Last week, Arizona Public Service Co. (APS) filed a new rate case with the Arizona Corporation Commission (ACC).  The filing proposes raising electricity rates on all classes of customers to support the utility's efforts to improve its system's sustainability and reliability.  The filing also proposes, for the first time in Arizona, the establishment of an "Efficiency and Infrastructure Account" that aims to allow APS to recover costs that it spends on energy efficiency efforts.

An electric utility's revenue was historically based directly on how much electricity it sells.  This creates a clear disincentive to pursuing energy efficiency projects because a company would literally be spending money to lose money by decreasing its sales.  In July 2010, the ACC adopted rules requiring public utilities to achieve energy efficiency savings of 22% by 2020.  At the same time, the ACC recognized that the utilities need to be able to recover the costs of saving electricity.  To that end, in December 2010, the ACC issued its ACC Policy Statement Regarding Utility Disincentives to Energy Efficiency and Decoupled Rate Structures, preparing the way for gas and electric utilities to recover costs spent on reducing sales.  This concept of disconnecting a utilities revenue from the amount of product it sales is called decoupling.

In addition to the new account for energy efficiency, APS proposes using the rate increase for capital improvements and renewable energy projects.

If approved, the new rates would increase the price of electricity by an average of 6.6% per kilowatt-hour (kWh).  For a residential user whose electricity use remains constant, this would amount to approximately $8.36 per month on average.  However, some of the programs APS intends to pursue with the increased revenue would allow customers to lower their energy usage, at least partially offsetting the higher per kWh rates.

The Phoenix Business Journal estimates (subscription required) that the increase on commercial business rates will vary from 2% to 6.6% while industrial users could see increases of almost 11%.  The ACC will conduct a lengthly review of the request during which customers will be represented by the Residential Utility Consumer Office (RUCO), a state agency created in 1983 for this precise purpose.  Any increase approved by the ACC would take effect in July 2012 at the earliest.

Read more here and here.