A new formula for the power players
How Arizona’s biggest utilities just made higher bills a habit.
Arizona’s biggest utilities have a new formula: Higher rates, more often.
They want to plug it in next year.
Arizona Public Service and Tucson Electric Power are both starting the process to raise rates by about 14%
But the authors of Arizona’s Constitution built in a safeguard to ensure utilities like APS and TEP can’t just hike prices on a whim — they created an independent agency to regulate major utilities.
The Arizona Corporation Commission is kind of like the referee between monopoly utilities and their captive customers, and whether you like their calls depends on who you’re rooting for.
Last year, three of the commission’s five elected commissioners approved a new policy that lets utilities adjust rates each year through a formula, rather than waiting for the traditional 2- to 3-year rate cases.
Under the traditional rate case system, utilities file thousands of pages of evidence to justify changing rates, and the process drags on for 12 to 18 months.
Now, utilities can provide a formula to plug in technical numbers like revenues, the value of their assets and return on equity — or how much profit the utility wants to earn. They still have to go through the full rate case review every five years.
The commission says the formula increases will gradually increase rates to prevent “rate shock” for customers. And that it’s “an option, not a mandate.”
That’s now the option that two of the state’s largest utilities are eagerly choosing.
But opponents, including Arizona Attorney General Kris Mayes, argue the policy shifts the financial risk from the utilities to the consumers. Under formula rates, customers shoulder most of the unexpected swings in costs or revenues, rather than utilities absorbing them until the next full rate case.
While a lot of utilities (in the southeast portion of the country, specifically) use formula rates, utility regulatory analyst Michael Deupree, an expert for the commission itself, warned they “have resulted in large rate increases with very few rate decreases and no measurable improvement in reliability of service.”
Deupree’s slideshow, prepared for the commission’s workshop on formula rates, actually has a lot of warnings like that, including that the rate-making mechanisms:
“resulted in large rate increases with very few rate decreases nor earning sharing opportunities.”
“have also not resulted in any sustainable nor distinctly measurable improvement in reliability or quality of service.”
and that “not one single state” that has adopted the policy has “shown outcomes that can be held out as an unequivocal ‘success’ for ratepayers.”
The commission adopted the new formula-based rate increase policy last year in a rushed vote with a lot of opposition. This year, the behemoth companies that want to routinely increase electric bills are laying out how they plan to take advantage of the option.
Mayes — a former member of the Corporation Commission herself — intervened in both APS and TEP’s rate cases, which basically means she’s now a party in the cases and can present evidence and cross-examine witnesses.
But her role is just one piece of the puzzle, and the commission already said utilities can charge rates based on formulas.
So now that Arizonans will see more regular bill increases, how are utilities proposing to implement them?
Arizona Public Service
Requested increase for 2026: 14%, about $20/month for residential customers
APS estimates it will collect $579.5 million more if the commission lets it increase rates, but that’s not just from the electric bills of the 1.4 million homes and businesses it powers.
The 14% increase is the system-wide average figure across all customer classes. Average residential bills will jump by 14.6%.
Within APS’s more than 2,300-page rate case application, the company says its new formula plan will benefit customers by “more frequently aligning cost recovery with the customers who are benefiting from the service.”
Here’s a super simple explanation of how the new formula rates would work:
APS uses its most recent financial data to see what it actually spent and earned, then adds in new investments it expects to make in the coming year.
APS checks if it made more or less than its desired profit margin, and it raises or lowers rates accordingly.
The new rates start showing up on bills each September.
APS wants the commission to guarantee a 10.7% return on equity, which is essentially the profit it’s allowed to earn on shareholder investment that ultimately flows up to its parent company, Pinnacle West.
Last year, Pinnacle West Capital Corporation reported $609 million in profit.
The multi-billion-dollar company has a lot of reasons for needing more money. The amount it’s collecting doesn’t cover the cost of providing energy, it says, and demand is increasing rapidly.
APS says it needs new infrastructure to keep up with that record growth, and that extreme heat, wildfire threats and inflation are making everything worse.
