Low natural-gas prices and strong interstate business are allowing Arizona Public Service Co. to drop customer bills by $3 a month on average starting Friday.

The $80 million rate reduction comes from the annual adjustment to the "power supply adjustor," a line item on customer bills that reflects what APS is paying for power plant fuel and power from other utilities.

The PSA increases when natural-gas prices and other power plant fuel costs go up, and go down when prices fall. The PSA is set using a combination of the actual costs APS paid in the last year and a forecast of the prices it will pay in the year ahead.

"Whether we are buying cheaper energy from other regions and displacing more expensive generators on our system, or selling to other parts of the system, we are kind of indifferent," said Brad Albert, vice president of resource management for APS. "It all benefits our customers if we can save a buck one way or another."

The company hedges its fuel contracts by agreeing to purchase natural-gas at a set price years in advance, which insulates the company from large swings in prices.

The company, for example, is not being affected much by the current upswing in gas prices tied to the Midwest cold snap because it already agreed to purchase fuel today at a set price years ago, Albert said.

"The prices we've been able to hedge in on natural gas have been fairly attractive," Albert said."We are already starting to lock in prices for part of our natural-gas prices as far out as 2023."

Energy Imbalance Market helping

Another major reason the company is able to reduce bills is its participation in the Energy Imbalance Market run by the California Independent System Operator.

Utilities like APS have hour-to-hour trading desks where they buy and sell gas and power from neighboring utilities, and APS began participating in the EIM in 2016 to help make those trades more cost efficient.

HOW MUCH? APS parent company spent $37.9M fighting clean-energy measure

The EIM seeks the cheapest power plants available on the grid and dispatches them to meet demand as it rises and falls across the West.

Participating in the EIM saved APS and its customers $45 million in 2018, Albert said.

On 81 days in the past year, APS was actually paid to take excess power from other markets, mostly California, he said.

So-called "negative priced" electricity is usually a product of solar plants generating full capacity power midday during mild weather when demand on the grid is low.

SRP also benefiting

Low gas prices are prompting a similar rate reduction at Salt River Project, the other electric utility that divides service territory in metro Phoenix.

SRP managers are asking the elected board of directors at that utility to approve a small rate hike that will be more than offset by a reduction in that company's line item for fuel. If approved that change will reduce SRP customer bills from $1 to $4 a month.

The reduction in APS bills is separate from the company's rate cases at the Arizona Corporation Commission. The power line item on bills can be adjusted between rate cases by the company.

The Corporation Commission is reviewing a complaint from APS customers who say the last $95 million rate hike approved in 2017 is unjust. A judge in that matter will issue a recommendation to the elected commissioners, who will vote on whether that hike needs to be reviewed.

Separate from that, the commissioners recently voted to review APS' profits to determine if the company is earning more than the 2017 rate hike authorized. Commission staff is due to report on that matter May 3.

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