On November 7, 2008, UNS Gas, Inc. (“UNSG” or “Company”) filed an application for an increase in permanent rates (“Application”) with the Arizona Corporation Commission ("ACC" or "Commission") for the Company’s natural gas distribution operations in Mohave, Yavapai, Coconino, and Navajo Counties in northern Arizona, and Santa Cruz County in southeastern Arizona.
UNSG is a Class A utility that provided service to approximately 145,000 customers, of which 91% were residential customers, during the test year ended June 30, 2008 (Test Year).
The Company’s present rates were established in Decision No. 70011, dated November 27, 2007 (RUCO was an intervenor in that proceeding). UNSG is a wholly owned subsidiary of UniSource Energy Corporation, a publicly traded utility holding company that is based in Tucson, Arizona.
According to UNSG’s application, the Company’s had adjusted gross revenues of $52,902,506 during the Test Year. Operating expenses for the same period totaled $41,302,502 thus resulting in an operating income of $11,600,004. This produced a Test Year rate of return of 6.36 percent when applied to the Company-proposed original cost rate base of $182,293,105. UNSG is requesting an increase in rates of $9.5 million or an 18.53 percent increase over Test Year revenues, excluding gas cost recovery.
UNSG is seeking phased-in rates a three-year period. During Phase 1 of the implementation, residential customer charges will increase from the current $8.50 per month to $10.00, when new rates become effective. Phase 2 will go into effect one year after Phase 1 rates become effective. In Phase 2 residential ratepayers will see an increase in the customer charge to $12.00 per month. One year after Phase 2 implementation, Phase 3 will increase the residential customer charge to $14.00 per month. According to UNSG’s Application, even at $14.00 per month, the monthly residential customer charge will be well-below an $18.15 cost-based customer charge supported by a class cost of service study conducted by the Company. UNSG also proposes increases in the monthly customer charges for non-residential customers.
On Monday, December 8, 2008, ACC Staff issued a sufficiency letter notifying UNSG that its Application met the requirements of A.A.C. R14-2-103.B.7.
On Monday, December 22, 2008, RUCO filed a motion to intervene in the case on behalf of residential ratepayers.
On Wednesday, January, 7, 2009, the Administrative Law Judge ("ALJ") assigned to the case issued a procedural order setting the evidentiary hearing in the matter for Monday, August 10, 2009 at 9:30 am at the Commission's Phoenix office at 1200 W. Washington.
During the discovery phase of the proceeding, RUCO performed an audit to verify the financial information presented in UNSG's Application and conducted a full cost of capital analysis.
On Monday, June 8, 2009 RUCO filed the direct testimony of two outside consultants and one of RUCO's in-house staff analysts.
Mr. Ralph Smith, CPA, of Larkin & Associates, filed direct testimony on the revenue and rate base issues of the case and concluded that UNSG’s proposed revenue requirement of $9.480 million, or 18.53 percent, is significantly overstated. Mr. Smith recommended that UNSG be authorized an increase of no more than $841,000 on the Company's adjusted fair value rate base. This would result in an average revenue increase of approximately 1.63 percent over adjusted test year revenue of $51.674 million.
Frank W. Radigan, of the Hudson River Energy Company, provided direct testimony on RUCO's recommended rate design. Mr. Radigan is recommending that UNSG's monthly minimum charge be increased from $8.50 per month to $10.00 per month and that the commodity charge be decreased slightly from $0.3270 per therm to $0.3027 per therm. Under Mr. Radigan's recommended rate design, the average bill for a residential customer using an average of 45 therms per month would see an increase of 1.7 percent.
RUCO's in-house staff analyst, William A. Rigsby, CRRA, performed a cost of capital analysis and is recommending a cost of capital that results in a fair value rate of return of 5.38 percent on the Company's invested capital. RUCO's recommended fair value rate of return is 142 basis points lower than UNSG's proposed fair value rate of return of 6.80 percent.
On Wednesday, July 8, 2009, UNSG filed rebuttal testimony.
Surrebuttal testimony from ACC Staff, RUCO and other intervenors was filed on Wednesday, July 29, 2009.
A final round of rejoinder testimony from UNSG was filed on Wednesday, August 5, 2009.
Public comment meetings on UNSG's rate request were held in Flagstaff, Prescott and Nogales on August 3,6, and 17, 2009 respectively.
The evidentiary hearing on UNSG's request for increased rates began as scheduled on Monday, August 10, 2009 and was concluded on Tuesday, August 18, 2009. During the evidentiary hearing, attorneys for the parties to the case had the opportunity to cross examine expert witnesses and present their positions on various issues.
Final schedules and initial closing legal briefs were filed on Friday, September 18, 2009. Reply legal briefs were filed on Wednesday, September, 30, 2009.
On Tuesday, March 9, 2010, the ALJ assigned to hear UNSG's request for an increase in rates issued his Recommended Opinion and Order ("ROO") which adopted a number of RUCO's positions in the case.
On Thursday, March 18, 2009, RUCO filed an exception to the ROO which seeks the removal of accumulated deferred income taxes associated with the Company’s stock-based compensation program (RUCO and UNSG later agreed to a lower figure that takes customer advances into consideration).
During the Regular Open Meeting held on Wednesday, March 31, 2010, the five Arizona Corporation Commissioners voted 4 to 1 to adopt an amended ROO that provided UNSG with additional legal expenses associated Federal Energy Regulatory Commission litigation.