Recommended Decision Would Allow Medium Commercial Customers (Subject To Cap) At Tucson Electric Power To Select Alternative Supplier Under Market Pricing Program, Changing Company's Proposal

November 25, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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A recommended order from an Arizona ALJ in Tucson Electric Power's rate case would modify TEP's proposal for a Market Pricing Experimental Pilot Program (MP-EX) so that medium commercial customers would be able to select an alternative wholesale generation supplier as part of their participation in the program

See background on MP-EX, which includes a wholesale buy-though alternative supply program, here

Under TEP's proposal, medium customers would have been eligible to receive pricing based on a day-ahead market index, but would not have been able to select an alternative supplier (only very large customers would have had this alternative supplier option).

Specifically, the ALJ recommends a modification of "Program 1" under TEP's proposed MP-EX, which would be available to customers in rate classes MGS and LGS, with customers required to have minimum aggregated peak demand of 3 MW, with a minimum aggregate load factor of 60%

Under the recommended order, Program 1 MP-EX would have a participation cap of 25 MW

Under Program 1, all provisions, charges, and adjustments in the Customer's applicable rate schedule will continue to apply except for the Base Power Charges and PPFAC [Purchased Power and Fuel Adjustment Clause].

As recommended by the ALJ, Program 1 customers will have the option to replace their existing Base Power Charge and PPFAC rider change with either:

• A day-ahead market index option (supplied by TEP).

• An hourly market index option (supplied by TEP).

• 7x24 blocks of capacity and energy purchased from third-party suppliers, with a minimum block size of 1 MW (similar to Program 2 alternative supply option noted below)

LPS-TOU and LPS-TOU-HV customers would be eligible for Program 2 MP-EX, with customers required to have minimum aggregated peak demand of 3 MW, with a minimum aggregate load factor of 60%. The ALJ does not recommend any changes to TEP's Program 2 MP-EX as contained in rejoinder testimony

Program 2 MP-EX participation would be capped at 50 MW.

Under Program 2, LPS customers would have the option to replace their Power Supply Charge and PPFAC with an hourly market index price, or the customer may purchase 7x24 blocks of energy and capacity from a third-party wholesale market service provider (or sourced from TEP via an RFP). Minimum block sizes for LPS customers will be 5,000 MW. LPS customers are only eligible to block in a maximum of 50% of their average monthly peak demand based on the months of October through April.

Under Program 2, for alternative wholesale supply, the customer would need to post adequate credit support and pay for any associated credit support costs under these arrangements, TEP said. LPS customers who utilize the 7x24 block of energy and capacity option must have at least an investment grade credit rating or demonstrate creditworthiness in the form of either a 3rd-party guarantee from an investment grade rated company, surety bond, letter of credit, or cash in accordance with TEP's standard credit support rules

For both MP-EX options, the following charges will apply

• Billing Charge: $1,000 per customer per month

• Settlements Charge: $500 per meter/service point per month

For both MP-EX options, eligible customers may be aggregated if they have the same corporate name, ownership, and identity. In addition, an eligible franchisor customer may be aggregated with eligible franchisees or an associated corporate account.

Under the alternative wholesale supply options under MP-EX as recommended by the ALJ, all power must be delivered to TEP at a point of delivery as agreed to by TEP. The customer is responsible for the cost of any incremental transmission costs to deliver the power to TEP's delivery point. Retail suppliers had raised concern with this provision, noting that AP's similar program allows for delivery at Palo Verde or another point, as agreed to by APS.

The recommended order would direct TEP to meet with stakeholders to develop a plan of administration for the MP-EX program, such as assigning load to prospective participants (e.g. a lottery)

The recommended order would reject proposed changes to MP-EX sought by retail suppliers, including raising the participation cap to 120 MW. The ALJ cited TEP's smaller size, and the fact that MP-EX is TEP's first such buy-through program (whereas the current APS program has been refined over iterations) for adopting TEP's proposal with the changes noted above

Retail suppliers, in opposing the TEP index pricing proposal which did not allow the use of alternative supply, had said that TEP's proposal violated the state's constitution, arguing that use of a market index price infringes on the Commission's authority to set TEP's rates (citing Phelps Dodge).

ACC Staff also said on cross-examination that the MP-EX tariff did not appear to include a range of rates (which is a permissible means of using market pricing).

TEP argued that there is no need for a Commission-approved range of rates because all charges for the Company's services applicable to participants are set forth in TEP's relevant tariffs. The ALJ noted that charges related to the actual commodity price cannot be determined at this point because of the nature of the buy-through program.

While the ALJ did not squarely address this market-based rates issue (though the ALJ would not reject MP-EX based on it), the ALJ does note that the ACC's Policy Statement on buy-through programs requires that TEP propose a, "rate structure," which the ALJ said TEP has done. The ALJ also notes that under APS's AG-X Tariff, there is no range of commodity rates provided.

Docket E-01933A-19-0028

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