Why a residential demand rate developed 40 years ago is increasingly relevant today.
Leland Snook is director of rates and rate strategy for Arizona Public Service Co. Attorney Meghan Grabel is a partner in the administrative law group of the Phoenix law firm Osborn Maledon, and served previously as associate general counsel (regulatory) for Arizona Public Service.
Picture the Arizona desert in the mid 1970s - hot, dry, and full of promise. With average summer temperatures exceeding 100 degrees in the Valley of the Sun, it is no wonder that centralized air conditioning would redefine lifestyles in the Grand Canyon State and prompt significant population growth.
Central AC worked wonders for the Arizona economy and, from the local utility's perspective, changed how residential electric customers used energy. In 1970, Arizona Public Service Company (APS) saw its residential customers demanding 426 megawatts (MW) of capacity at the coincident peak. But with the proliferation of air conditioning, that number more than doubled to 992 MW by 1980. To meet that need, APS would have to add new generation and grid infrastructure to its system - incurring significant costs that ordinarily would be passed along to all grid users.
Enter Paul Hart, an executive with APS and a seasoned veteran of utility pricing puzzles. Hart understood that his customers had dramatically changed the nature of their energy use. Traditional utility pricing schemes would no longer ensure that customers installing central air would pay their fair share of costs. Nor would it send price signals to incent those same customers to manage their energy use and keep system costs down.