Tucson Electric Power’s plan to ask the Arizona Corporation Commission to choose from one of three plans for a rate increase backfired when state officials suggested other proposals the utility’s CEO labeled as "reckless."

TEP, which has been under a rate-freeze since 1994, submitted its three plans for rate increases that would take effect when the freeze expires at the end of the year. The utility said the three proposals would have raised average rates between 15 percent and 23 percent but that most homeowners would see rate increases of between 8 percent and 13 percent.

At the corporation commission’s first day of hearings on the matter Feb. 29, Arizona’s Residential Utility Customer Office (RUCO) suggested a rate increase of 4 percent would be more reasonable.

The staff of the corporation commission also questioned some of the statistics in TEP’s request.

"The proposals from staff’s consultants and RUCO are simply reckless," said James S. Pignatelli, chairman, president and CEO for Tucson Electric and its parent company, UniSource Energy Corporation. "The rates proposed would not provide the increases we need to cover our rising costs and serve our customers’ growing energy needs. They clearly did not consider the financial impact their recommendations would have on this company."

The commission’s consultants and staff recommended a nearly 10 percent reduction in TEP’s base rates, Pignatelli said, although he acknowldged a purchased power and fuel adjustment clause could bring in revenue within 2 percent to 3 percent of what is currently being generated.

"But after going more than a decade without a rate increase, a decrease in base rates would threaten our financial stability and, frankly, defies logic," Pignatelli said.

Consumer prices have increased more than 40 percent while TEP’s rates have been frozen. Some of the costs of labor, fuel, construction materials and other business needs have risen even more dramatically.

In addition to higher operating costs, TEP says it is getting ready to invest nearly $1.4 billion over the next five years in transmission lines, transformers, substations and other improvements.

Despite the initial setback, Pignatelli said "We’re early in the process, though, so the (corporation commission) still has plenty of time to work toward a resolution that recognizes TEP’s costs."

TEP will file a formal rebuttal by April 1 and then a hearing before an administrative law judge is scheduled to start May 12. The law judge will review the rate-increase request and testimony then give a recommendation before the corporation commission acts late this year.

Contact Joe Pangburn at jpangburn@azbiz.com or at (520) 295-4259.