Arizona Utility Proposes to Ramp Up Peak Rates

Michael Giberson

The Salt River Project, a central Arizona public power utility serving almost a million consumers, already charges it’s customers higher rates in the summer, but they are proposing to increase their summer rates even more. The Arizona Republic reports:

Salt River Project wants to prompt more people to conserve during the hottest hours of summer by making it much more expensive to waste electricity when the mercury spikes.

The utility is proposing a rate increase that could have residential customers paying on average $18.43, or 9.3 percent, more on their July and August bills.

SRP wants to raise rates the most in the sweltering months that utilities are forced to import expensive electricity from as far away as the Pacific Northwest to keep the state powered.

SRP also proposes a new, optional, time-of-day plan that dramatically raises the price of electricity from 3 p.m. to 6 p.m. when demand spikes, as does the utility’s price for power bought on the open market.

Mark Bonsall, SRP chief financial executive, said, “We are trying to better align our prices with our costs of service so customers make the best economic choices they can make.” The newspaper noted that the other Phoenix-area utility, Arizona Public Service Co. also initiated rate increases this week.

The East Valley Tribune, a newspaper serving suburbs on the east side of Phoenix, added a few details:

SRP plans to spend $7 billion during the next six years on new generating plants and transmission lines to serve new customers and replace old facilities, Bonsall said. Also, natural gas, a clean burning but relatively expensive fuel, is becoming a larger part of SRP’s fuel mix, causing the utility’s overall fuel costs to rise, he said.

An increasingly sensible rate structure is step in the right direction, even if still far from the necessary “prices to devices” paradigm shift. At least SRP has time-of-use meters in place for some customers, which puts it ahead of many of the utilities in the country.

(SRP also provides a pre-pay option that tends to encourage consumer awareness of consumption and greater conservation. See Lynne’s post from last June for more information on the topic: Electricity Retail Choice: Pay-As-You-Go Service.)


7 thoughts on “Arizona Utility Proposes to Ramp Up Peak Rates

  1. Aside: SRP, for reasons I haven’t investigated, is unregulated or, at least less regulated, than APS, the other big Arizona electicity utility.

    Time-of-day pricing is practical, justified, and will come.

    Economics is not kind. Yes, this hurts the poor. But it is better to (as needed) aid them directly with a subsidy rather than expect SRP to administer ideas of social justice.

  2. Salt River Project is a “political subdivision” of the State of Arizona, and is considered a quasi-municipality. As such, the Arizona Corporate Commission does not have jurisdiction over SRP for rates, rules or regulations. The ACC does have jurisdiction over SRP if it “issues bonds for financing, applies to build a power plant generating more than 100 megawatts or if they are proposing to construct power lines of 115 kilovolts or greater.” [From the ACC web site]

    Arizona Public Service is an investor-owned utility, and is therefore under state regulatory jurisdiction except where federal jurisdiction takes precedence.

  3. “Salt River Project wants to prompt more people to conserve during the hottest hours of summer by making it much more expensive to waste electricity when the mercury spikes.”

    How do they tell who is wasting energy, as opposed to just using energy? Or, do they just assume that anyone using electricity for air conditioning in the late afternoon in the southwestern desert is just wasting energy.

    Writing clearly in the English language appears to be an insurmountable challenge for some among us who write for a living.

  4. “Salt River Project wants to prompt more people to conserve during the hottest hours of summer by making it much more expensive to waste electricity when the mercury spikes.”

    How do they tell who is wasting energy, as opposed to just using energy? Or, do they just assume that anyone using electricity for air conditioning in the late afternoon in the southwestern desert is just wasting energy.

    Writing clearly in the English language appears to be an insurmountable challenge for some among us who write for a living.

  5. At least raising peak rates is the right approach (on the assumption that the higher rates will be closer to market value). As long as the price reflects the cost, I’m happy to let customers decide what is waste and what is good use. Only when a rate structure results in a higher electric bill for me because of my neighbor’s wasteful habits, then I’m interested.

    Of course, in my case it is the rate structure that gets my ire and not my neighbor.

  6. At least raising peak rates is the right approach (on the assumption that the higher rates will be closer to market value). As long as the price reflects the cost, I’m happy to let customers decide what is waste and what is good use. Only when a rate structure results in a higher electric bill for me because of my neighbor’s wasteful habits, then I’m interested.

    Of course, in my case it is the rate structure that gets my ire and not my neighbor.

  7. I agree that, if it costs the utility more to generate/buy power during the summer, it should be able to charge more during the summer. I also agree that, if the utility experiences very high power purchase costs between 3-6 pm during the summer, it should be able to pass those very high costs on to the customers who create the peak demand. Real-time pricing is far preferrable to winter/summer rates or TOD rates as the method for assigning costs to customers.

    My point is that a customer using electricity to cool his/her home during the summer in the southwestern desert is not making “good use” of the power between 12-3 pm, but “wasting” power between 3-6 pm, then making “good use” again from 6-9 pm. A customer who uses power to chill and store water overnight (or even from 12-3 pm), then uses the water for cooling from 3-6 pm, is not wasting the power used to chill the water which then cools the property from 3-6 pm; nor, is the customer wasting the chilled water. The customer is merely shifting “good use” power consumption off-peak.

    In the broader sense, power demand which is shifted off-peak still occurs, though during a lower cost period. If the power was “wasted” on-peak, it would still be “wasted” off-peak, just at lower cost.

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