Oct 12 - McClatchy-Tribune Regional News - Shelley Shelton The Arizona Daily Star, Tucson

It's not often that a business raises prices on customers who buy more of a product.

But that's what Tucson Electric Power Co. is proposing -- along with other changes in how service is billed -- in a rate case pending before the Arizona Corporation Commission.

TEP residential ratepayers would see their bills increase about 8 percent, or an average of about $7 monthly, under the latest version of a proposed four-year rate settlement.

But that estimate doesn't tell the whole story behind a proposal that would fundamentally change the way TEP bills its ratepayers.

One part of the proposed settlement agreement introduces "tiered billing." This is similar to what Tucson Water already does -- the more electricity people use, the more they will pay per unit.

TEP has requested three billing tiers, measured in terms of energy consumption per month: up to 500 kilowatt-hours; 500 to 3,500 kilowatt-hours; and above 3,500 kilowatt-hours. The average residential customer uses 900 kilowatt-hours per month during the year, said Joe Salkowski, a TEP spokesman.

No matter how much electricity you use, you pay the lower price for the first 500 kilowatt-hours, the second-lowest price for the next 3,000 kilowatt-hours, and the highest price for kilowatt-hours above 3,500, he said.

It might seem counterintuitive that a company would be discouraging customers from using its product, but Salkowski said that in the long term, TEP would save money with tiered billing.

"Reductions in consumption help reduce our need to invest in power plants and transmission lines and other infrastructure," he said.

The company has had 3 percent annual growth in residential energy consumption by household -- not due to regional growth -- Salkowski said.

The proposed settlement also would expand so-called time-of-use rates -- higher during high-demand periods and lower when demand typically declines.

"If you can reduce consumption during peak-load hours, then everybody wins," he said.

Stephen Ahearn, director of the state's Residential Utility Consumer Office, said he generally supports conservation, but tiered rates must be carefully designed not to penalize people for normal consumption.

"The devil's in the details, of course," he said.

Arizona Corporation Commissioner Kris Mayes agreed.

"It has to be designed carefully so you don't unwittingly harm certain segments of the population," she said.

Another proposed big change in billing is the addition of a purchased-power and fuel-adjustment clause that would be separated from the standard rate customers pay and would adjust as TEP's costs for purchased power and fuel change.

"We do not profit from the charges that are included in the purchased-power and fuel-adjustment clause," Salkowski said.

Historically, the company has covered those costs through the standard electric rate, he said. But if costs skyrocket, the company would have to bear the burden.

"What suffers is our ability to invest in the kinds of system resources that we'll need to serve customers," Salkowski said.

TEP has about $1.4 billion in capital improvements on the budget for 2008 through 2012; they include transmission lines and a lot of reinforcement in the distribution network, he said.

They are "projects that might have begun sooner had we not been limited by the resources provided by our current rates," Salkowski said.

The Arizona Corporation Commission will vote on the proposed settlement agreement after Administrative Law Judge Jane L. Rodda issues a recommendation on the rate case. Commissioner Mayes said she is concerned about the clause as TEP has requested it.

"If TEP is going to get an adjustor mechanism, then at the very least in order to protect consumers, it needs to have a cap on it so that when the price of natural gas swings upwards, consumers don't have to absorb those shocks," Mayes said.

Arizona Public Service Co. has had an adjustor clause since settling a rate case in July 2007. The utility absorbs 10 percent of the cost when fuel prices go up, letting the company keep up with market conditions, said Dan Wool, an APS spokesman.

As the clauses have become more popular, it has become important to put strict parameters around them, Mayes said.

"The bottom line for consumers is: It increases the cost to consumers. Because otherwise the company would have to come to the commission in the course of a general rate case to get those costs, and that takes time," she said.

Ahearn said he opposes letting TEP add the adjustor.

"We don't believe they deserve it," he said. "They don't have the same exposure to volatility as other utilities in this state. They're primarily a coal utility. Although coal has been volatile, it's not been volatile like natural gas is."

PROPOSED ELECTRIC-BILL CHANGES:

--Tiered billing: This would allow Tucson Electric Power Co. to charge customers more the more electricity they use.

--Time-of-use rates: Adds more options for time-of-use rates, which generally are higher during periods of high demand and are lower in times of lower demand.

--Purchased-power and fuel-adjustment clause: This would allow TEP to recover higher costs for purchased power and fuel through surcharges that also would be lowered as costs decline.

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