The proposed increase was far below the nearly 10 percent hike the state's largest electric utility sought when it filed a request to increase rates with the utility-regulating Arizona Corporation Commission 14 months ago.

The agreement announced Wednesday was supported by 21 other parties that had intervened in the rate case. Among the groups agreeing to the settlement were the staff of the commission; the Residential Utility Consumer Office, which represents the interests of residential consumers; major customers such as Kroger Co. and Phelps Dodge Corp.; the Arizona Utility Investors Association, which represents investor interests; the Arizona Community Action Association, a consumer group; and the Arizona Solar Energy Industries Association.

One organization is opposing the settlement -- the Arizona Distributed Energy Association -- which advocates development of small electric generators located close to users rather than large centralized generating plants.

Bill Murphy, vice president of the association, said the settlement includes rates that would discourage development of distributed electric generation. The proposed settlement still must be approved by the five-member commission.

Also hearings will be held by an administrative law judge, who will make a recommendation to the commissioners before they make a final decision. If the case proceeds smoothly, the one-time rate increase could take effect late this year or early next year.

If approved, the rate increase would be the first for APS in more than 10 years, and rates would still be below the level of 1990, according to the commission staff.

Even though many groups have agreed to the proposal, APS spokesman Jim McDonald said the company is not assuming the commission will approve it in its current form.

"We see this as a reasonable solution, but we understand there will be a full airing of everything," he said. "No one is taking anything for granted."

APS president Jack Davis said the proposed settlement involved compromises by all of the parties involved in the case, including the utility, which wants a rate increase to cover increasing cost of providing electricity, including the construction of new power plants.

Even though the increase is less than the utility wanted, Davis said "we recognize the value of getting this issue behind us."

Under the terms of the settlement, the average monthly bill for APS residential customers would increase from $62.14 to $64.26, or about 3.4 percent, the commission staff calculated.

The residential increase is less than the overall increase in revenue for APS because other categories of customers would be increased more. Also residential bills could vary depending on the customer's usage, season, taxes and other factors.

Another provision would allow the transfer of newly constructed power plants from a sister company to APS itself, which the utility had sought. Also included is a $7.9 million annual surcharge on customers for five years to help cover the cost of constructing the new natural-gas fired plants.

Another $150 million in construction costs will not be recovered, Davis said.