APS - 2008 Rate Case Filing

On June 2, 2008, Arizona Public Service Company ("APS" or "Company"), the largest electric service provider in the state, filed an amended application ("Application") with the Arizona Corporation Commission ("ACC" or "Commission") requesting an increase in rates and charges.  APS is seeking an increase of $448.2 million (including a $183.9 million increase in base fuel costs) over adjusted test year jurisdictional revenues of $2,732 million.  In addition to the aforementioned increase of $448.2 million, APS is also proposing that it be permitted to implement a surcharge on ratepayers located in new service areas to collect up to $53 million in additional revenues per year to recover a $79.3 million revenue attrition allowance adjustment that is part of the Company-proposed non-fuel base rate increase of $264.3 million (i.e. $448.2 million overall increase less the proposed $183.9 increase in base fuel costs).  APS claims that prior rate increases granted by the ACC have been unjust and unfair to the Company and will continue to be unless the increases requested in its Application are approved.

In addition to the proposed increases in revenue just noted, APS is also seeking changes to the Company's existing Demand Side Management Adjustment Clause ("DSMAC") surcharge, its existing Transmission Cost Adjustor ("TCA") surcharge and to its existing Environmental Improvement Surcharge ("EIS").  APS is also proposing approval of three new conservation and demand management rate provisions; a continuation of the Company's ability to defer certain costs related to its provision of net metering options; and changes in or cancellation of specific service and rate schedules as well as approval of Company-proposed depreciation rates.  APS is further proposing several new rate programs and modifications to existing rate programs which will include a new residential time-of-use ("TOU") option that reflects a "super peak" period of 3 to 6 p.m. during the summer months of June, July and August.  APS is requesting a return on common equity of 11.50 percent and an overall rate of return on invested capital of 8.86 percent.

APS is a wholly owned subsidiary of Pinnacle West Capital Corporation and is publicly traded on the New York Stock Exchange ("NYSE") under the ticker symbol PNW.  During the test year ended December 31, 2007, the Company served approximately 1.1 million customers in Arizona and employed approximately 6,800 individuals.

On July 16, 2008, RUCO filed an application to intervene on behalf of residential ratepayers that are served by APS.

APS' Application is currently being examined by ACC Staff to insure that it meets the sufficiency requirements of A.A.C. Rule R-14-2-103 ¹.  After the Application is found to be sufficient, the Commission's time clock rules go into effect and an Administrative Law Judge assigned to the case will issue a Procedural Order that will govern pre-hearing discovery.  The Procedural Order will also set the dates for the filing of pre-filed written testimony, public comment sessions and the evidentiary hearing on APS' request for a rate increase.

During the discovery phase of the proceeding, RUCO's analysts and outside consultants will perform a complete audit of APS' Application to arrive at an appropriate level of revenue increase or decrease and will also conduct a full cost of capital analysis to determine an appropriate rate of return on invested capital.

After the evidentiary hearing and the filing of closing legal briefs, the ALJ will weigh all of the evidence presented during the proceeding (including public comments and correspondence from concerned ratepayers) and will issue a Recommended Opinion and Order ("ROO") that will be voted on by the five sitting ACC Commissioners.  The Commissioners can either accept, reject or amend the ROO during a noticed Open Meeting.

A final decision on APS' request for an increase in rates is not expected until sometime during the summer of 2009.

¹ ACC Staff normally has thirty days from the date of filing to determine if an application is sufficient under the filing requirements of A.A.C. R-14-2-103.  If an application is sufficient, the utility is notified by mail and the Commission's time clock rules go into effect.

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