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State regulators have approved a plan by Tucson Electric Power to move thousands of business customers from its smallest commercial rate plan to rates designed for larger customers.

The Arizona Corporation Commission panel approved the new rate treatment as it approved TEP’s base rates in February 2017, though a second phase dealing with customers who install rooftop solar systems is still pending. The utility panel voted to approve TEP’s small-business rate transition plan in late December and filed its ruling Jan. 3.

TEP had asked the commission for permission to move customers now on the utility’s Small General Service rate to a new Medium General Service rate or to Large General Service rates, if their power usage exceeds certain levels.

TEP said it needed to adjust its business rates and add the new medium usage class to better cover its fixed costs.

“The new rates will do a better job of matching costs to what customers pay,” TEP spokesman Joe Barrios said.

Under the plan approved by regulators, customers on TEP’s Small General Service rate must move to the Medium General Service rates if their usage hits 24,000 kilowatt-hours or more in two consecutive billing periods, or they create 40 kilowatts of peak demand twice in a rolling, 12-month billing period.

Customers whose peak power demand meets or exceeds 300 kilowatts twice in a rolling, 12-month period will be moved to the Large General Service rate.

Following approval of rates last year, TEP sent letters to about 4,000 Small General Service customers, notifying them that they had reached the usage threshold and would be moved to a Medium or Large general service rate.

About 1,750 customers have been shifted to a transitional Medium General Service rate, with a basic service charge and usage-based energy charges, for a year, Barrios said.

At the end of the yearlong transitional period, or sooner if they wish, customers will be put on one of two new, three-part Medium General Service rates: a demand rate consisting of a basic monthly charge, a demand charge based on peak demand, and usage-based energy charges; or a time-of-use plan with a demand charge.

Bills on rates with demand charges can soar if customers allow their usage to spike.

During the transitional period, Barrios said, TEP will supply affected customers with detailed usage and demand data to help them learn more and adjust their usage before the shift to demand rates.

“By that point, those customers will have more than a year of usage and demand data,” he said.

Under the rate decision last year, TEP projected that typical business customers on TEP’s Small General Service rate would pay a projected $21 more per month, typical customers in the new Medium General Service rate class would pay an estimated $280 more per month, and customers on TEP’s Large General Service rate would pay about $1,200 more.

Large industrial customers could see their rates reduced, reflecting an updated analysis that shows it costs less to serve them, TEP said.

But those estimates were for standard, two-part rates.

Under the new time-of-use and demand-charge rates, any actual increase or savings will vary depending on how customers manage their power consumption.

The moves are part of a larger trend of moving customers to time-of-use or demand rates, which utilities say they need to better manage overall demand and the high cost of generating or buying power to meet peaks.

TEP has also rolled out optional time-of-use and demand rates for small general service business customers and for residential customers.

Though existing TEP residential customers can keep their two-part, standard rates, new customers are being put on time-of-use rates by default unless they request the standard rate plan.

Under a rate plan approved by regulators last August, residential customers of Arizona Public Service are required to choose between a time-of-use and demand rate and stay on that rate for 90 days before getting the option of switching to a standard, two-part rate.

Contact senior reporter David Wichner at dwichner@tucson.com or 573-4181. On Twitter: @dwichner. On Facebook: Facebook.com/DailyStarBiz

Senior reporter covering business and technology for the Arizona Daily Star/Tucson.com