Overbuilding?

ACC Chairwoman Lea Marquez Peterson is concerned that the utilities will overbuild renewable capacity in an effort to inflate their rate base.

When regulators sneeze, utilities get pneumonia.  APS listed the Chairwoman's letter  on the "Risks and Opportunities" slide in the recent Resource Planning Advisory Committee (RPAC) presentation.

APS Headline slide

She has a point.  Utilities earn a return on rate base and they are severely penalized if they are short on capacity,  so they have multiple incentives to either overbuild or gold plate the system.  Regulators work to ensure that utilities don't keep reserve margins too high and that utility investments are used and useful.  

I would argue however, that western capacity markets are tight.  Here is another slide from the APS RPAC deck.  

APS short term peak slide

APS certainly isn't currently overbuilt.  In fact,  I would argue that reliance on the short-term market for hundreds of MW of peak capacity is evidence that APS is short of capacity.  

So the Chairwoman's point is well taken--regulators need to watch procurement over the next decade.  It is more likely that APS and TEP will struggle to obtain the resources they need in order to keep the AC units running.  

 


SRP Issues All-Source RFP

From the SRP website.

 

2021 All-Source Request for Proposals

SRP has issued a Request for Proposals (RFP) for resources to satisfy up to 1,000 MW of customers’ peak summer demand. SRP is seeking up to 400 MW of peaking resources by summer 2024 and up to 1,000 MW total by summer 2026. 

How to participate:

Please complete the registration form below by Nov. 30, 2021, to receive additional information on the RFP. Registration enables access to all RFP-related documents and allows receipt of messages and notices from SRP.

The 2021 All-Source RFP process uses Ariba, a web-based platform for hosting solicitations. After the deadline, SRP will send an email to all participants with instructions and a link to access Ariba. Please ensure that all individuals at your firm who will need access to the RFP documents are registered.

For more details, please see this All-Source RFP pdf document. 

 


ACC Recommended Order's Impact on APS Revenue

On our latest call, folks were asking how the Hearing Officer's Recommended Opinion and Order (if adopted by the ACC) would affect APS's total bottom line.  That turns out to be a difficult question.  The ROO provides for a $4 million dollar rate increase.  However, APS has a negative fuel adjustment that works into the equation as well.  

Here's an excellent explanation from the transcript of the latest earnings call.  

Ted N. Geisler -- Senior Vice President and Chief Financial Officer

High level, so you've got the $4 million net sort of revenue increase as proposed in the ROO, that includes fuel. So we've got to get that down to non-fuel. So you back out about $33 million of fuel related increases that takes you to a total non-fuel revenue decrease of $29 million. You add to that incremental cost that we've stated for a while now will hit the income statement once rates go into effect of about $110 million and then you tax effect that, that gets you to the $90 million estimated annual impacts to ongoing earnings. And again, we expect that to be up to $90 million and that's an estimate at this time.


Fitch: APS Rating Outlook Negative

On our last Zoom call, we discussed the Hearing Officer's Recommended Opinion and Order in the APS Rate Case.  The judge rejected the company's request to put the Four Corners SCRs into rate base.  The Commissioners can, of course, amend the order to put the SCRs into rates, but it takes three votes to amend the order and there's a lot of inertia.   If the ACC adopts the  judge's recommendation, APS will not recover the investment of nearly $500 million. 

Here's what Fitch said:

The Negative Outlook reflects heightened regulatory risk in Arizona with an adverse outcome in APS's pending general rate case (GRC) being the main concern. A final order in APS's pending GRC consistent with a recent administrative law judge (ALJ) recommendation, which Fitch views as more onerous than previously expected, will be detrimental to credit quality and could lead to a one-notch rating downgrade at APS and parent Pinnacle West Capital Corp. (PNW, IDR: A-/Negative).