A $1 billion SRP power plant in Springerville began operating in December 2009. The electricity produced at the new plant will serve our customers and replace the energy produced by the Mohave Generating Station in Nevada that was closed by its owners in 2005.
To meet stricter federal air-quality requirements, we are spending $539 million to install additional technology to further reduce emissions at the Coronado Generating Station near St. Johns. This project will be complete in 2014.

What is the amount of the increase?
The SRP Board of Directors approved an overall average increase request of 4.9% that goes into effect with May bills, which for most customers begins during April. The bill for a typical residential customer on the Basic Plan using 1,216 kilowatt-hours increases by about $5.95 per month ($3.42 per winter billing month and $8.47 per summer billing month). The increase varies by price plan and usage.

Is the increase the same for all customers?
The increase varies by customer class, price plan, and usage. SRP allocates increases to customer classes and price plans relative to how SRP recovers its costs. In other words, we attempt to match the costs to provide the service to the prices customers pay. Customer classes and price plans that cost SRP less receive lower than average increases, while customer classes and price plans that cost SRP more receive somewhat higher than average increases.

How much of this increase is going to company stockholders?
None. SRP is a public power utility, has no stock and no stockholders to pay. Earnings are reinvested into power plants, power lines and other facilities to serve customers.

Didn't SRP just raise prices?
No. Last July SRP began a public process that was proposing an 8.8% overall price increase. However, in September the SRP Board voted to delay that proposal and instructed management to further cut costs and the return with a new price proposal. The 4.9% request was a new proposal. There was no price increase during 2009.

What's SRP doing to keep its costs down?
SRP has trimmed and postponed costs, which total $1 billion over the next two and a half years. These efforts include:

Delaying other new power plants and power lines whenever possible
Suspending employee and executive pay raises
Making workforce reductions
Requiring employees to share more of the expense in health-care costs
Reducing power plant maintenance costs
Replacing several customer offices with self-serve PayCenters
Extending the replacement period for company vehicles and desktop computers

Cost cuts that jeopardize SRP's reliability and award-winning customer service are not being made.

You say you suspended employee and executive pay increases, but some SRP workers will get raises later. Why?
SRP has both salaried and hourly employees. Hourly workers are represented by the International Brotherhood of Electrical Workers Local 266, and the union's contract with SRP expired in November 2009. SRP management and union leaders have been involved in lengthy contract negotiations for several months, which included union membership twice voting down management proposals, in November and December of 2009.

On January 12, 2010, agreement was reached on a new three-year contract that includes a 3% wage increase in November 2010 and a 1.5% increase in May 2011. It applies only to SRP's hourly workers, and as part of that agreement they received no pay increase in November 2009. The result is that hourly workers will have gone two years between pay raises. The contract does not apply to salaried workers, which make up approximately half of SRP's work force. Salaried employees continue to work without merit pay increases.

How do SRP prices compare to those of other Arizona and other southwestern utilities?
In terms of overall price levels, SRP continues to offer competitive prices. The graph demonstrates SRP's competitiveness with other utilities in Arizona and several other states in the Southwest, with SRP's price increase.

Overall average retail prices

Source: Department of Energy EIA-826 Reports for 12 months ending Oct. 31, 2009

Why does SRP advertise?
Unlike other types of companies, SRP does not advertise to gain business or customers. The television, radio and print advertising we do use is specifically to educate and inform customers about energy efficiency, discounts and rebates, convenience programs, safety and water conservation.

SRP's ad spending has declined by 33% during the past three years. To stretch every ad dollar, we feature our own employees in our ads whenever possible. These educational efforts help our customers save money, be safe and better understand their role in the changing energy issues we face.

Infrastructure

Why does the new power plant in Springerville cost so much?
The cost for the Springerville unit reflects the market price for a state-of-the-art baseload power plant with the latest emissions-control technology. Baseload power plants are designed to operate around the clock, 365 days a year.

What is occurring is that we were forced to retire a fully depreciated (paid for) baseload power plant (Mohave Generating Station near Laughlin, Nev.) and replace it with a new unit (Springerville 4). The new unit is more expensive due to a variety of reasons, among them are general inflation -- pretty much everything costs more today than in the past -- as well as increased environmental requirements.

This is similar to the person who has an older, paid for car that must be replaced with a new car. Generally the new car is going to cost more than the old car did and now the person has car payments to make. The money for those car payments is an expense that they didn't have with the old car and must be covered somehow.

