During a debate, two Arizona regulators seeking reelection backed a new policy allowing the state’s utilities to seek rate increases every year.
In late 2024, the Arizona Corporation Commission voted 3-2 to allow electric, water and gas companies it regulates to seek “formula rate plan” adjustments that would take place more frequently than the current rate case system used by the commission.
Now, multiple utility companies —including Arizona Public Service and Tucson Electric Power — are asking the commission to allow them to officially adopt formula rate plans.
Commissioner Kevin Thompson said the current rate case system used by the commission subjects consumers to large rate spikes every three or four years. He said that’s because state law allows utilities to recover their costs by charging customers, and those costs compound over time.
For instance, APS is seeking a 14% rate increase this year after receiving an 8% increase in 2024.
Thompson argued that allowing annual rate increases — which will be determined by formulas approved by the commission — will result in less “rate shock” for customers.
“It allows utilities to recover their costs a lot quicker, which means the consumers aren’t paying that pass through interest rate on the capital the utilities borrowed, so it should be a gradualism in the rates and not spikes,” he said during a debate hosted by the Arizona Citizens Clean Election Commission on Tuesday.
Thompson is seeking reelection to the Corporation Commission alongside fellow Republican Nick Myers, the current commission chairman.
Myers acknowledged that over time, the utility rates will rise at the same rate. But, like Thompson, he argued those costs are easier to absorb for consumers when they come in smaller annual chunks.
And Myers claimed costs could go down during some years with annual rate adjustments if, for instance, fuel prices fall.
“Do you want it like this — boom,” Myers said, using his hands to illustrate a spike in costs. “Or do you want it gradually, with some potential dips in between so that it kind of follows that path?”
But critics, including consumer advocates and the Arizona Attorney General’s Office, say there is little data to back up those claims and that the formula rate policy lacks a cap to guard against rate shock.
“Retail formula ratemaking in other jurisdictions demonstrates that rates will increase — and will increase more quickly than they otherwise would have — without corresponding ratepayer benefits,” according to a filing by the Attorney General’s Office asking the commission to reconsider its approval of annual rate adjustments for UNS Gas.
In its annual report, Pinnacle West, APS’ parent company, projects 7-9% annual rate base growth over the next three years.
Critics also argue the annual rate adjustments allow for less scrutiny and public input than traditional rate cases. One of the reasons those cases take years at a time is they include a lengthy public comment period and opportunities for stakeholders to cross examine utility executives seeking the rate increases.
“Those interveners would be particularly disadvantaged under the current proposal,” said Chanele Reyes, an attorney with the Arizona Center for Law in the Public Interest, told the commission when it first adopted the formula rate plan policy.
But Myers argued the new annual plans will still include plenty of oversight from the commission.
“We still have to go through a prudency determination from the commission,” he said. “We still have to vote on them just like we normally would.”
He said the commission is also requiring utilities to put information related to those rate requests online for public scrutiny.
Thompson and Myers, both first elected in 2022, are seeking reelection to the five-member commission. They are facing Rep. Ralph Heap (R-Mesa), a state lawmaker, in the Republican primary. Heap did not participate in the Clean Elections debate.
The winners of the GOP primary will face Democrats Jonathon Hill and Clara Pratte in the general election.
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