Arizona Commission Staff Say Tucson Electric Power's Alternative Supply Proposal Does Not Follow Customer Eligibility Directive From ACC Policy Statement

Also Says Proposal Shifts Costs To Non-participating Customers

December 17, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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The Utilities Division (Staff) of the Arizona Corporation Commission said in testimony filed in Tucson Electric Power's (TEP) electric rate case that TEP's proposed Rider-l8 Market Pricing-Experimental (MP-EX) pilot program does not follow the customer eligibility directive contained in a prior Commission policy statement, as Staff also said that TEP's proposal does not follow the policy statement's directive concerning cost shifting

As first reported by EnergyChoiceMatters.com, TEP's proposed MP-EX program would only be available for customers who have a peak load of 3000 kW or more at a single service point and are served under rates LPS-TOU or LPS-TOU-HV. Participating Customers must have a load factor of 60 percent or more for a minimum of nine of the preceding 12 months.

As more fully discussed in our prior story, customers electing MP-EX would purchase flat around-the-clock (7x24) blocks of market-based purchased power capacity and energy on a 12-month basis either through bilateral arrangement with a third-party Generation Service Provider or through a competitive RFP process conducted by TEP. The minimum PSA block sizes are 5000 kW.

See our prior story for more details on the design of MP-EX

Staff testified that TEP's proposal did not address these two provisions from a prior Commission policy statement (see details here) that had directed TEP to propose a "buy through" program such as MP-EX:

• The Commission directs Tucson Electric Power Company to propose an AG-Y alternative generation/buy-through program for medium and large commercial and industrial customers in its next rate case.

• The Commission directs that the proposed program shall not shift costs to non-participating customers.

"The first item is not followed because only customers on the Large Power Service Time of Use or Large Power Service Time-of-Use - High Voltage rate schedules are eligible to participate," Staff said

"The second item is not followed because when off-system sales revenues are not credited to the PPFAC [Purchased Power and Fuel Adjustment Clause], costs are shifted to nonparticipating customers," Staff said

Staff noted that TEP has proposed recovering estimated lost revenues from the MP-EX program, associated with generation capacity, by excluding from the PPFAC up to $5.454 million per year in off-system sales of capacity and energy revenue. Staff said that, typically, revenues from off-system sales are credited to the PPFAC and therefore reduces the PPFAC rate.

Staff also said of the TEP program, "There is not much flexibility in purchasing generation. The program requires purchases to be five MW blocks, and the block purchases may not displace more than 50 percent of a customer's delivered energy in the previous 12 months. Therefore, a customer would need to be a very large customer in order to participate, probably ten MW or greater. In addition, a five MW 7x24 block purchase might not meet every customer's generation needs."

"Also, although aggregation of loads associated with the same ownership is allowed, each service point must meet the three MW minimum demand to participate. That requirement leaves out potential participants such as local governments," Staff said

Staff further noted that, in a prior rate case, the ACC had said, concerning the buy-through program, that, "To pass legal muster, however, at a minimum, the buy-through tariffs would need to contain a Commission-approved range of rates."

Staff cited the buy-through program at APS under Rate Rider AG-X, which includes a provision for generation service and imbalance service to be charged at a rate within minimum and maximum limits.

Staff proposed the following program modifications for TEP's program:

a. Eligibility should be expanded to include customers on medium and large general service rate schedules.

b. Any costs resulting from the MX-EX program should not be passed on to other rate classes.

c. There should be a Commission-approved range of rates.

d. There should be more flexibility in purchasing generation.

e. Aggregation should be allowed to include smaller loads.

Staff recommended that TEP, in its rejoinder testimony, revise its proposed MP-EX program to include Staff's proposed modifications.

Docket E-01933A-19-0028

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