In a move that's stirred up significant controversy, Arizona's utility regulators have green-lit a shift in how energy rates are set, potentially affecting scores of businesses and residential consumers statewide. On Tuesday, the Arizona Corporation Commission, by a slim 3-2 majority, implemented a new ratemaking model that utilities can opt into, favoring what's known as formula ratemaking. According to Phoenix Business Journal, this process leans on a preset formula tracking the utility's previous year's costs to adjust rates automatically every year, with a comprehensive rate case occurring just once every five years.
Supporters, including some construction groups and the Arizona Chamber of Commerce, argue the change will lead to smaller, steadier rate hikes and less regulatory lag – the time taken for government responses to utility actions. But critics, like the Arizona Attorney General and consumer rights groups like the AARP, have expressed staunch opposition. They suggest that formula rates incentivize utilities to boost their rate base at consumers' expense. As 12News includes, Sarah Barrios Cool, an attorney for the Residential Utility Consumer Office, expressed in a legal filing that "No utility has provided any evidence to show a causal link between formula rate schemes and lower costs of debt."
The method of the commission's decision-making has also been controversial, opting for a policy statement vote over a formal rules hearing, which some argue denies due process and lacks transparency. In particular, the lack of a follow-up workshop and legal opinion, previously indicated by the Commission itself, left stakeholders seeking more time to contend with the sudden policy shift. Despite pushback and the expedited nature of the decision, the Commission remains steadfast. As reported by 12News, Chair Jim O'Connor dismissed concerns by accusing stakeholders of failing to bring forward solutions previously, a claim refuted by at least two attendees.
