Investigation of Regulatory and Rate Incentives

Docket Number
Assigned Staff
D. Pozefsky


On Friday, June 19, 2008, in response to a May 9, 2008 letter from then Commissioner William A. Mundell, the Utilities Division Staff ("ACC Staff") of the  Arizona Corporation Commission ("ACC" or "Commission") filed a memorandum opening two generic dockets to investigate regulatory and rate incentives for regulated utilities that provide electricity and natural gas.  

On June 24, 2008, Commissioner Mundell's letter was filed in the docket.  Commissioner Mundell's letter was intended to make ACC Staff aware of the fact that a similar proceeding was being conducted by the Colorado Public Utilities Commission. 

Commissioner Mundell noted that the Colorado PUC was looking at incentives for gas and electric utilities under current rate-of-return regulation to see if those incentives were producing behavior that is consistent with Colorado policy goals.  Commissioner Mundell went on to state that the Colorado PUC investigation would also examine alternative forms of regulation and explore whether alternative incentives could potentially achieve better results.  Issues to be addressed in the Colorado PUC’s investigation included the following: how adjustment clauses affect utility incentives, whether regulatory incentives could be changed to align a utility’s financial incentives with energy efficient investment, and the incentives involved in competitive bidding and utilities’ buy-or-build decisions.

Commissioner Mundell pointed out that these are questions that the ACC should also consider and requested that a generic docket be opened to investigate such issues.   Commissioner Mundell attached the Colorado PUC’s order so that it could serve as a template for the Commission's own inquiry into utility incentives. Of special interest to Commissioner Mundell were discussions on adjustor mechanisms and surcharges, that can increase customers’ bills outside of a rate case, which have become common in recent years.  As noted in Commissioner Mundell's letter, this was not always the case - APS did not have a power supply adjustor from 1989 to 2005 and, at that time, TEP did not have one either.  Prior to the proliferation of such adjustor mechanisms and surcharges, utilities would have to bear the risk of increased fuel and purchased power costs between rate cases. Commissioner Mundell further noted that with adjustor mechanisms, most of the aforementioned risk is shifted to utility customers.  He also observed that given the phenomenal growth that our state has been experiencing, as well as the series of rate increases that customers have had to bear, he believed that the time had come to seek creative solutions and to take a look at Commission policies and explore alternatives.

As part of the docket, ACC Staff has been conducting workshops on energy efficiency which RUCO has been taking part in.

On Friday, March 26, 2010, RUCO filed comments in response to  ACC Chair Kris Mayes’ Notice of Inquiry dated February 23, 2010.

On Tuesday, November 2, 2010, RUCO filed comments in response to ACC Chair Kris Mayes' Draft Policy Statement(link is external) regarding Utility Disincentives to Energy Efficiency and Decoupled Rate Structures, dated Monday, October 18, 2010.

During a Special Open Meeting held on Thursday, November 4, 2010, ACC Commissioners heard stakeholder comments on a draft policy statement on decoupling for electric and natural gas utilities.

On Thursday, December 2, 2010, ACC Chair Kris Mayes filed a  Revised Draft Policy Statement(link is external) containing revisions to the original document in response to Commissioner and stakeholder comments heard during the Special Open Meeting held on November 4, 2010. 

Language for the final draft was discussed by the Commissioners and stakeholders during the Securities Open Meeting held on Monday, December 6, 2010.

The five ACC Commissioners voted on a final draft(link is external) of the policy statement during the Regular Open Meeting conducted on Tuesday and Wednesday, December 14 and 15, 2010, at 1200 W. Washington in Phoenix.