ACC Makes No Distinction Between Rural, Urban In Decision To Allow APS Line Extension Charges

By Tammy Gray-Searles
   Unrecovered costs of bringing in new customers and the choice by some residents to live in rural areas of Arizona were among the reasons cited by the Arizona Corporation Commission (ACC) in eliminating any electricity line extension credits or discounts for Arizona Public Service Co. (APS) customers.
   New regulations enacted by the ACC require APS customers to pay the entire cost of extending a power line to their property, and that cost must be paid up front. The new APS service schedule for single family homes states, “All estimated costs of extending service to applicants, as determined by the company (APS), including backbone infrastructure costs, shall be paid by the applicant prior to the company extending facilities. Payment is due at the time agreement is executed.”
   In reaching that decision, ACC commissioners held very little discussion on the effect the change would have on growth and development in rural Arizona, with the exception of Native American reservations, which were exempted from the ruling.
   APS Area Supervisor Charlie Hendrickson explained that the change in policy was initiated by the ACC, following a request by APS to include the cost of extending power lines to new customers in rate increases.
   “Essentially they said, ‘No, we’re not going to allow you to put it in the rate base,” Hendrickson remarked. “We’re not going to have existing customers paying for new.”
   The ACC’s decision was based in part on information APS provided that indicated that the cost of running electric lines to new customers was not recaptured in the rates paid by those new customers. In other words, adding customers was costing the company money, not increasing revenue.
   “They adopted the philosophy that growth should pay for growth,” Hendrickson commented.
   During a public meeting held on the issue, which lasted about a day and a half, the commissioners spent the majority of the time deciding how the funds generated from charging to extend lines should be placed on the books by APS. When developer Harvey Campbell, representing a group of Yuma developers and landowners, spoke against the change, commissioners responded that the issue of whether to change the line extension policy was not the issue being decided, only the manner of accounting for the revenue it is expected to generate.
   “The train has kind of left the station on this issue in June (2007) with the APS rate hearing,” Commissioner Gary Pierce told the developer. “…and you know, that wasn’t APS’s request to do that, by the way. That was something that came from the commission in an amendment to their rate case.”
   Commissioner William Mundell told Campbell that he wanted to put the issue into context for him.
   “It’s sort of like the commercial, pay me now or pay me later,” Mundell said. “The concern that the commission had when we said we ought to look at schedule three (the document addressing line extension costs and policies) and growth paying for itself is that we have had continual rate increase after rate increase after rate increase. So the question is, do you put it, have the money come in rate increases for customers or do you have the schedule three change so that there is revenue or money coming on for new development?”
   Campbell replied, “Apparently it sounds like you will end up with both,” to which Mundell answered, “Well, you are right.”
   Mundell had previously proposed an amendment to the line extension changes that would exempt customers on reservation land and allow those customers to continue to receive an extension of 1,000 feet of line at no charge.
   Pierce asked for additional discussion on the amendment, saying, “I think we’re hearing that it’s tough times in Yuma. It’s tough times probably in most of the rural areas, particularly because when I went to Pinal Partnership and listened to the economic forecast, it seemed that the further you are away from the epicenter in Maricopa County, the worse you were doing.
   “And I think that as we went through this last summer, you know, we are dead set on heading in a certain direction based on tradition, but the tradition here has changed, and I’m a little leery. I would like to have a little hearing to talk about maybe some of the distress that maybe we need to address or maybe how we move forward and take care of this.”
   The commission did not agree to a hearing, with Commissioner Mike Gleason noting that the language included the statement “until further ordered at the commission,” so that the decision could be changed by the commission at any time.
   Mundell then spoke regarding his proposed amendment, saying that it “would be an interim solution to give some relief to the Hopi Tribe and other Native Americans in Arizona.
   “And I would make the distinction from a fairness standpoint, I mean the tribes have there, you know, they were, reservations were picked by the federal government, as we know,” he said. “So I think there is the distinction between folks that go out and buy land way out in the middle of nowhere and want to be compensated for, or get a free footage allowance or $5,000 or whatever we ultimately decide, as opposed to the situation for not only the Hopis but the other Native Americans.”
