PHOENIX — The Arizona Corporation Commission and Arizona Public Service could soon bury their weapons in an ongoing legal battle that has lasted more than two years, though at a cost to captive ratepayers.
The agreement, negotiated by the commission’s legal department and APS attorneys, would give APS everything under dispute.
2021 commission initially dealt two defeats to APS
The commission voted in 2021 to set APS’ allowed maximum profit, known as Return on Equity (ROE), to 8.7%. During those hearings, the commission determined a fair ROE for APS would have been 8.9% but docked APS’s ROE by .2%, citing “deficiencies in APS’s customer service performance.”
APS took a second loss during the rate hearing when it requested to recover from customers $215 million worth of investments made for a facility upgrade at the Four Corners Power Plant.
Some stakeholders alleged the investment was not “prudent,” requiring investments to be recovered later. APS argued the construction was prudent based on available information when the project was launched in 2015.
APS appealed the rate decision. The appeals court ruled the commission fairly calculated ROE at 8.9% but did not have the authority to reduce profits by .2% based on bad customer service. Consequently, it ordered the ROE be set back at 8.9% retroactively. The court also recommended the commission reconsider the denial of the $215 million in facility construction recovery fees.
The commission challenged appeals court ruling
The commission petitioned the Arizona Supreme Court to review the appellate court’s decision. In its argument, ACC legal staff stated if the appeals decision was allowed to stand then the ACC would be “powerless to make any future ROE point reductions pursuant to its ratemaking authority.”
The ACC had some legal precedence on its side.
The majority opinion in a 2001 Arizona Supreme Court decision, US West Communications Inc. v. Arizona Corporation Commission, concluded commissioners have “broad discretion” to consider factors beyond “fair value” in rate cases.
“Fair value, in conjunction with other information, may be used to ensure that both the corporation and the consumer are treated fairly,” the majority wrote.
APS was scheduled to file a response to the commission’s Supreme Court petition next month.
New proposed resolution gives APS everything that was in dispute
The joint resolution filed Wednesday could bring everything to a halt.
The proposal by APS and commission staff states “after extensive negotiations,” the commission’s legal staff and APS reached a resolution that is “just, reasonable, fair, and in the public interest.”
The resolution reverses the initial 8.7% ROE to 8.9%. It also calls for reimbursement of the $215 million for the facility upgrades at the Four Corners Power Plant. It also contains a declaration that if the commission approves the resolution, the commission will withdraw its petition for review and request the Arizona Supreme Court depublish the appeals court decision. That final detail is not new. In its petition for review, the commission already requested the Supreme Court do as much, even if the court were to reject the commission’s petition.
What’s unclear is why the commission didn’t allow the Supreme Court to finish its review, given the proposed resolution heavily favors APS anyways.
Former Commissioner Justin Olson is responsible for the amendment that reduced APS’s ROE by .2%. Olson said after reviewing the proposed settlement, he believes the Supreme Court would have upheld the commission’s right to set the rate of return on equity.
“It appears this settlement is designed to potentially reduce the risk that the Supreme Court could side with the Appellate Court and limit the commission's authority to establish the rate of return on equity,” Olson said in a written statement to 12News. “Other than that potentially reduced risk of the Court limiting the commission’s authority to set rates of return on equity, I don't see any other advantage to ratepayers from this settlement.”
Open meeting scheduled for Wednesday, June 21
12News submitted questions about the proposed resolution to commission Executive Director Doug Clark and Legal Division Chief Robin Mitchell, including a question that asks what APS customers gain from the proposed agreement.
A spokesperson for the commission said they had no comment, citing the ongoing legal matter. commissioners will publicly discuss the matter and possibly vote on the resolution during a hearing scheduled for Wednesday, June 21st.
The joint filing also states the resolution will “minimize bill impacts for customers”, establish “just and reasonable rates for customers,” and prevent further litigation.
Those kinds of assertions do not placate critics.
“It is shameful for the commission to put its tail between its legs and give APS everything it wanted,” said Abhay Padgaonkar, longtime consumer advocate. “Why bother to petition the Supreme Court if you don’t wait for the process to play out?”
A joint settlement would have made sense, Padgaonkar said, if the commission had received something tangible in return.
'We weren’t in the room when the settlement was negotiated'
According to calculations outlined in the proposal, the agreement as written would amount to an annual rate increase of $53 million for APS beginning in July.
Broken down, it would be $1.84 monthly for the typical residential bill and upwards of $3.50 for higher electricity users. “General service” rates would be between $2.00 and $495 more per month.
Two attorneys representing stakeholders in the case who historically oppose APS on matters told 12News they could not determine any significant benefit to consumers gained through the commission’s negotiations. Those attorneys asked not to be identified.
A third attorney representing the Sierra Club told 12News they maintain their position the $215 million spent on the Four Corners Plant was not a prudent investment.
Rose Monahan said she supports the request to de-publish the Appeals Court decision. However, as the agreement is written, even if the Supreme Court declines to de-publish the Appeals Court ruling, the resolution would still be in full force.
“We would have preferred the settlement said if that (de-publishing) didn’t happen, the rest of the settlement had to be renegotiated,” Monahan said. “But just to be frank we weren’t in the room when the settlement was negotiated.”
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