One of the five elected members of the Arizona Corporation Commission (ACC) last Tuesday proposed to her fellow state regulators that ACC staff be directed to investigate the pension plan funding levels of all major utilities in the state after her assessment of the state’s three major private-sector energy utilities revealed they are all currently under-funded collectively by more than $500 million.

In a letter to her ACC colleagues, Commissioner Kristin Mayes said a recent 20% rate increase filing by Arizona Public Service (APS) turned up the fact that the utility’s pension fund has become what she called “significantly under-funded” by $472 million. This prompted Mayes to check the Securities and Exchange Commission filings of the other two major investor-owned energy utilities in the state — Southwest Gas Corp. and Tucson Electric Power (TEP) — and it showed they both were “experiencing some degree of under-funding,” too.

Mayes said that the publicly available SEC documents show as of the end of last year, TEP’s pension benefit obligation was under-funded by $47 million, and its other post-employment benefits category was under-funded by $69 million. Similarly, Southwest Gas’s pension plan was under-funded by $76 million, while it reported that its other post-employment benefits were under-funded by $18 million.

Collectively, the three Arizona energy utilities carry pension obligations of slightly more than $2 billion, but the collective plan assets total only $1.46 billion, according to a matrix assembled by Mayes.

“Given the possibility that these three utilities may be representative of other utilities with pension plans, and given our duty to address such problems before they worsen, I believe we should determine the extent of this problem across all Class A utilities and analyze how the utility pensions became under-funded,” Mayes wrote in her letter, noting she would particularly like to know whether any of the utilities was over-funded a few years back in the late 1990s.

If there was previous over-funding of the pension monies, Mayes said she wants to know if any of the excess funds were distributed as dividends to shareholders or reported as part of net income in those years. She said “among other steps” the ACC should ask the regulatory staff to investigate the pension liability plans of all the major utilities in the state.

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