Dive Brief:

• The Arizona Corporation Commission last week approved a settlement allowing Arizona Public Service to raise rates to recover its investment in pollution controls at the Four Corners coal plant. The agreement also allows the utility to earn a higher rate of return on its investments.
• APS sued the commission after regulators in 2021 denied recovery for its investments in the New Mexico plant and reduced its return on equity, citing customer service issues. The Arizona Court of Appeals ruled in the utility’s favor, remanding the case back to the ACC.
• The settlement adds about $1.84 to the average monthly electric bill. Customer advocates say the investments at Four Corners were “irresponsible;” the utility says they were required by federal environmental rules.

Dive Insight:

The settlement approved Wednesday is the result of an APS rate case filed in 2019. According to regulators, the settlement will help lower bills.

 “Through the work of the commission and its legal division, APS was willing to settle and forgo millions of dollars of revenue,” Commissioner Nick Myers said in a statement. 

The commission voted 4-1 to approve the settlement.

The settlement means APS will earn an 8.9% ROE on its rate base — 20 basis points higher than the commission allowed in its 2021 decision. The ACC had set the ROE at 8.7%, citing "deficiencies in APS's customer service performance,” but the court ruled that concern was “beyond the commission's ratemaking authority.”

The utility will also be allowed to recover $215.5 million it spent to install selective catalytic reduction equipment, despite the Four Corners facility closing earlier than expected. The court said there was no evidence showing APS could have canceled the SCR construction or how cancelation of the project would have impacted the utility’s finances or its contractual obligations.

“Absent such evidence, the record cannot support a finding that APS violated a duty to alter the course of the project,” the court said.

The ACC said in a statement that to recover the lost revenues over the past 19 months, due to the lower ROE and SCR disallowance, APS agreed to amortize the recovery over four years without interest. The utility also agreed to use a 2038 end of life for depreciation purposes on the Four Corners investment rather than a planned 2031 retirement date.

The SCR investment in emissions controls was “federally mandated,” APS said in an emailed statement, and the plant remains a “vital generation resource in the near term as we transition to a clean energy future.”

“We understand rate increases affect customers and worked diligently with the ACC to ensure these recovery mechanisms were spread over multiple years to minimize the impact on monthly bills,” the utility said.

The Sierra Club condemned the settlement, saying the investments were imprudent and the decision is an example of how “ratepayers end up on the hook, paying for [utilities] irresponsible actions.”