Could SRP have delayed the Springerville plant?
No. In 2005, SRP learned it had to replace the energy produced by a plant in Nevada that was closing. At that time, two other power purchase contracts were scheduled to expire within four years. Because of the time it takes to plan and construct something as complex as a power plant, SRP had to commit to build the new Springerville plant at that time.

Why did the plant in Nevada close?
The owners of the Mohave Generating Station in Laughlin, Nev., decided to close the plant when they were unable to negotiate a reliable supply of coal and water.

Could the life of the Nevada plant simply have been extended?
Given the costs to install the required new emission controls and the uncertainty of the coal and water supplies needed to run Mohave, extending the life of the plant would have been too expensive an option.

What kind of improvement will result from the equipment being installed at the St. Johns plant?
The installation of new technology at the Coronado Generating Station will make a significant improvement to air quality in the St. Johns area. Besides being the right thing to do, the upgrades were not optional following a 2008 agreement with the Environmental Protection Agency.

Which projects are being delayed?
One of the projects was an electric generating station in Pinal County that had been planned to serve the rapid population boom and the accompanying demand for power in that area. With the economic downturn, we can defer this and other projects until growth in the area returns.

Renewable energy

Why is SRP pursuing solar, wind, geothermal and other renewable projects?
SRP set a goal to meet 15% of our retail sales with sustainable resources by 2025. This is in line with goals the Arizona Corporation Commission has established for the utilities it regulates. As our country's energy mix continues to evolve and technology in this area continues to improve, it's also the right thing to do for the future.

What kind of renewable projects is SRP planning?
SRP recently announced a major solar project in the Southeast Valley and is the sole recipient of power from Arizona's first commercial wind energy farm, which began operation in 2009.

What solar incentives does SRP offer?
SRP offers incentives for solar photovoltaic and water heating systems for both residential and business customers.

Residential price plan changes

How do these changes address the difficult economic situation?

We recognize the ongoing weakness in the economy and the impact this has on our customers. So, SRP is offering a 90-day "no risk" guarantee for customers who switch from Basic to either of the Time-of-Day plans (SRP Time-of-Use™ or SRP EZ-3™) from May 1 to Oct. 31. If your first three bills on the new price plan exceed in aggregate what you would have paid on the Basic Plan, call us within 30 days of receiving the third bill, and we will credit the difference to your account and convert you back to Basic at no charge.

Time-of-Day plans offer lower prices during off-peak hours to encourage less energy use during on-peak hours, when the cost to produce electricity is highest. Customers can save (on average 4-7%) by limiting usage during the higher-priced times, but must be enrolled in one of the plans and shift energy use to realize the savings.

To help low-income households, SRP is increasing the Economy Price Plan and Medical Life Support Rider discount from $15 to $17 per month. SRP also is making a $1 million donation to the Home Energy Assistance Fund. This amount is in addition to the matching contributions SRP already directs to the fund each year (up to $275,000) and will be used exclusively to assist SRP customers.

What other changes are included in the price increase?

The Basic Plan Monthly Service Charge would increase to $15 per month to match other residential price plans.
For the Basic and Time-of-Use plans, the declining price block (where the price per kWh decreases in steps as usage increases) is eliminated during the six winter billing months. A third inclining price block (where the price per kWh increases in steps as usage increases) is added to the six summer billing months for the Basic Plan. Both of these changes are designed to encourage energy conservation.
The SurePay discount changes from 1% of the bill to ½% effective with the May 2010 billing cycle. The discount is scheduled to end with the May 2011 billing cycle, but the program may be re-evaluated at a later date.

What is the monthly service charge and why is SRP raising it for Basic Plan residential customers?
The Monthly Service Charge helps pay for fixed, recurring portions of SRP's electricity service that occur every month, regardless of usage level. These include billing and collections, metering, meter reading, customer service, and distribution facilities (electrical equipment, wires, and service drops). SRP is setting the same Monthly Service Charge across the residential price plans, because the underlying costs are the same.

Why is SRP adding winter on/off-peak pricing to the residential EZ-3 plan?
Winter on and off peak prices will give EZ-3 customers an opportunity to save year-round, rather than just in the summer months.

How does the increase affect TOU/EZ-3 customer's savings?
Residential customers on the Time-of-Use plan can save an average of 6-7% annually by shifting some energy use to off-peak hours, compared to the Basic Price Plan. The change does not affect the potential savings for business customers on the Time-of-Use plan.

Residential customers on the EZ-3 plan can save an average of 4% annually by limiting energy use from 3 p.m. to 6 p.m.

Why is SRP changing the SurePay discount to one-half percent?
The new discount better reflects SRP's actual cost savings than the current 1% discount.

