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But the increase approved Wednesday by the ÃÛèÖÖ±²¥ Corporation Commission is less than a third of the increase TEP originally requested for a usage-based surcharge that essentially passes through to ratepayers higher-than-expected costs for power and fuel.

TEP said it needed to increase the surcharge to recover about $90 million in higher costs for purchased power and fuel, plus about $18 million in costs the company agreed to defer in 2021 to help customers amid the COVID-19 pandemic.

The utility cited an average 88% increase in natural-gas costs in 2021 and a 149% spike in wholesale power costs at the Palo Verde Nuclear Generating Station transmission hub last summer.

The surcharge, known as the “purchased power and fuel adjustment clause,� or , is adjusted up or down annually, sometimes resulting in a credit. The charge consists of two rate components: a “true-up� rate to reflect actual costs TEP has paid and a forward component based on forecast future costs.

The new rate of just over eight-tenths of a cent per kilowatt-hour of power usage will result in a monthly residential surcharge of about $6.49, up from $2.63 under the current rate, based on average monthly usage of 797 kWh.

Customers who use more power than average will see larger increases, while TEP business customers pay the same usage-based PPFAC rate and will see commensurate increases based on usage.

In filings with the ACC, TEP said recovering its past higher costs over 12 months would have increased the average TEP home bill by $12.68 per month.

But TEP also offered regulators the options of collecting the costs through PPFAC increases over 18 or 24 months, which would have increased bills by $9.27 or $7.56 per month, respectively.

The ACC’s own utility staff , while reducing TEP’s proposed rate increase to cover its past higher costs, which would have resulted in a $9.27 average monthly bill increase.

The state Residential Utility Consumers Office had advocated for extending TEP’s cost-recovery period to soften the blow on ratepayers and reevaluating such surcharge mechanisms for their effectiveness in the future.

At its meeting on Wednesday, the five-member commission approved the 18-month payback rate for part of the surcharge as part of an order proposed by staff.

But the commission also voted to drop the forward-looking rate component to zero, under an amendment offered by Commissioner Jim O’Connor, cutting the monthly home bill impact to under $4.

Responding to questions on Wednesday, TEP attorney Michael Patten said the forward-looking rate component of the PPFAC sends a “price signal� to ratepayers that costs are increasing, and setting that rate at zero will only increase the true-up rate component in the future.

TEP stresses that it passes its costs along without any markup and earns no profit from the PPFAC surcharge.

O’Connor, part of a three-member Republican majority on the five-member commission, said he found that response “weak.�

“They send a price signal to the customer, and what’s the customer supposed to do, turn out the lights if they don’t like it?� the retired Scottsdale businessman said.

He said TEP is fully entitled to recoup its costs but shouldn’t be allowed to “double bank� to catch up with its arrearages.

“The company is in the position to be the buffer between the consumer here and the market and that wild volatility in fuel costs, and they’re well-positioned and capitalized to do that,� said O’Connor, who spent 42 years in the securities industry and owned his own investment firm.

The Corporation Commission approved the new PPFAC rate on a 4-1 vote, with Democrat Sandra Kennedy voting against it.

Commissioner Justin Olson supported TEP’s surcharge increase but said in the future, the commission should consider cutting a utility’s allowed return on equity — a key measure of corporate profitability — to reflect the cost risk that is shifted from the company to ratepayers through such surcharges.

Kennedy said she generally opposes so-called “adjuster� mechanisms like the PPFAC that raise customers’ bills outside of the larger scrutiny of general rate cases.

Besides the PPFAC, TEP gains revenue from five adjuster mechanisms that appear as surcharges on customer bills, supporting energy-efficiency and renewable-energy programs, compensating utilities for fixed costs not recovered due to higher energy efficiency and rooftop solar, and a surcharge to help cover the cost of mandated environmental controls.

ÃÛèÖÖ±²¥ Public Service Co. and other state-regulated utilities have similar adjuster mechanisms, approved by the ACC over the years.

“It’s a cost of doing business, and the company can make bad decisions and still pass those costs on to the ratepayers, so there’s no protection for ratepayers,� Kennedy said.

Corporation Commission Chairwoman Lea Márquez Peterson, a ÃÛèÖÖ±²¥ Republican, said TEP’s PPFAC request and other controversies over adjuster mechanisms have convinced her that the whole process needs to be reevaluated by the commission.

“What really motivates the utility to make the very best deal for our consumers?� she said. “We’re a bit stuck in this older process and I think we do need to reevaluate how this was structured in the past.�

Mining giant Freeport McMoRan, TEP’s biggest industrial customer, filed comments proposing that TEP’s PPFAC be capped at $0.004, or four-tenths of a penny, per kilowatt hour, citing a limit the Corporation Commission imposed on APS for a similar power-supply adjustment.

But the commission staff did not support that, and Utilities Division Director Elijah Abinah noted that APS’ surcharge is different because APS can change the rate up to the cap without the approval of the full commission, while TEP must seek approval annually with no set cap.