and it doesn’t look like that is going to change.”
So APS gave regulators a few options. If they want to eliminate the balance due for fuel, they can raise bills an average of $19 a month for residential customers for a year. That hit would total about $29 a month for customers on a demand rate plan.
APS, perhaps recognizing the magnitude of such a hike, also suggested other options to collect the money spent on fuel.
The other options essentially would pay off the bill over a longer period, raising bills an average of about $6 a month next year (and nearly $10 for those on demand plans), which would eliminate about half the anticipated debt.
Then they could readjust rates in a year to continue paying down the undercollected amount. A third option would have a similar effect on customer bills. These options would leave customers with a guaranteed rate hike at the end of 2023 to continue paying for fuel used in 2022, let alone fuel to be used between now and then.
“We don’t want to rip the Band-Aid off. We want to give options so we are minimizing the impact to the customers and doing what is right for them,” Hanks said.
The increases are averages based on the median energy usage of residential customers year-round. That means customers using more would see greater increases, and the hikes would be more noticeable in summer when homes use more power.
The average APS residential customer uses about 1,023 kilowatt hours of electricity a month and pays $143 a month.
How natural gas prices have increased
Natural gas prices often are reported based on the price of the Henry Hub in Louisiana, a trading center for the fuel in North America. According to the Energy Information Administration, natural gas averaged about $2.11 per unit at the hub in 2020. That rose to $4 last year and is projected to end 2022 at about $6.74 once the figures from this month are tallied.
Experts have cited the increased use of natural gas in place of coal, hotter summers, a lack of storage and increased exports to Europe as reasons the U.S. natural-gas prices are on the upswing.
APS reports that so far this year it has paid an average of $6.22 per unit for its natural gas, which comes primarily from the San Juan Basin in New Mexico. It said in 2020 its average cost was $1.79 per unit.
Arizona utilities combined get more than 40% of their electricity from power plants that burn natural gas, and Arizona doesn’t produce any of that fuel, or gasoline for that matter. So the state’s electric utilities are vulnerable to spikes in gas prices.
Often they are minor adjustments that only the most attentive customers notice on their monthly bills. But volatile natural gas prices have made the routine adjustments a flashpoint of controversy in recent years.
Last year, regulators at the Corporation Commission decided to phase in the increase in the fuel costs for APS to ease the hit to consumers. But some officials warned then that doing so would only delay an inevitable big hit to customers’ wallets. They agreed to increases of about $2 that hit bills in April and November last year.
And earlier this year, neighboring utility Salt River Project approved two rate hikes averaging about $5.60 a month to pay for higher natural gas prices. One took effect in November and the next phase kicks in next year.
SRP also voted to forgo $124 million that was spent on the fuel, or basically write it off rather than charge customers for it.
The new money APS is requesting is in addition to the $460 million rate hike the company requested in October. That increase would average about $18 a month for customers, if approved in full, and would affect what utilities call “base rates” rather than the line-item for fuel.
The $460 million request will get substantially more debate and could take a year or more to conclude as dozens of stakeholders intervene and present evidence opposing and supporting the increase.
Review showed program ‘working as designed’
But regulators have taken a harder look at the pass-through fuel increases, and one of this magnitude is certain to draw attention.
Last year, regulators ordered an audit of APS fuel purchases following complaints about the costs of the power supply adjustments. That audit, completed earlier this year, concluded “the PSA was working as designed.”
“Therefore, we recommend that the current structure of the PSA be maintained, subject to being reviewed periodically in view of changing conditions,” the auditors at Larkin & Associates PLLC in Michigan and Energy Ventures Analysis of Virginia wrote.
They did however recommend that APS review its hedging program, in which the utility contracts for fuel at a set price in the future to reduce the risk of volatility in fuel prices.
APS’ request for the fuel increase said the company’s hedge program saved APS and its customers $338 million this year.
“However, even with the success of the company’s hedging program, the rising fuel costs and market volatility … continue to cause the under-collected PSA balance to increase,” the company wrote.
Reach reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.
Read More:APS customers could see $20 per month bill increase for natural gas
2022-12-16 23:19:17