Commercial price plan changes

How will this price increase impact the various commercial customer classes?

Plan	Increase
General Service E-32	4.6%
General Service E-36	4.6%
Pumping E-47, E-48	5.7%
Lighting E-54, E-56, E-57	7.8%
Large General Service E-61	3.8%
Large General Service E-63	3.8%
Large General Service E-65	2.4%

Why the variation in increases among price plans?
The increase effective with the May 2010 billing cycle has been allocated to each of the customer classes based on the results of the Unbundling Revenue Analysis Study. A higher-than-average increase to base prices was driven by those customers classes with lower-than average-returns, while a less-than-average increase to base prices percent is proposed for customer classes with higher rate of returns (return refers to the measure of how each customer class covers its expenses and investment).

What other pricing related changes or fees are being enacted?
For all customer classes, change the 10-Day SurePay Automatic Payment Program discount from 1.0% of the monthly bill to 0.5% for the May 2010 through the April 2011 billing cycles, and to 0% for the May 2011 billing cycle and thereafter.

Regarding Commercial Customer classes, changes included:

Introducing new price plan, E-66. Similar to E-65, E-66 is available to instantaneously interruptible customers on the Large General Service Price Plan, encourages shifting load to the weekend, and allows up to 20 interruptions each year for non-reliability reasons.
Adding a new Renewable Energy Services Pilot Rider that provides an opportunity for qualifying customers to purchase energy from a designated renewable generation facility.
Modifying the Facilities Rider to update the distribution facility and competitive customer service charges for the E-61 and E-63 price plans to realign the price with the functional expenses and add language that addresses substation ownership and maintenance issues for the E-65 and proposed E-66 price plans.

Who sets SRP's prices?
SRP's publicly elected Board of Directors has the authority to establish electric prices. The Board reviews and decides upon any proposed changes to SRP's price plans, after providing notice to customers and other interested parties and affording them the opportunity to provide comments to the Board.

What are load factor blocks and how do they work?
A "load factor block" refers to the part of the price structure where the per kilowatt-hour (kWh) price is dependent on the amount of energy (kWh) used relative to a customer's demand kilowatts (kW). A load factor block encourages customers to keep their energy usage as stable as possible - avoiding demands that are extremely high relative to total energy usage. This promotes efficiency of consumption, which decreases average system costs. Higher load factor customers enjoy an overall lower price per kWh compared to a lower load factor customer.

Who will be affected by this proposal?
All SRP electric customers are affected by the increase.

How does the price increase affect a Business Time-of-Use (E-32) customer's savings?
For customers on the E-32 price plan, savings should not be affected by price increase as E-32 savings are affected by on/off peak and season energy use patterns.

How can a business customer get a bill comparison between the E-32 plan and General Service plan (E-36)?
Customers can contact Commercial Customer Service or their designated account representative (keep in mind accounts requesting comparisons must have 12 months of data on the same price plan).

With all the talk about energy efficiency and sustainability, what programs are there that can help me manage costs? I understand there are rebate programs available that might help my business; where can I find details?
Customers are invited to visit the PowerWise Business Solutions page.

Did the Fuel and Purchased Power Adjustment Mechanism change during this price process?
Yes, SRP reduced the Fuel and Purchased Power portion of the price plans. Because of high storage levels and resilient domestic production, natural gas prices are expected to remain soft in the near-term, although there will be some firming in 2011 as economic conditions improve.

SRP is benefitting from lower natural gas prices as well as lower prices in other fuel and purchased power markets. This is reflected in lower fuel and purchased power costs for Fiscal years 2011 and 2012. In addition, SRP is locking in these historical lower prices for some of its future natural gas needs through its gas hedging program.

Energy efficiency

How is SRP helping customers to control their energy bills?
In addition to optional pricing plans, such as EZ-3, Time of Use, and M-Power, which help customers manage their electricity bill, SRP offers a combination of energy-saving advice and rebates at www.savewithsrp.com for residential customers. Information to help business customers manage their energy costs is available online.

What energy-efficiency programs does SRP offer?
SRP offers rebates on the purchase of energy-efficient appliances and equipment, including cooling systems, clothes washers, dish washers and motors. Saving advice and rebate information are available at www.savewithsrp.com.

Governance

Does the Arizona Corporation Commission have to approve SRP's proposed price increase?
No. As a political subdivision of the State of Arizona, SRP is a municipal utility and therefore its prices are not regulated by the Arizona Corporation Commission (ACC) under the Arizona Constitution.