Hearing - G-04204A-24-0237 - UNS Gas, Inc. Tucson

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Arizona Corporation Commission 2h 11m 3 agenda items transcribed 2 days ago official recording ↗

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What is the purpose and scope of the UNS Gas formula rate plan hearing?

Belinda Martin 0:00

Is that Jen? Yes. Okay, let's go ahead and go on the record. And this is the time set for the continuation of the hearing in docket number G-04204A-24-0237. And this is the UNSG rate case. Good morning and welcome to the Arizona Corporation Commission. This is Belinda Martin, the ALJ assigned to this matter. I've been informed that Mr. Smith, to catch a flight, needs to leave by 11. So I don't believe his questioning will be done by then. I know I have a lot. So could everybody please look at their calendars? We are still technically scheduled for three days next week, the first three days. So if somebody can tell me... if you you can tell me all of you which of those three days monday tuesday or wednesday uh might work for you actually monday or tuesday because i have a seminar on the 22nd

Unknown 0:54

i'll start um monday is fine and tuesday morning would work i

Belinda Martin 1:00

got it tuesday morning okay mr pat mr carroll

Unknown 1:04

uh either is

Belinda Martin 1:05

fine okay mr pasewski are you school And I'm sorry, just in case somebody's listening, this is going to be via WebEx, obviously.

Unknown 1:16

Yeah, Your Honor, just to clarify, I probably would participate by WebEx as well.

Belinda Martin 1:26

Me? I'll be here.

Mr. Pazewski 1:30

This is via WebEx, right, Your Honor?

Belinda Martin 1:32

Via WebEx.

Mr. Pazewski 1:33

Yeah, any time is fine, Monday or Tuesday morning. Okay, okay.

Belinda Martin 1:38

Why don't we say, and if those of you are online who have a strong objection to resuming Monday at 10 a.m., please pipe up. Otherwise, that's when we will continue. Most people are going to be appearing via WebEx. That's cool. We'll deal with it. But yeah, so with that out of the way, let's go ahead and get started. And I believe Mr. Smith, you're ready to talk about formula rate plans today. So let me go to Ms. Scott. Good morning, Mr.

Ms. Scott 2:13

Smith.

Unknown 2:14

Good

Ms. Scott 2:14

morning. Could you just give some, to start out with, could you just give some general comments on formula rate plans?

Unknown 2:27

Sure, yeah. A formula rate plan is a utility regulatory framework where rates are adjusted annually based on a predetermined mathematical formula allowing for timely and predictable cost recovery without the expense of a full rate case. The formula incorporates various cost inputs and the utility's earned return is compared to a target return that triggers rate changes, helping to stabilize earnings, fund infrastructure, reduce regulatory lag, and reduce the regulatory burden on both the company and stakeholders. It might be helpful to review at a high level how a formula rate plan works. It uses a predetermined formula. The core of the formula rate plan is a formula developed and approved by a regulatory commission.

Unknown 3:32

The formula uses key inputs from the utilities, financial statements, and accounting records, such as operating expenses, capital investments, taxes, depreciation, utility plant and service, and a regulatory approved return on equity or ROE. Under formula rate plan, the utility updates the variable inputs in the formula each year, applying the formula to calculate new rates. If the formula indicates a need for rate change, which is often based on the difference between the utility's actual earnings, actual earned return, and a target return, the utility can adjust rates annually, reducing the need for full formal rate case proceedings. Some of the benefits of formula rate plans, and I think these were mainly articulated in the Commission's policy statement,

Unknown 4:48

It provides for timely cost recovery. It allows for recovery of varying costs more quickly than traditional methods, such as having full rate cases. It provides for financial stability, predictable and stable earnings, reduce financial risk, and can lower the cost of capital for the utility that has a formula rate plan. It facilitates timely investment in critical infrastructure and provides the utility an opportunity to earn an adequate financial return. Benefits to customers include gradual rate changes rather than sudden larger changes in utility rates. Under formula rate plan, rate adjustments are more gradual and predictable, avoiding large unexpected increases by parceling those out over a series of annual adjustments rather than having those dealt with all at once in a utility rate case.