Please Read: Important News about the Power Supply Adjustor (PSA)

To deal with the rapid changes in fuel and purchased power costs, APS received permission in April of 2005 from the Arizona Corporation Commission (ACC) to pass on fuel (primarily natural gas) and purchased power costs beyond those included in base rates through a Power Supply Adjustor (PSA). The PSA mechanism was then put in place to allow APS to collect additional monies for fuel and purchased power costs incurred to serve our customers. APS pays for fuel and purchased power before they are collected from the customers and the amount it collects is fixed. APS must receive ACC approval to increase the amount it can collect from customers for fuel and purchased power costs.

The PSA approved by the ACC on June 28, 2007 addresses the method in which costs over or under the fixed amount are collected. This decision maintained the application of a PSA but modified the provisions that have been in existence since 2005. The PSA rate is subject to adjustment annually and goes into effect each February. All PSA charges continue to be subject to the review and approval of the ACC. The filings and subsequent charges described below are the result of this process. The ACC conducted a rigorous analysis of each of the company's requests described below before it rendered a final decision.

None of the PSA charges apply to the company's customers who are on either of the APS Energy Support (E-3 or E-4) programs or E-36 (Station Use Service rate), or Solar-2 rates.

Current PSA Charges

2010 PSA Rate

The current PSA mechanism was approved by the ACC on June 28, 2007 and was initially set to zero. This rate is adjusted annually each February based on a projection of fuel and purchased power costs. On December 16, 2009 the ACC approved APS' general rate case which required an update to the PSA Rate and resulted in a decrease of $.004490/kWh, which went into effect January 1, 2010. This rate is comprised of the following two components:

• Forward Component Rate of  $.002674/kWh 
• Historical Component Rate of $.001816/kWh.

Q) How does the Power Supply Adjustor work?

A) A base cost of fuel and purchased power of $.037571/kWh is included in APS base rates. The PSA is an adjustment mechanism that collects or refunds the annual fuel and purchased power costs that differ from the base year level.

The difference between what we are collecting from our customers through our base rates and what we are paying for fuel and purchased power is accrued in a tracking account for recovery or refund to customers, which is also known as the Historical Component.

The Forward Component, the second part of the Adjustor rate, projects the costs of fuel for the upcoming PSA year (January 2010 - February 2011). The difference between the projected fuel rate and the actual fuel rate will become the Forward Component of the PSA.

In December of each year, the Forward and Historical Components to be applied in the next PSA year are reported to the ACC. The combination of the Components is limited to a $.00400/kWh annual increase.

• Fuel and purchased power costs. This chart shows the APS' actual cost of fuel and purchased power compared to the base year amount that is currently included in our rates. The data shown on the chart is the monthly retail cents per kWh total that is filed with the ACC.

Q) Will APS customers pay the full cost associated with an increase in fuel and purchased power costs?

A) The fuel and purchased power costs that are recoverable through the PSA are generally split between customers and APS as the result of an ACC approved 90/10 sharing mechanism. APS can recover 90 percent of the covered costs from the customers and has to pay the remaining 10 percent itself. The ACC, in its recent rate decision, exempted certain fuel and purchased power costs, such as renewable energy resources, from this 90/10 sharing. The ACC approved this as a way to encourage APS to minimize its fuel and purchased power costs. Any costs flowed through the PSA are subject to refund should the ACC determine that such costs were not prudently incurred. APS files its PSA costs and tracking account total with the ACC monthly.

Q) When does the PSA Adjustor Rate go into effect?

A) The PSA Rate will be modified for the February bill of each year, in 2010 as part of APS' general rate case the PSA was modified in January. APS submits a publicly available report to the ACC that provides the calculation of the new PSA Rate each year. On December 16, 2009, the ACC approved an update to the PSA charges. This filing requested a decrease of $.004490/kWh (consisting of two parts: the Forward Component of $(0.002674)/kWh and the Historic Component of $(0.001816)/kWh) in accordance with the rate decision rendered on June 28, 2007. This decrease went into effect January 1, 2010.

Q) Is there a limit to how much I can be charged through the PSA?

A) The ACC approved the PSA Rate with an annual cap of four-tenths of a cent per kilowatt hour. A four-tenths of a cent per kilowatt hour PSA Rate charge increases an average residential bill by approximately four percent.

Q) What if fuel and purchased power costs go down?

A) If fuel and purchased power costs were to decline below the base level, the PSA Rate would be revised downward and would result in a credit on customer's bills. For example, if fuel and purchased power costs increased in the current year over the level in base rates, customers will get a PSA Rate charge on the "Power supply adjustment" line of their bills beginning in February of the following year to recover those increased costs. If these costs decrease, customers will receive a credit indicated on this line.

Q) Will all APS customers be billed for the PSA charges?

A) Customers who are on APS' Residential Energy Support Program (E-3), Medical Care Equipment Program (E-4), Station of Use rate (E-36), or Solar-2 rates will not receive any PSA charges. Information on the Energy Support Program and the Medical Care Equipment Program is available on this Web site or by calling the APS Medical Care Division at (602) 371-6884 for Metro Phoenix or (800) 253-9405, ext. 6884. Information on E-36 and Solar-2 is also available on this Web site or by calling (602) 371-7171 or (800) 253-9405.

Q) Can APS help me make my energy cost more manageable?

A) Customers can minimize the impact of the PSA by using electricity efficiently and wisely, thus reducing their overall energy usage. Tips on how to reduce your energy usage are available on this web site or on the bill inserts that accompany your monthly bill. It is important to remember that your energy usage this year will impact the PSA charge that goes into effect next year. As described above, a component of the PSA charge for next year is calculated using the fuel and purchased power costs incurred by the company this year.

Q) Do natural gas prices impact APS' fuel and purchase power costs?

A) Yes. Just as gasoline prices have increased at the pumps, the cost of natural gas and other fuels we buy to run APS' power plants have also increased. Fuel is the largest single cost of providing electricity to our customers. Since we only charge our customers for what the fuel costs us, our rates reflect the true prices we pay.

Q) Where can I get more information on current natural gas prices?

A) More information on natural gas costs is available. This link will take you to another party's Web site and is included only to provide access to information indicating the current national natural gas market trend, which may not reflect what APS pays for natural gas in the future. APS purchases gas from different basins and at different prices than what is shown. Additionally, APS' natural gas costs include several additional costs such as taxes, shrinkage, and pipeline transportation costs, among others. Market prices can change by the minute and forecasts are not always accurate. Please see our Terms of Use for additional information and disclaimers applicable to Third Party Sites.

Revised January 11, 2010