Arizona Public Service Seeks Annual Rate Hikes: How ‘Formula Rates’ Could Raise Your Electric Bill Every Year
Arizona Public Service (APS), the state’s largest electric utility, has proposed a sweeping change to how it sets rates for customers—a system that could lead to annual increases rather than the current five-year review cycle. The utility’s request to adopt “formula rates” is now before the Arizona Corporation Commission (ACC), which begins hearings on the proposal this week.
If approved, the plan would allow APS to file for smaller, incremental rate adjustments each year, rather than waiting for a full rate case every five years. Critics warn this could lead to steady, predictable—but still significant—hikes in monthly bills for Arizona’s more than one million customers.
What Are ‘Formula Rates’ and How Would They Work?
Formula rates are a regulatory mechanism that ties utility rates to predefined financial or operational metrics, such as inflation, fuel costs, or infrastructure investments. Instead of undergoing a lengthy rate case every five years, utilities with formula rates can adjust prices more frequently—often annually—based on changes in those metrics.
APS argues this approach would provide predictability for customers, as increases would be smaller and spread out over time. For example, if fuel costs rise by 3%, customers might see a corresponding 0.5% increase in their bill each month, rather than a sudden 3% jump during a rate case.
“If you’re going to buy a cup of coffee, and it changes from $2 to $8 in a day, it can really freak people out. Whereas, if that changes in a smaller amount over time, it’s something that we feel like people could probably budget for better.”
However, consumer advocates and some lawmakers question whether this system truly benefits customers or simply gives APS more flexibility to raise rates without the same level of public scrutiny.
APS’s Request: A 14% Average Hike—and More
APS’s 2026 rate case filing—a 2,000-page document—includes two major requests:
- An average 14% increase in electric rates across the board.
- Adoption of formula rates, which would allow APS to seek annual adjustments after the initial five-year review period.
The utility cites rising costs for fuel, infrastructure upgrades, and renewable energy investments as justification for the increases. APS serves over one million customers across Arizona, making this proposal a critical issue for households and businesses alike.
Customers and Advocates Push Back
Residents and consumer groups have raised concerns about the proposal, arguing that annual rate adjustments could lead to unchecked inflation in electric bills over time. Maria Bears, a Sun City West resident, called the idea “crazy talk” during a public meeting earlier this year.
“I can’t believe they are even asking for it,” Bears said. “This isn’t about budgeting—it’s about giving APS a blank check to raise rates whenever they want.”
Advocates like the Arizona Corporation Commission and groups such as the Arizona Solar Center have signaled they will scrutinize the proposal closely, particularly the long-term financial impact on low-income households.
How the Arizona Corporation Commission Will Decide
The ACC is tasked with balancing APS’s need for revenue with the public’s interest in affordable energy. The commission will evaluate:
- Financial justification: Are the proposed rate increases necessary to cover APS’s costs?
- Consumer impact: How will this affect low-income and fixed-income households?
- Transparency: Will formula rates provide clear, understandable explanations for rate changes?
- Alternatives: Are there other ways to achieve the same financial goals without annual adjustments?
The hearings, set to begin Monday, May 18, 2026, will include testimony from APS, consumer advocates, and industry experts. A decision is expected later this year, with potential implementation as early as 2027.
What This Means for Arizona Electric Customers
If the ACC approves formula rates, here’s what you can expect:
- Frequent but smaller increases: Instead of a 14% hike all at once, you might see 2–3% annual adjustments.
- More transparency (in theory): APS would need to explain how each adjustment is calculated.
- Less public scrutiny: Annual adjustments may not face the same level of debate as a full rate case.
- Potential long-term savings: If APS invests in efficiency or renewables, some costs could be offset.
What you can do now:
- Monitor the ACC hearings (here) for updates.
- Submit public comments if you’re concerned about the proposal.
- Review your energy usage—small reductions now could help offset future increases.
Frequently Asked Questions
- Q: Will my bill go up immediately if formula rates are approved?
- A: No. The initial 14% increase would still require ACC approval, but once formula rates are in place, annual adjustments could begin as early as 2027.
- Q: Can I switch to a different utility to avoid rate hikes?
- A: APS serves most of Arizona, but some areas have Tucson Electric Power (TEP) or municipal providers. Check your options here.
- Q: How can I comment on the rate case?
- A: The ACC accepts public comments during hearings and via email. Details will be posted on their website.
- Q: Are there protections for low-income customers?
- A: Yes. Arizona’s Arizona Department of Economic Security (DES) offers programs like the Low Income Energy Assistance Program (LIEAP) to help eligible households.
Key Takeaways
- APS is proposing formula rates, which would allow annual electric rate adjustments instead of a five-year review.
- The utility seeks an average 14% rate increase as part of its broader filing.
- Customers and advocates are divided—some see benefits in predictability, while others fear long-term cost increases.
- The Arizona Corporation Commission will decide whether to approve the plan, with hearings beginning May 18, 2026.
- If approved, the first annual adjustment could occur as early as 2027.
What’s Next for Arizona’s Electric Rates?
The ACC’s decision on formula rates will set a precedent not just for APS but for other utilities across the U.S. If Arizona approves this model, other states may follow—raising questions about whether predictable rate hikes are better than infrequent but larger increases.
For now, Arizona customers should stay informed, participate in the public process, and consider energy-saving measures to mitigate future costs. The outcome of this rate case could redefine how utilities and regulators interact for years to come.