Arizona Capitol Times
ACC contemplates innovative customer choice program
By: Luige del Puerto and Rachel Leingang
October 16, 2015

A more muted deliberation involving Arizona’s biggest utility is underway at the Arizona Corporation Commission, this time over a program that allows eight major energy consumers to purchase less-expensive power from a third-party source.

The consumers include the city of Phoenix and big firms like Walmart.

The utility, Arizona Public Service, contracts with the third-party power provider and passes on the charges, plus some minimal administrative costs, to the companies. They leverage the size of their energy needs to get cheaper energy, resulting in significant savings for the companies and, according to APS, $10 million in losses annually.

The program, which is called AG-1 and which was approved in 2012 as part of APS’s last rate case, is set to expire next July. It is capped at 200 megawatts. At the time of its adoption, APS was expected to file its rate case in the middle of 2015, thereby allowing enough time to discuss its merits before the program’s expiration in 2016.

But the issue of net metering has pushed back APS’s rate case application to June 2016, which means unless the commission intervenes, AG-1 will expire next year, long before the rate case concludes.

Last November, the companies participating in the program as well as energy sellers asked the regulators to extend its life until new rates for APS are in place. They said the program has benefited them and ultimately the public, since their cost savings have translated into competitiveness and will help them “grow and bring value” to customers.

Initially, APS opposed the motion, arguing that AG-1 is meant to be a four-year experimental pilot program, that it is losing $10 million each year as a result, and that it would be unfair to other customers that wanted to get in the last time (but lost out in a lottery process) if it were extended without fully vetting its merits. APS argued that if the program were to be continued, those companies that lost out should be given the opportunity to try again in 2016.

Though APS anticipates losing $10 million each year, the company says the program isn’t the same as the cost shift caused by net metering. Net metering doesn’t have a cap, while the AG-1 program has parameters on how many companies can participate and for how long, APS spokeswoman Anna Haberlein said. Plus, APS absorbs losses resulting from the AG-1 program, while residential solar shifts the cost of maintaining the electric grid to non-solar customers, she said.

“AG-1 and net metering are apples and oranges,” Haberlein said.

The Arizona Investment Council, a group that advocates for utility investors, has opposed the rate structure since it was first proposed.

“We felt that it was the camel’s nose under the tent in respect to retail competition… We don’t believe that retail competition is necessary (in the Arizona utility market),” the group’s president, Gary Yaquinto, told the Arizona Capitol Times.

He said the program could also lead to load issues: As utilities build their networks, they plan for how much generation they’ll need to serve customers. If large customers that currently use third-party sources return to the utilities later, there could be a power shortage, Yaquinto said.

In March, Corporation Commissioner Doug Little urged the parties to see if they could reach an agreement. After several meetings between APS and the eight companies, APS withdrew its motion opposing the AG-1 companies’ request.

Instead, the parties agreed on a framework: APS would be allowed to defer for future recovery 90 percent of the program’s cost (if it is $10 million or less) and 100 percent (if it is over $10 million). This means APS will absorb 10 percent of the unmitigated costs and will seek to recover the rest. Under this deal, the program will extend beyond July 2016 and last until new rates are in place or unless the commission decides to continue the arrangement.

Both APS and the AG-1 companies also agreed not to recover the costs from residential ratepayers.

But what’s not specified by APS and the AG-1 companies is who exactly will pay for those unrecovered costs, an uncertain arrangement that the Corporation Commission’s staffers have raised concerns over in a filing.

“The commission doesn’t need to make a decision on it now. They can wait until the rate case,” Haberlein said.

Instead of recommending to simply sunset the program in 2016 as scheduled, the commission’s Utilities Division concluded that there is some merit to extending it beyond that year – but only if there’s certainty about who will pay for it and if companies that don’t participate in the program aren’t ultimately required to pay the tab.

The division said any decision by the commissioners should ensure that “no other ratepayers are adversely affected as a result” and recommended that APS and the AG-1 companies split the unrecovered costs, 50-50.

The division anticipated that other commercial ratepayers could very well oppose the program in APS’s next rate case, fearing the “creation of yet another deferral in the future for which they may later become responsible.” The division also fears that, without specifying who exactly will pay for the program, even future customers would be asked to pay a portion of it.

The division added that, under a 50-50 split, “AG-1 customers would continue to benefit from AG-1 at approximately one-half of its current benefits, APS would recover approximately one-half of its unmitigated costs, and non-AG-1 participants would not become responsible for a new deferral.”

Stan Barnes, who lobbies for some of the AG-1 companies, said the program has been successful and should not only be extended but also expanded.

“It is important for all customers that are trying to control their energy costs, and that’s a key,” Barnes told the Capitol Times.

Barnes said it’s especially helpful to large companies that compete in the global economy and strive for some control over their “energy destiny.” Those companies have significant energy overhead costs, Barnes said, adding that’s why he lauded the commission for starting the program in the first place.

Barnes said the program has also been a technical success, since it has shown that such an arrangement, where a customer picks an energy provider that then delivers power through APS’s infrastructure and with the latter’s administration, is plausible. Barnes said under this arrangement, the AG-1 companies still maintain a close relationship with APS.

But is it fair that the biggest energy consumers get to pick their providers and pay less than mom-and-pop shops?

“It’s my hope that those stakeholders and regulators in charge of energy and pricing will see the value in the AG-1 example, and will do more for more customers,” Barnes said.

Ultimately, he added, that’s a question that will be posed to regulators, who must decide the program’s fate.


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