   Mayes then suggested that in the next APS rate case, which is expected to come before the commission in about one year, that a hardship waiver also be considered for individuals who are eligible for APS’ low-income assistance program.
   Pierce suggested that the commission look at the issue as it relates to economies that would be hurt by the line extension policy change.
   “Maybe you could tell us what the venue would be where we can look at this on the whole and maybe perhaps make allowances where this could have a crippling effect. I mean, a legitimately crippling effect on a certain economy,” Pierce said.
   The discussion, however, turned to the legality of making an exemption for Native Americans and did not return to rural Arizona until Commissioner Jeff Hatch-Miller spoke on the issue near the end of the meeting.
   “…if I remember correctly, in order 69663 (the order requiring customers to pay all costs of extending electric lines) there was a component that dealt with an economic analysis that will be part of this. And if I remember, Mr. Gleason’s amendment was the one that removed it. And I argued fairly strongly at the time that it was not a good option.
   “It seems like déjà vu. I mean, I argued very strongly that there were people that economically could not afford the action we were taking. We are not going after big developers here. We are going after people that bought a $3,000 piece of property.
   “…all of a sudden you are taking people with very inexpensive land and putting a $10,000 trailer on it and you are talking about $7,000 to hook them up to electricity. They just can’t do it.
   “So it was right to have the economic analysis at the time. It was right not to jump into it. I warned that there were consequences, and now we see them.
   “So I’m in support of the 1,000 feet (for customers on reservation lands). That is great. But I think we do need to go to that next step. We need to look at San Manuel. We need to look at Ash Fork. And we need to look at a lot of places in this state where, quite frankly, their plans for the future are basically squashed by the action this commission took not too long ago. That is why I voted no then and hopefully I can vote yes today if we get this thing right,” said Hatch-Miller.
   The chairman then called for a vote on the exception for Native American reservations, and Hatch-Miller spoke up again.
   “You know, it’s really easy to have a side saying growth is paying for itself, but all of Arizona is not Phoenix and Tucson. And all of Arizona is not Scottsdale and Paradise Valley and the foothills down in Tucson. All of Arizona is not $500,000 and $1 million houses. Some of Arizona is depressed economically. It has been. It has been almost forever as far as I can remember. There are towns along Route 66 that used to thrive a lot of years ago before the freeway. There are a lot of towns where mining was king and people thrived and now they don’t. There are a lot of towns where people aged and became more feeble and less able to make a living and now depend upon Social Security as their primary income.
   “And growth paying for itself is a nice sound, but the reality is you can’t just do a sledgehammer to this issue. If you do a sledgehammer, you just hurt everybody. And we have seen some of the consequences.
   “If you deal with this issue with an economic analysis, with a scalpel and not a sledgehammer, yes, growth should pay for itself, but economic devastation is not the payment. The payment is a fair system,” said Hatch-Miller.
   Gleason noted that the proposal was like raising taxes, and it was not popular, but needed to be done.
   “Now, as we go down this road, we are going to get more and more of this until this thing is going to go away and we won’t have growth paying for growth,” he said.
   He told the commission that he felt growth paying for growth was the right way to proceed, without exception or consideration for the differences in effect it would have on urban and rural areas.
   Mundell explained that he felt the exception for Native American lands was fair, noting, “As I said, I think there are unique circumstances surrounding the reservation. The fact that they didn’t decide to move to remote areas in the state, and, in fact, they were forcibly placed there, and I think it’s a little bit different than to make a decision to go out and buy property in a remote area.”
   The commissioners agreed that the issue of line extension costs would be discussed in a future rate case.
   In the meantime, Hendrickson offered some advice to individual property owners in rural areas such as Holbrook
   “Those in the market need to contact APS before closing their mortgage. They need to get an estimate of the cost of running electricity and they can incorporate it into their mortgage,” he said. “I encourage anybody building a new home to talk with us and get a realistic estimate before starting.”