The Payson Town Council voted unanimously to oppose big rate increases proposed by SemStream and Arizona Public Service.
The council called on the Arizona Corporation Commission to reject SemStream’s 26 percent increase in propane rates and APS’s 6 percent increase in electrical rates, both of which would take effect next year.
“We want these rate increases to at least be postponed until a time when the economy is more robust,” said Councilor Su Connell at last week’s council meeting.
“As individuals, we took an active role in an earlier setting,” said Payson Mayor Kenny Evans who led the ultimately futile resistance two years ago to a surcharge on propane rates that doubled or tripled the monthly bills for some SemStream customers.
Evans said council members have been getting lots of calls from residents irritated by the proposed rate increases, including many people already having trouble getting through the month.
“I get lots of calls and comments,” said Evans. “We’re the easiest ones to beat up on, but we don’t have a voice on those rates.”
SemStream’s requested rate increase would increase the average monthly cost for the 7,700 customers on the underground network from $60 a month to about $76 a month. The corporation commission doesn’t regulate the rates for the 2,000 customers who have propane delivered to a storage tank on their property because several companies compete for that business.
Evans said while natural gas rates have fallen by 50 percent in the past 20 years, propane rates have steadily increased.
Most propane is made as a byproduct of oil refining, while natural gas occurs naturally in the ground — often associated with oil deposits.
New technologies have resulted in a big increase in domestic natural gas production, which has driven down prices. However, the delivery of natural gas requires construction of an expensive pipeline. One study estimated it would cost at least $100 million to connect Rim Country to the nearest natural gas pipeline.
Trucks bring propane to Rim Country
On the other hand, SemStream delivers propane to Rim Country in pressurized trucks, which drives up the cost considerably.
SemStream’s filings with the corporation commission say the company lost $300,000 on its operations in Payson last year.
The rate filing seeks a 26 percent increase in the base rate for propane, the first increase in the base rate since 1997. Rising propane costs combined with a steady reduction in propane use in Rim Country made the increase necessary, said the filing.
In addition to its base rate, the company can also impose a surcharge on the bills when it pays more for propane than the base rate covers. In 2009, those surcharges often greatly exceeded the base rate for most customers, provoking an outcry.
This time, the company also wants to make changes that would allow it to impose the surcharges more quickly when it starts to lose money due to rising propane costs.
The company’s filings indicated the proposed rate increase would increase revenues by about $1.56 million, boosting revenue from $6.4 million to about $8 million. Had the higher rate been in effect in 2010, the company would have enjoyed an 18 percent return, rather than a 4 percent loss, according to the filings.
The budget documents filed with the rate increase included a $640,000 management fee to SemStream’s parent company, which recently emerged from bankruptcy following allegations that it had tried to corner the national propane market with futures contracts and other devices, only to suffer massive losses when the recession hit and oil prices dropped sharply.
APS seeks 6.6 percent rate increase
APS also seeks an overall 6.6 percent increase in electrical rates, which would take effect next July. Customers using 1,100 kilowatt-hours of electricity would see their bill rise about $8.36 per month to about $136. The increase will come in closer to 11 percent for high-energy-use industrial users.
The company’s Web site says the company has reduced its work force by 3 percent since 2009 and cut operating costs by about $37 million. In the last 20 years, the company’s rates have increased an average of 1 percent annually, according to the Web site.
The new rate structure proposed by APS would “decouple” the rates charged to the cost of building infrastructure — like new power lines. That change reflects a sharp reduction in the state’s growth rate. It also would give the utility new incentives to promote energy efficiency, since it would not automatically get to boost rates every time it builds additional facilities.
The Arizona Corporation Commission has already required the company to encourage energy conservation and alternative energy approaches — like solar energy. The commission expects the state’s utilities to cut energy consumption by 22 percent by 2020, which would in turn drive down the company’s revenues.
Payson hopes to take advantage of the new requirements for utilities to buy power generated by things like solar cells and wind turbines. A $65 million mixed geothermal and solar power generating plant remains a key part of Payson’s plans to build a four-year college campus. The town is negotiating with APS to buy the roughly 7.5 megawatts of power the solar system would generate if installed on the roof of a covered Payson Event Center and parking lot.
The proposed rate increase would boost APS revenues by about $194 million, but would reduce the net revenues by $45 million in funding for various solar projects.