Lea Márquez Peterson
Commissioner

PHOENIX - On Friday, July 2, 2021, Arizona Corporation Commission (“ACC”) Chairwoman Lea Márquez Peterson filed a letter asking Arizona Public Service Company (“APS”) to voluntarily disclose information related to its renewable energy surcharge, which APS had redacted from the public’s purview. (Letter)

 If revealed to the public, the information would show:

1. How much of ratepayers’ surcharge dollars go toward specific renewable energy contracts; and
   
   
   
2. How much APS has been paying above market in order to comply with the Commission’s renewable energy mandates over the last 15 years.

 Background: The Commission adopted the Renewable Energy Standard and Tariff (“REST”) in 2006. The mandate requires utilities to obtain 15 percent of their respective energy mixes from renewable energy resources by 2025. It also requires utilities to increase their respective percentages of renewable energy by one percentage point for each year leading up to 2025, such as 12 percent by 2022 and 13 percent by 2023, etc. 

 Under the rules, utilities pass 100 percent of the costs of compliance onto ratepayers in the form of surcharges. The cost of compliance includes the difference between the market price for energy at the time a utility enters into a renewable energy contract and the above-market price for renewable energy that the utility agreed to pay under the contract. 

 Under Article XV, Section 3 of the Arizona Constitution and Arizona Revised Statutes 40-202(A), the Commission has a duty to ensure utilities don’t take advantage of the Commission’s rules, ratepayers, or surcharge mechanisms. 

 One example of potentially taking advantage of the Commission’s rules would be knowingly entering into exorbitant and unnecessarily expensive renewable energy contracts in the name of “complying” with the rules, when compliance could have been achieved by entering into lower-cost and equally reliable renewable energy contracts. 

 When the Commission adopted the REST mandate in 2006, it included a waiver provision so the Commission could waive any portion of the rules if cost ever became an issue. 

 APS's Application: On July 1, 2021, APS filed an application for approval of its 2022 REST Implementation Plan, which requests authorization to collect $86.2 million from ratepayers in the form of monthly surcharges in 2022 in order to comply with the Commission’s 2022-12 percent mandate. (APS’s Application)

 If approved, the request would increase APS’s surcharge by 21 percent. It would increase the monthly residential surcharge cap by $0.55 (21 percent) from $2.56 per month to $3.11 per month and monthly small business surcharge cap by $0.20 (21 percent) from $95.13 per month to $155.33 per month.

 According to APS's application, $47.9 million of the total that APS is requesting (over 50 percent of the total 2022 REST budget) has been earmarked to allow APS to fulfill contractual obligations associated with renewable energy contracts that APS entered into in previous compliance years. 

 According to APS’s application, the Commission “approved” “many” of the contracts as “prudent investments,” meaning that the Commission cannot deny the $47.9 million budget request or modify the surcharge amount associated with this $47.9 million because the money has already been committed. 

 In its filing, APS included two exhibits, which show commissioners and Commission staff the amount of each surcharge dollar that goes toward each renewable energy contract. The exhibits also show how much APS pays above market prices for each contract. 

 However, APS filed the exhibits redacted to the public. According to APS, the information contained in the exhibits is "competitively confidential."

 APS's filing did not seek a waiver of the Commission’s 2022-12 percent mandate. 

 Chairwoman Márquez Peterson’s Letter: Chairwoman Márquez Peterson stated that she supports proactive investments in renewable energy resources and that utilities deserve to be compensated for making such investments when they are cost effective and do not take advantage of the Commission’s rules, harm ratepayers, or improperly use surcharge mechanisms. 

 However, Márquez Peterson expressed concerns with the redacted exhibits and stated that she believes the exhibits should be disclosed to the public. She believes disclosure is in the public interest because it would help to promote transparency at the Commission and among regulated utilities. 

 “We want APS to invest in renewable energy resources proactively and recover the costs associated with complying with the Commission’s rules when those costs are reasonable and prudent,” said Márquez Peterson. “However, we want APS to make its investments and comply with the Commission’s rules in a way that is fair and cost-effective to Arizona’s consumers.” 

 “From my confidential review of Exhibits 3B and 3D, I have some concerns regarding the above-market prices and their prudency under the Commission’s rules. I also have some concerns with the fact that they have been redacted to the public and marked ‘competitively confidential.’” said Márquez Peterson. 

 Márquez Peterson believes disclosure is important because it would allow ratepayers to determine for themselves whether APS’s decision to commit ratepayers to the above-market prices was reasonable given the fact that waivers and potentially lower-cost renewable energy alternatives to comply with the rules may have been available. 

 “Redacting the above-market prices and surcharge allocations in Exhibits 3B and 3D make it impossible for the public to know exactly how ratepayers’ surcharge dollars have been spent over the last 15 years in the name of ‘complying’ with the Commission’s mandates,” said Márquez Peterson.

 Action Items: Chairwoman Márquez Peterson asked APS to voluntarily file unredacted copies of the exhibits in the docket by close of business Tuesday, July 6, 2021. 

 Alternatively, Chairwoman Márquez Peterson asked APS to file a written response in the docket no later than close of business Thursday, July 8, 2021, explaining why APS believes the above market cost information contained in Exhibits 3B and 3D is “competitively confidential” and should remain redacted to the public. 

 Links: 

 A link to Chairwoman Márquez Peterson’s letter can be found here: Link. 

 A link to APS’s 2021 REST Plan can be found here: Link.