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Green energy comes with a price tag in Kingman  

Credit:  Ahron Sherman, Miner Staff Reporter, kdminer.com 1 July 2011 ~~

KINGMAN – Whether you see the wind farm as blight or beauty, one question weighs on many UniSource Energy Services customers’ minds: “What is it going to cost me?”

Although the actual cost coming is unknown, there is a process used by the Arizona Corporation Commission to decide the amounts UES can charge its customers for renewable and traditional energy.

Two calculations set forth by the ACC affect UES customers’ energy bills. One is known as the Renewable Energy Standard Tariff, and the other is the Purchased Power and Fuel Adjustment Charge. Each is established once a year in different months.

REST is set in January while the PPFAC comes out in June.

UES spokesman Joe Salkowski said REST is designed to fund renewable energy projects.

In 2006, the ACC passed the Renewable Energy Standard, which says Arizona utility companies must have 15 percent of their energy come from renewable sources such as wind, solar and hydro.

Each year, the percentage of renewable energy mandated increases incrementally. This year, UES must increase its renewable energy from 2.5 percent to 3 percent. This half a percent increase per year will continue through 2016. At that point, the incremental changes get bumped up to 1 percent per year, said ACC public information officer Rebecca Wilder.

According to the UES website, the ACC voted to increase REST from 0.0071 per kilowatt-hour to 0.0083 per kwh for

2011. The tariff is expected to raise $8.1 million this year, which will be used to expand renewable energy sources. About two-thirds of that money will go to customer incentives for installing their own renewable energy sources such as small wind generators, solar space heaters and geothermal heat pumps. The remaining one-third goes to developing projects and purchasing “green” energy.

With the Dec. 2010 vote came a reduced cap on the tariff surcharge for residential customers and an increased cap for commercial and industrial customers. The cap for residential customers was reduced from $9 to $5. The UES website says customers will pay $4.34 per month on average for REST this year. The cap for commercial customers increased from $140 to $160, which translates to $22.82 per month on average. The cap for industrial customers increased from $2,700 to $3,625. That means industrial customers will pay $3,625 per month on average, according to the UES website.

According to official documents from the December ACC open meeting, caps were decreased for residential customers and increased for commercial and industrial customers to lessen what ACC commissioners saw as disproportionate costs for residential customers. For a comparison, consider that residential customers use nearly 43 percent of kwh for UNS, but they are projected to pay about 61 percent of REST charges; whereas, industrial and mining customers consume 24 percent of kwh for UNS but are projected to pay 8 percent of REST charges.

Although Western Wind’s Kingman wind farm is set to start producing energy that UES will purchase through a 20-year contract, the REST surcharge will not be affected by it, Salkowski said. Even though the wind farm will most likely be factored into the decision, it is the fact that UES must increase its renewable energy by 0.5 percent that could possibly increase the surcharge. Of the 3.5 percent of the renewable energy requirement in 2012, 30 percent must come from distributed sources – the systems customers install – which is more expensive for UES to purchase than the energy the wind farm produces.

The PPFAC does not necessarily have anything to do with renewable energy, but it is a way for UES and other utility companies to recover the price of their market purchases of power, Salkowski said.

“We don’t make money with the PPFAC,” he said. “It is simply a pass through.”

Energy is purchased at wholesale markets, and like other commodities, prices often fluctuate, Salkowski said. The PPFAC reflects the amount UES paid for fuel and power over the prior year as well as a projection of current-year energy costs. It is set annually by the ACC at a level that’s designed to recover the difference between the company’s actual energy costs and the costs already built into the company’s rates. When energy prices are low, as they are currently, the PPFAC becomes a credit rather than a charge, he said.

The PPFAC is set in June, and this year’s actually brought a decrease to UES customer’s bills. Since the market price of energy is lower than costs built into the rate, the PPFAC was lowered by approximately 9 percent, according to the UES website. This credit translates to a savings of about a penny per kwh, which means customers should save an average of $8.35 a month or $100 for the year.

UES tracks the amount it pays for conventional energy generation every month. At the end of the June-to-June cycle, the prices are averaged out. That price is then applied to the price of renewable energy. If the average is $50 per megawatt-hour, but the price of wind energy is $80, UES tries to recover that $30 with the REST surcharge, Salkowski said. Renewable energy has no effect on PPFAC, he added.

Regardless of rates, one thing is for sure: Rates change for better or worse two times a year – once in January when REST is calculated, and once in June when the PPFAC gets its annual recalculation.

Source:  Ahron Sherman, Miner Staff Reporter, kdminer.com 1 July 2011

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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