In 2016, it became apparent that Arizona Public Service (APS) was planning to be the first utility in the country to impose mandatory “demand rates” on residential electric customers. Demand rate plans include an extra charge that is based upon the highest level of energy demand at the customer’s residence during a specified time period the month of service being billed.
Residential demand rates are not based upon electric usage, and can be very confusing and frustrating to customers who have trouble understanding how to avoid large “surprise charges” based upon the highest single demand in a particular month at their household. AARP has consistently supported demand rates as an option for customers, but opposes mandatory demand rates.
The other two regulated electric utilities in Arizona were also planning to request mandatory residential demand rates that year in advance of APS’ big rate case. AARP became increasingly involved in the consumer pushback against this industry-wide initiative. AARP Arizona urged public participation in the UNS and Tucson Electric Power (TEP) rate cases in 2016, which were proposing confusing demand rate plans. In 2017, APS filed its large electric rate increase case, including mandatory demand rates, and AARP formally intervened in that case.
In all three electric rate cases, AARP warned about the dangers of mandating a confusing rate structure. State Director, Dana Kennedy, and then-Associate State Director of Advocacy, Steve Jennings, launched a major education campaign, helping to drive thousands of people to attend public hearings all over the state, and to submit customer comments on the subject of letting customers choose the rate plan that was right for them. Freedom of choice (in rate plans) became the AARP rallying cry. Settlements were reached in both the UNS and TEP rate cases that did not include mandatory demand rates. AARP also successfully fought large increases in the fixed monthly charges for those utilities.
2017 APS rate case
As a result of AARP’s push back against mandatory demand rates in its large rate case, APS shifted toward the idea of still mandating such rates, but letting those customers switch to a different rate after a certain amount of time (90-days). The debate focused on “opt out” versus “opt in” demand rate plans. AARP was a strong proponent of “opt-in” plans that respect customer choice. Many customers expressed the desire to choose a simple energy usage rate plan and did not like the idea of being restricted from choosing such a plan.
In the 2017 APS rate case, a huge settlement was reached between all of the parties to the rate case, except AARP and the Southwest Energy Efficiency Project (SWEEP), a regional consumer protection group. The main disagreement that AARP lodged with the settlement was a provision that said all new customers would be mandatorily forced onto either demand rate plans or time-of-use (TOU) rate plans for 90 days, after which time they would have the option to “opt out”. The settlement would allow APS to impose demand rates as initially as an “opt-out” plan, but customers were not going to be told that they had the option to switch back to a flat usage-based rate when the 90-day term expired.
In August 2017, to protest the settlement, AARP filed Exceptions at the ACC and the expert testimony of AARP consultant John Coffman about the unfairness of the opt-out demand rate plan. Upon rehearing, the ACC adopted the mandatory 90-day “trial period” for new customers; however, it did agree with AARP’s alternative suggestion that APS must inform those customers of the ability to switch to a different rate plan at 90 days and made that modification to the settlement.
In the years of 2017-2019, AARP’s warnings proved true, as complaints against APS surged. Confusion reigned as many people discovered high electric bills that they could not understand.
In 2019, a rate complaint case filed by a citizen activist against APS proved that the utility was “over-earning,” such that the demand rate plans were allowing the utility to earn more profit than authorized. However, the ACC did not order a change in rates immediately, saying that it would review the situation in the next APS rate case and asked that it be filed early (it had originally been slated for early 2021).
Also in 2020, the Arizona Attorney General discovered that the APS “rate calculator” online was inaccurate and was often incorrectly steering customers to demand rates. APS customer service scores plummeted.
Current APS rate case
In early 2020, APS filed its much-anticipated new rate case--the one that was decided on November 2, 2021 (E-01345A-19-0236). AARP Arizona formally intervened in the case with the same objectives as before: get the best deal for consumers.
In May 2020, AARP filed a motion asking that the APS’ entire rate case be re-filed to take into account the economic impacts of the pandemic. The rate case was delayed by several months due to concerns related to the pandemic.
Throughout this rate case, AARP consultant, Scott Rubin, submitted two rounds of prepared testimony on several rate design topics. He testified that APS had the most complicated rate design he had ever seen and he made several suggestions for simplifying the rate plans. In its rebuttal testimony, APS actually agreed with many of AARP’s suggestions, including getting rid of the 90-day mandatory trial period for new customers.
In August 2021, the administrative law judge (ALJ) in this rate case issued her recommended opinion and order (ROO). AARP Arizona filed Exceptions to the ROO and gave testimony, asking for the following changes:
- The ROO would have still required new customers to take a particular rate plan--a time-of-use (TOU) rate plan for 90 days. AARP advocated for total customer choice and pointed out that it was rate discrimination to restrict “new” customers, while giving other customers the choice of all three types of rate plans.
- AARP asked for the ACC to amend its TOU rate plan peak hours in both duration and timing, from 3:00-8:00pm (5 hours) to 4:00-7:00pm (3 hours). Several customer comments received by AARP complained that it was harder to adjust behavior within a peak period that lasted until 8:00pm. More customers chose a TOU plan in previous years, when the peak did not extend so late in the day. It is hoped that with a shorter peak period, more customers will choose a TOU plan in the future. TOU plans try to match the peak times that are the costliest to generate energy, but if it is too difficult for most customers to respond to such plans, then the benefits are not realized. We believe that a TOU plan with a peak period of 4-7pm strikes the right balance, based upon significant customer feedback.
AARP continued its advocacy for these issues during hearings in October 2021, when ACC Chair Marquez-Peterson ultimately filed a proposed amendment that included both of these two changes. At the open meeting on October 27, the ACC voted 4-1 to amend the ROO in this way.
After a long-awaited and lengthy debate process, the commissioners were finally set to vote on the case at the November 2, 2021 meeting. After a long day of discussion on the issue, the Commission voted to pass the new rate plan. AARP fought for many objectives in this new rate structure, some of which are detailed above. All told, AARP was successful in achieving six wins for the 50+:
- Overall electric rate reduction of $120 million annually for APS customers
- The time-of-use (TOU) rate plan will have its peak period shortened from 3:00-8:00pm to 4:00-7:00pm
- Fixed charges for most rate plans will not increase
- Simpler, easier-to-understand set of electric rate plan choices
- All residential customers will have total choice among all of the available rate plans when they move into APS territory
- No deregulation due to the evidence that it only hurts consumers while not reducing price
AARP Arizona is proud to stand for our constituency, fighting as their wise friend and fierce defender. With this decision, we feel vindicated knowing that the previous decision the commission made to approve the previous rate case in 2017 was bad for consumers. AARP Arizona will continue engaging at the Arizona Corporation Commission to work on behalf of the 50+.
If you’d like to join our efforts on this issue or others, feel free to reach out to our Associate State Director of Advocacy Brendon Blake at email@example.com.