Chairwoman Lea Márquez Peterson Calls for a Hearing on an APS Power Contract

Chairwoman Lea Márquez Peterson Calls for a Hearing on an APS Power Contract that Costs Ratepayers Four Times More than Others; Demands the Arizona Corporation Commission Hold Utilities Accountable or Else Grant of Waiver of Past Commission Mandates

Chairwoman of the Arizona Corporation Commission, Lea Márquez Peterson on August 3rd, 2021, filed a letter calling on her fellow commissioners to send one of APS’s largest above-market-priced power purchase agreements to an evidentiary hearing for an in-depth cost and prudency review. Although the Chairwoman fervently supports Arizona’s transition to clean and renewable energy, she has also expressed concerns when the costs associated with the utility’s expenditures have not been thoroughly vetted and they result in outcomes that are not reasonable and cost-effective for ratepayers.

Background. In 2006, the Arizona Corporation Commission (the body trusted to set just and reasonable rates and regulate Arizona’s monopoly utilities) adopted strict mandates and forced utilities to procure expensive and untested renewable energy resources at times when they were more costly and less reliable than comparable conventional generation.

As a result of the Commission’s mandates, Arizona Public Service Company (“APS”) (the largest electric service provider in the state) entered into a 30-year contract with a third-party generator to buy power at a price of over four times the market cost of energy today. According to APS, the 30-year above-market-priced contract was entered into specifically to comply with the Commission’s mandates. (Source: APS 2022 REST Implementation PlanAPS Response)

The Commission included a waiver provision in the mandates in order to protect ratepayers in the event that costs ever became an issue. But according to the Chairwoman’s review of past Commission decisions, the Commission has never utilized those provisions to protect ratepayers from the above-market costs associated with the 30-year contract at issue.

Today, the question of whether commissioners should adopt additional energy mandates on utilities has come before the Commission–and some commissioners have stated that they think it would be a good idea to use the same approach the Commission utilized in the past (mandates with waiver provisions) to achieve the new  clean energy objectives, going forward.

Issue. At least one consumer advocate has raised concerns with APS’s contract and argued that the costs have been unnecessarily high for Arizona’s ratepayers. In addition, because the 30-year contract will not expire until 2045, the consumer advocate has expressed concerns that APS customers will be saddled with the allegedly high and unreasonable costs for another 24 years.

The consumer advocate’s filings allege that APS customers have already paid over half a billion dollars in additional and alleged unnecessary surcharges as a result of the contract. The filings claim APS customers will continue to pay up to $2 billion more, if the Commission does not take action. (Source: Consumer Advocate FilingAPS FERC Form 1)

“I am concerned that over the last 15 years some commissioners may have relinquished their roles and given too much faith to the Commission’s mandates to hold utilities accountable,” said Chairwoman Márquez Peterson.

As a result, it is reasonable that members of the public would be skeptical when commissioners say their mandates include waiver provisions that would protect ratepayers, should cost ever become an issue. We have no evidence that commissioners would actually utilize those waiver provisions, once presented with credible cost concerns, like we have been presented today.

The Chairwoman’s Letter. In her letter, Chairwoman Márquez Peterson discusses the history of this issue and what the Commission can do to resolve it now and ensure that future contracts entered into by utilities include reasonable prices that keep rates low while still contributing to the growth of clean and renewable energy.

She states that an evidentiary hearing, where more information can be discovered about these concerns, would allow the Commission to verify the truth in the allegations and determine fault for any unjust or unreasonable costs that may have been incurred.

The letter also requests the Commission’s Utility Division Staff to be prepared by August 17th, to respond to the concerns raised in the Chairwoman’s letter and advise commissioners whether Staff believes those concerns should be sent to the evidentiary hearing for further review. After hearing Staff’s response, the Commission may vote on the matter.

Call to Action. The Chairwoman has called on her fellow commissioners to decide whether APS’s contract with the third-party power producer should be sent to an evidentiary hearing so consumer advocates can present evidence to determine whether it is deemed unreasonable and should be denied.

Commissioners and consumer advocates have expressed concern previously that APS has been overcharging ratepayers, with various Commissioners speaking out on the topic. The Chairwoman is now calling on her fellow commissioners to opine on whether they believe the cost of APS’s compliance with the existing mandates has become an issue and, if so, determine what action the Commission is going to take to mitigate those costs going forward.

“If the Commission wants to earn the public’s trust on the implementation of strict energy policies going forward, it is going to have to demonstrate that it will protect ratepayers when the cost of compliance with those policies on Arizona’s families and small businesses becomes an issue,” said Márquez Peterson. “The Commission needs to assure the public that it will utilize its waiver provisions in the future.

She has committed to placing the matter on the Commission’s next regular public meeting on August 17th, 2021. General members of the public will be allowed to provide brief public comments.

A link to Chairwoman Márquez Peterson’s letter can be found HERE.

The Arizona Corporation Commission was established by the state’s constitution to regulate public utilities and business incorporation. The Corporation Commission is Arizona’s co-equal, fourth branch of government. The five Commissioners elected to the Corporation Commission oversee executive, legislative, and judicial proceedings on behalf of Arizonans when it comes to their water, electricity, telephone, and natural gas resources as well as the regulation of securities, pipeline, and railroad safety. To learn more about the Arizona Corporation Commission and its Commissioners, visit http://azcc.gov.

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