APS 2015 Annual Report Download - page 109

Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APS's formula rate protocols have been in effect since 2008. Recent FERC orders suggest that FERC is examining the structure
of formula rate protocols and may require companies such as APS to make changes to their protocols in the future.
Lost Fixed Cost Recovery Mechanism. The LFCR mechanism permits APS to recover on an after-the-fact basis a portion of its
fixed costs that would otherwise have been collected by APS in the kWh sales lost due to APS energy efficiency programs and to
distributed generation such as rooftop solar arrays. The fixed costs recoverable by the LFCR mechanism were established in the 2012
Settlement Agreement and amount to approximately 3.1 cents per residential kWh lost and 2.3 cents per non-residential kWh lost. The
LFCR adjustment has a year-over-year cap of 1% of retail revenues. Any amounts left unrecovered in a particular year because of this
cap can be carried over for recovery in a future year. The kWh’s lost from energy efficiency are based on a third-party evaluation of
APS’s energy efficiency programs. Distributed generation sales losses are determined from the metered output from the distributed
generation units.
APS files for a LFCR adjustment every January. APS filed its 2014 annual LFCR adjustment on January 15, 2014, requesting a
LFCR adjustment of $25.3 million, effective March 1, 2014. The ACC approved APS’s LFCR adjustment without change on March 11,
2014, which became effective April 1, 2014. APS filed its 2015 annual LFCR adjustment on January 15, 2015, requesting an LFCR
adjustment of $38.5 million, which was approved on March 2, 2015, effective for the first billing cycle of March. APS filed its 2016
annual LFCR adjustment on January 15, 2016, requesting an LFCR adjustment of $46.4 million (a $7.9 million annual increase), to be
effective for the first billing cycle of March 2016.
Net Metering
On July 12, 2013, APS filed an application with the ACC proposing a solution to address the cost shift brought by the current
net metering rules. On December 3, 2013, the ACC issued its order on APS’s net metering proposal. The ACC instituted a charge on
customers who install rooftop solar panels after December 31, 2013. The charge of $0.70 per kilowatt became effective on January 1,
2014, and is estimated to collect $4.90 per month from a typical future rooftop solar customer to help pay for their use of the electric
grid. The fixed charge does not increase APS's revenue because it is credited to the LFCR.
In making its decision, the ACC determined that the current net metering program creates a cost shift, causing non-solar utility
customers to pay higher rates to cover the costs of maintaining the electric grid. The ACC acknowledged that the $0.70 per kilowatt
charge addresses only a portion of the cost shift.
On October 20, 2015, the ACC voted to conduct a generic evidentiary hearing on the value and cost of distributed generation
to gather information that will inform the ACC on net metering issues and cost of service studies in upcoming utility rate cases. A
hearing has been scheduled to commence in April 2016. APS cannot predict the outcome of this proceeding.
In 2015, Arizona jurisdictional utilities UNS Electric, Inc. and Tucson Electric Power Company both filed applications with the
ACC requesting rate increases. These applications include rate design changes to mitigate the cost shift caused by net metering. On
December 9, 2015, APS filed testimony in the UNS Electric, Inc. rate case in support of the UNS Electric, Inc. proposed rate design
changes. APS has also requested intervention in the upcoming Tucson Electric Power Company rate case. The outcomes of these
proceedings will not directly impact our financial position.
104