Arizona regulatory staff recommends rate hike of 9.8% for APS

Portland, Maine (Platts)--21Aug2006

Arizona Corporation Commission staff Friday recommended that Arizona
Public Service receive a rate hike of $193.5 million, or 9.8%, which is lower
than the utility's request of $453.9 million, or 21.3%.

Three key issues led to the staff's lower recommendation. First, APS
wanted an 11.5% return on equity, but staff proposed an ROE at 10.25% as
currently allowed. The lower ROE reduced APS' overall revenue requirement by
about $50 million.

Second, APS sought $298 million to pay for fuel costs, but staff found
that a $193 million increase was more appropriate. The difference in the
calculations largely stems from APS' fuel cost projections in 2005, when
actual costs are significantly less than expected, the ACC said.

Finally, APS sought a $44 million increase for pensions, while staff
concluded that an $11 million increase was adequate.

Staff also recommended establishing minimum three-year capacity factor
targets for the 3,810-MW Palo Verde nuclear plant based on a three-year
average of Palo Verde performance compared with a group of comparable nuclear
plants, with the ACC to review the recovery of any incremental fuel and
replacement power costs attributable to Palo Verde not meeting the minimum
targets. The plant had a series of unplanned outages in 2005 and 2006.

Hearings on the rate request are set to start October 10. After the
hearings, an administrative law judge will issue a proposed order and then
the ACC will vote on it, possibly in early 2007.

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