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Understanding Formula Rates: What They Mean for APS Customers
APS is proposing formula rates – a way to set customer rates to make your energy costs more stable and transparent, while ensuring residential and commercial customers aren’t paying for investments and expenses driven by large customers like data centers. We’ve asked the Arizona Corporation Commission to approve this approach in our current rate case to use in the future.
APS has long used formula rates to recover the costs of transmission (the large power lines and equipment that move electricity long distances). This proposal would simply expand this approach to cover other elements of ensuring safe and reliable service.
How would formula rates work?
APS would conduct an annual review of costs to serve all customer classes (residential, business, etc.) and allocate costs to those customers through the formula.
This would be a fully transparent process with public input and oversight by the ACC, just like today. Depending on the review, rates could increase, decrease, or not change at all.
The current rate review process looks back at one ‘historic test year’ to see what the utility spent in order to update rates. But this process takes multiple years.
With formula rates, annual expenses and investments would still be reviewed on a historical basis but rates could adjust every year as costs change. Formula rates would provide an annual process through which we would make sure costs created by these new, large users are allocated to them directly. This is especially important now. Energy demand is rising, much of it driven by extra-large energy users such as advanced manufacturing and data centers.
A full, traditional rate case would still be required every five years and could be requested or ordered more frequently.
Formula rates would:
- Support a "growth pays for growth" strategy by making sure that customers who drive additional costs, such as a data center that needs a new power plant or distribution lines, continue to pay for infrastructure they require and what it costs to serve them.
- Make your energy bill more predictable by providing gradual small changes annually so you can budget your bills better
- Simplify customer bills by reducing the number of adjustors currently used to pay for specific services and programs.
- Strengthen reliability and affordability by helping APS recover costs in a more timely way, which supports investment in our reliable, resilient grid and can help lower borrowing costs – with those savings passed on to customers.
What’s next?
We’ve included the formula rate proposal in the 2025 APS rate case filed with the Arizona Corporation Commission, which is currently under review. If approved, this new approach would help make your energy bill more transparent and predictable and help APS maintain reliable service by ensuring funding for maintenance and upgrades based upon current costs.
Learn more at aps.com/ratecase.
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