Commissioner Burns Offers Clarification On APS Complaints, Questions Remain

In a letter to all Arizona Legislators, Arizona Corporation Commissioner Bob Burns tried to clarify the Commission’s process for two recent dockets related to APS (Arizona Public Service). Burns wrote the letter after having been approached by several legislators questioning the process.

In his effort to clear up any confusion, Burns’ letter, sent January 18, describes the process the Corporation Commission and its Commissioners will follow for two, separate dockets. The first docket number, E-01345A-18-0002, is a complaint filed per Arizona Revised Statute 40-246 which provides “that the ACC shall entertain a complaint against an ACC-regulated utility regarding the reasonableness of that utility’s rates and charges if the complaint is signed by at least 25 consumers or prospective consumers of that utility.”

Burns also explained the process that will happen next, including the possibility of a procedural conference and/or a hearing by an Administrative Law Judge.

The second docket number, E-01345A-18-0003, is the APS Income Tax Docket. Commissioner Burns points out that “the Settlement Agreement in the recent APS rate case contained a provision for adjusting APS’s rates if there were a significant change to federal income tax rates. Because this portion of the Settlement Agreement was approved by the ACC, APS was required to file the application (APS Income Tax Docket) to reduce its rates, which APS filed on January 8, 2018.”

“The goal of this letter is to clearly explain the process,” said Burns. “If and when these items come before the Commissioners for a decision the Commissioners could approve the Recommended Orders as written, the Commissioners could reject them, or the Commissioners could approve them with modifications. I have not decided how I will vote with regard to these two applications until I have had a chance to review all the evidence that will be thoroughly discussed and presented to the commissioners.”

Commissioner Burns’ letter was addressed to the Arizona State Senate President, Speaker of the Arizona House of Representatives, and all members of the Arizona State Legislature.

(Find a copy of Commissioner Burns’ letter in Docket E-01345A-18-0003.)

Some Arizona Corporation commissioners were patting themselves on the back for proposals to cut utility rates and the Arizona Republic reported that Arizona Public Service Co. “wants to cut about $4.70 from the average residential customer’s monthly bill.” The truth of the matter is that they had no real say in the matter.

The cuts are occurring all over the country as a result of the Tax Cuts and Jobs Act passed last month by Congress and signed into law by President Donald Trump. According to House Speaker Paul Ryan, “another great trend” stemming from the law “is the savings on families’ utility bills from coast-to-coast. In a statement released on January 8. Ryan noted:

Last week, Baltimore Gas & Electric announced it was passing approximately “$82 million in annual tax savings to customers, resulting from federal tax cost reductions.” This means the average BGE residential electric customer can expect an estimated $2.31 decrease on their monthly bill, while the average residential combined natural gas and electric customer could see an estimated $4.27 monthly reduction. For families living paycheck-to-paycheck, every dollar counts.

Other public utility companies are following suit. Pacific Power, based in Portland, Oregon, has committed to passing the benefit of its tax cut on to customers. Stefan Bird, Pacific Power’s President and CEO, stated: “The benefit of this tax cut should be passed on to our customers—and we will work with our regulators and stakeholders on the best way to do that.” Similarly, Salt Lake City, Utah-based Rocky Mountain Power and Washington, DC-based Potomac Electric Power Company (Pepco) have pledged to pass some of their federal tax savings on to customers, as well.

As Burn’s alluded to, in the case of Arizona Public Service Co. (APS), the Tax Cuts and Jobs Act’s lowering of the corporate tax rate from 35 percent to 21 percent, could not have come at a better time. Facing a possible rehearing of their most recent rate increase approval by the commissioners, APS is only expediting a term the company agreed to in August in anticipation of the passage of the Tax Cuts and Jobs Act.

Specifically, in its application dated January 8, APS requested to implement “the Tax Expense Adjustor Mechanism (TEAM) to reflect recent federal tax legislation that will significantly reduce APS’s jurisdictional income tax expense.”

The application reads in part:

The TEAM and its associated Plan of Administration (POA) were approved by the Commission in Decision No. 76295 (August 18, 2017) in anticipation of such legislation.

Although the POA contemplated a filing by December is of each year prior to the effective date of the Company’s next general rate case and an effective date for the requisite adjustment to rates no later than the succeeding March the federal legislation was not adopted until December 23, 2017. Moreover, some aspects of the legislation as it affects the amortization of accumulated deferred income taxes (ADIT) are still unclear and will require APS to work with its outside auditors before finalizing that additional impact later this year. Rather than delay the benefit to APS customers until 2019, APS seeks to implement the TEAM in two phases. The first phase reflects the impact on the jurisdictional income tax expense allowed in Decision No. 76295 resulting directly from the decline in the marginal statutory rate from 35% to 21%.2 This would reduce the Company’s jurisdictional revenue requirement by $119.1 million, or $.004258 per kph.

This amounts to a bill reduction of $4.68 for residential customers consuming the average amount of 1,100 kph per month. Consistent with the POA, APS asks that this reduction be reflected by an equal per kph reduction for all affected rate schedules effective February l, 2018.

Arizona gadfly, Tom Ryan tweeted in response to the celebratory rate reduction news:

Hey @arizonacorpcomm we’re not bamboozled by APS’s request for a $119 MM rate decrease! Ratepayers should never have been assessed the $95MM rate increase, in the 1st instance. APS’ rates need to be decreased by the $119MM tax savings + the $95MM gift you gave them! Do your job.

One question remains: how is it that APS received a $95 million rate increase which was advertised as raising the average residential customers bill by $6.00, yet, the $119 million refund of income taxes will only be $4.68 per customer?