Tucson Electric Power - Request for an Increase in Rates - Proposed Settlement Agreement

On July 2, 2007, Tucson Electric Power Company ("TEP" or "Company") filed an application ("Application") with the Arizona Corporation Commission ("ACC" or "Commission") requesting rate relief under one of three different Company-proposed methodologies:  a Market Methodology; which would result in a 21.9 percent increase over current rates, a Cost-of-Service Methodology; that would increase current rates by 23.0 percent, and a Hybrid Methodology; which would result in an increase of 14.9 percent over TEP's current rates.   In addition to an increase in existing rates, TEP is seeking Commission approval of a purchased power and fuel adjustment clause ("PPFAC") which will allow the Company to flow forward-looking increases and decreases in the Company's purchased power and fuel costs (with no profit markup) to customers.  TEP is also seeking approval of a surcharge to recover $14.2 million (under the Market Methodology) to $47.0 million (under the Cost-of-Service or Hybrid Methodologies) in certain software acquisition/modification and coal contract buy-down costs that were related to the implementation of retail electric competition in Arizona (the "Implementation Cost Regulatory Asset" or "ICRA").  TEP is further seeking a demand-side management cost recovery mechanism ("DSM Cost Recovery Mechanism") surcharge that will allow the Company to recover costs associated with DSM programs.  The Company is also proposing that the Commission adopt significant rate design changes that involve time-of-use ("TOU") and Lifeline rates for TEP's customers.  The Company is seeking a return on common equity that ranges from 10.75 percent to 11.75 percent based on the capital structure that is adopted by the ACC.

TEP currently provides electric power to over 394,000 customers in Tucson and southern Arizona.  The Company is presently operating under a moratorium (established in a 1999 settlement agreement with RUCO, members of Arizonans for Electric Choice and Competition, and the Arizona Community Action Association and approved in ACC Decision No. 62103, dated November 30, 1999) which freezes the Company's rates through December 2008.  TEP is requesting that new rates go into effect no later than January 1, 2009.

On August 31, 2007, TEP's Application was found to be sufficient by ACC Staff¹.

On September 13, 2007 the Administrative Law Judge ("ALJ") assigned to hear TEP's case issued a procedural order scheduling a procedural conference for 10:00 a.m. on Monday, October 1, 2007 at the ACC's Tucson offices at 400 W. Congress Street.  During the procedural conference, attorneys representing the various parties to the case, including RUCO, offered their recommendations on a procedural schedule for the case (i.e. the dates for the evidentiary hearing and for the filing of written testimony) to the ALJ assigned to the case.

On October 5, 2007, the ALJ assigned to the case issued a procedural order that scheduled the evidentiary hearing in the matter for 10:00 a.m. on Monday, May 12, 2008 in Room 222 at 400 West Congress, Tucson, Arizona.  On Thursday, February 21, 2008 the ALJ responded to a request from ACC Staff and issued a new procedural order that extends the filing deadlines for written testimony.  The scheduled date for TEP's evidentiary hearing has not been changed.   

Because RUCO was one of the parties to TEP's recent proceeding that sought to amend Decision No. 62103 (Docket No. E-01933A-05-0650), there was no need for RUCO to file a request for intervenor status in the current rate case proceeding.  During the discovery phase of the proceeding, RUCO's analysts and outside consultants will gather information, conduct an audit of the Company, and perform a cost of capital analysis to determine an appropriate rate of return on TEP's investment in utility plant which is used to provide service to the Company's ratepayers.

RUCO, ACC Staff and other intervenors to the case filed direct testimony on issues other than rate design on Friday, February 29, 2008.  RUCO is recommending the following:

RUCO'S DIRECT TESTIMONY REVENUE REVENUE REQUIREMENT

ACC JURISDICTIONAL

(Thousands of Dollars)