Opinion: Arizona Customers of a Major Utility Can Expect Price Increases

Mark Hake

This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

The Arizona-based utility, Salt River Project (SRP), with over 1 million customers in the Phoenix area, filed a document with authorities claiming it will lack power in peak periods starting in 2024.

This could lead to large price increases if the utility doesn't get its way with the Arizona Corporation Commission (ACC). The SRP, which had 1.063 million customers as of April 2021 and likely higher now, complained in a press release on May 13 that the ACC's recent decision hurt their abilities.

Consumers can probably expect that this will lead to price hikes as a result. The SRP did not state this in their press release. But it follows naturally from the implications of the press release.

For example, the recent ACC ruling, which the SRP is now appealing, could lead to a situation where "the utility will lack critical quick-start, flexible generation in times of peak demand."

It also "poses a risk to SRP’s ability to reliably serve customers," the SRP claims. In fact, it will slow down the SRP's power generation at night and when the wind doesn't blow. Here is what the SRP says: "SRP will lack critical generation from quick-start turbines that help provide backup power when the sun isn’t shining or the wind isn’t blowing."

Rationing and Price Hikes May Be the Only Answer

In California, a similar situation has led to warnings of rationing, according to The Center Square magazine. They reported last year that power companies, which have their own regulator rather than the state corporation commission as in Arizona with ACC, could face blackouts and rationing.

The only way that the SRP can avoid rationing or blackouts by 2024 would be to raise their prices. The SRP does not need regulatory approval to raise its prices. For example, in Feb. 2021 it raised its prices by 3.9%, starting in Nov. 2021, simply through the approval of its own board.

Therefore, given the statements in the SRP's May 13 release, their 1 million-plus customers should logically expect large price increases before 2024. That is, this could happen unless the ACC changes its mind about the recent decision.

The ACC denied the SRP a Certificate of Environmental Compatibility (CEC) to expand its peak-demand natural gas facility in Coolidge, AZ.

The ACC denied this proposal on April 12 even though its own Power Plant and Transmission Line Siting Committee recommended it. Apparently, it did not like the recommendation of its own committee experts. The panel included professionals who thoroughly examined SRP's application, including eight days of public hearings and testimonies, according to the SRP.

But the ACC doesn't want the SRP to expand its natural gas facilities at the Coolidge, AZ plant.

The bottom line here is that SRP customers are likely to bear the brunt of the ACC decision, which is probably rooted in green politics. They will likely see either rationing or price increases going forward.

The Bureau of Labor Statistics recently said the Phoenix area had the highest inflation rate (11%) in the US in the last 12 months. This decision by the ACC will do nothing to ameliorate that problem if it leads to a similar rate increase by the SRP.

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Mark R. Hake, CFA writes articles at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ

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