Profitability of APS, resumption of investments in coal threatened in case of interest rate

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PHOENIX – After three days of marathon meetings, Arizona Corporation (ACC) commissioners on Wednesday decided to approve a significant cut in potential profits for the Arizona Public Service (APS).

The company, which currently receives a return on equity (ROE) of 10%, saw that number reduced to 8.7% by regulators in its latest tariff case.

The five-member regulatory board approves tariffs and operational decisions that affect the prices of Arizona investor-owned utilities.

In Commissioner Justin Olson’s explanation of his amendment to reduce ROE, he said he believed it was an appropriate response to the company’s difficulties following the latest tariff case adopted in 2016.

“Including poor customer education, implementation, challenges with the rate design tool and recommended rate calculation, etc.,” said Olson. “I think it is appropriate that there is an acknowledgment of these challenges.”

Commissioner Sandra Kennedy produced a similar amendment that would have reduced the company’s profits by an even greater margin. He failed 4-1.

APS CEO Jeff Guldner told commissioners ahead of the vote that any reduction below 9.1% would hamper the company’s ability to invest in the electricity grid to handle the influx of people and companies moving the state.

Guldner went so far as to change his Zoom background to an image of an electrical substation under construction for a new Microsoft data center.

“It will become our biggest customer, and it’s on its way to becoming the biggest employer, one of the biggest employers in the state. And they depend on the investment in the network to function, ”Guldner told Commissioners.

He also said that such a low ROE reduction would make it difficult to find lenders to fund the company’s transition to clean energy.

Most of the commissioners were not influenced. Commissioner Justin Olson’s amendment passed 4-1, with President Lea Marquez Peterson voting against.

“I don’t think this ROE adequately recognizes the financial realities of our transition to clean energy,” she said.

The question of what to do with the $ 400 million APS spent to upgrade its coal-fired Four Corner plant was not resolved during the meeting.

Commissioners wondered if the company’s investments were prudent.

In 2013, APS bought a controlling stake in the Southern California Edison plant, then installed the selective catalytic reduction pollution controls to fulfill an agreement with the US Department of Justice and the Environmental Protection Agency. for alleged violations of the Clean Air Act. Construction of the SCRs lasted from 2016 to 2018.

The company recently announced plans to significantly reduce capacity by fall 2023, and it will be phased out by 2031, years earlier than originally planned.

The Sierra Club conservation group argued that APS knew, or should have known, that there were cheaper alternatives before they invested more money in the coal-fired plant.

And in her Recommended Opinion and Order, Administrative Law Judge Sarah Harpring agreed that the upgrades “have not been demonstrated” and that their costs should not be allowed to be charged to taxpayers.

On Tuesday, APS said the plant is in use and useful, and if the upgrade had not been installed, the company would have had to generate electricity in a different but also expensive way. And that the solar and battery storage suggested by the Sierra Club as an alternative was “science fiction” at the time the decisions were made about the Four Corners plant.

Before the vote, ACC staff reiterated that they believed the investments were prudent. Guldner said if the takeover were delayed any longer, the company would be forced to cancel $ 75 million of the investment.

Likely starting a legal battle, commissioners approved Marquez Peterson’s amendment to keep the role open and hold additional hearings to get more information on caution in a 3-2 vote. Marquez Peterson, Kennedy and Olson voted in favor. Tovar and O’Connor versus.

The Commission approved another Marquez Peterson amendment for the immediate payment of $ 1.675 million in taxpayer funds to the Hopi tribe to help mitigate the impacts of coal mine pollution and coal-fired power plant closures.

Marquez Peterson and O’Connor seemed to be comfortable with the measure since the Hopi are APS customers and believe they have competence. These commissioners are uncertain whether they have the same power to authorize $ 100 million in taxpayer funds to the Navajo Nation since they are not APS clients.

Kennedy, who also voted for, called the vote more difficult for her because it helps the Hopi but delays the Navajo.

“If the state legislature, federal government, or any other jurisdiction does not take on this responsibility, we should and we must,” Kennedy said. “Our failure as a committee is the reason why I have no choice but to support this amendment.”

Olson votes against, citing his belief that the use of taxpayer funds is outside the jurisdiction of the Commission.

Tovar voted against it probably because the Navajo Nation was excluded from the payment.

The committee could take a final vote on the full-rate dossier at the next public meeting on October 26.

It is Arizona’s largest utility with 2.7 million customers in 11 of Arizona’s 15 counties.


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