And, of course, there are the data centers.
“In the Company’s entire history, it has never experienced growth of this magnitude, which is being almost entirely driven by large high load factor customers,” APS’ Senior Director of Rate Strategy Jessica Hobbick wrote in the rate case application.
Under the proposal, bills for APS-powered data centers will increase by nearly 30%. The company wants to make sure the cost of powering data centers is “not shifted to other customers during the annual formula rate adjustments.”
There’s actually a new cost allocation plan embedded in APS’ rate case materials: APS wants to wall off data centers into their own class and directly tie their rates to the new plants and infrastructure they trigger.
It’s unclear exactly how data centers will impact residential customers’ bills. Even if APS builds a new energy source because of a data center, grid upgrades in general benefit everyone, so everyone pays.
Tucson Electric Power
Requested increase for 2026: 14%, ~$20/month for residential customers
TEP said its 14% rate hike would raise its revenue by $172 million annually, and it wants the new rates in effect by September 2026.
About 90% of its customers are residential, 9% are commercial and less than 1% are industrial/mining, per its rate case filing. But not all users are created equal — industrial customers use a lot more power than residential ones.
The Star reported last October that TEP’s residential rates rose almost as fast between 2020 and 2023 as they did in the 22 years from 1998 to 2020. But the utility says that the number of customers it serves has increased by about 1% per year since it last raised rates by 10% in 2023.
That’s not a lot of customer growth, so where is all that energy demand coming from?
In its roughly 1,600-page rate case filing, TEP says the pressure is coming from that 1% — the “high power users” include “data centers, manufacturing facilities and mines.”
A lot of TEP’s anticipated energy demand is for Project Blue, an Amazon-linked data center in the Tucson area that’s drawn fierce community pushback.
TEP is waiting for the commission to approve its Energy Supply Agreement with Beale, the data center operator, to supply up to 286 megawatts to Project Blue. That’s roughly as much electricity as 260,000 Tucson homes use in a month.
And that only covers the initial phase — Project Blue is set to grow over time. TEP has said it will use its existing energy capacity to power Project Blue through at least the initial phase.
The utility said its other ratepayers shouldn’t have to pay for the massive energy data centers use. But unlike APS, it’s not suggesting a tariff system for data centers to pay for their increased energy demand “at this time.” TEP is waiting for the outcome of the Energy Supply Agreement.
TEP is, at this time, setting up the new formula for its formula-based rate plan.
TEP and APS propose very similar ways of calculating annual rates through a new formula-based system. TEP will also check whether actual earnings match their allowed return on equity, then adjust customer bills up or down accordingly.
The utility wants a 10.5% return on equity. Its parent company, Fortis Inc., reported a profit of $1.6 billion in 2024.
But TEP says it needs to charge customers more because of rising interest rates, a challenging labor market and “many inquiries from prospective high energy use customers,” per CEO Susan Gray’s testimony.
Plus, the company owes bills on some “significant investments” like a 200-megawatt battery energy storage system, substation projects and wildfire-proofing.
What you can do about it
Only 10 states elect utility commissioners.
In Arizona, that means the utility regulators answer directly to us, and we should make sure they listen.
The Corporation Commission has an online database where you can find all the materials in rate cases. You can find the docket search here, and the relevant docket numbers are:
APS rate case: E-01345A-25-0105
TEP rate case: E-01933A-25-0103
TEP’s request to power a data center: E-01933A-25-0187
You can file a public comment here. And here’s more information on the consumer complaint process.
Here are the commission’s public comment meeting dates for the APS rate case:
And for the TEP rate case:
The ACC wants an automatic bump. Every year. So they won't have to justify it or work for it. They are ALL Republicans. Ergo, they don't want to govern. Connect the dots...
If I read the post correctly, while APS is asking for a 14% overall rate increase, it is that high because it is hitting data centers with a whopping 29% increase, other non residential users with higher increases and keeping the residential rate increase down to about 6%, except for very large homes where evil Republicans live who get a 14% hit.