Formula Rates: Smaller, More Gradual Changes
How have gas rates traditionally been set? It looks something like this:
Imagine you're in charge of a restaurant. Every week, you buy food, pay your employees and serve customers to keep your business running smoothly. You purchased a new ice cream machine, and you're paying higher prices for supplies and equipment. But instead of charging more, you’re told: “Keep all your receipts, and in three years, we’ll look at what you spent and then decide if you can change your prices to recover those investments.”
Utilities like UniSource make big investments—like upgrading pipeline infrastructure or improving metering systems —to keep gas service reliable. But until recently, they don’t get reimbursed for additional costs until years later, after a lengthy public review process.
In 2026, state regulators approved a new method, known as formula rates, that would allow for those additional costs to be considered in a more timely way, in the interest of rate stability, gradualism and administrative efficiency.
The Annual Rate Adjustment Mechanism (ARAM) is based on the cost of providing service to homes and businesses. The ARAM will allow timely, systematic recovery of changing costs over time, smoothing out potential bill changes between rate proceedings.
All costs considered through this formula rate mechanism must be proven and justified. They also remain subject to oversight by the Arizona Corporation Commission (ACC) to ensure that only necessary, cost-effective investments and prudently incurred expenses are recovered.
Reducing the amount of time it takes for the ACC to consider such requests helps to keep capital investment costs down, which supports lower bills for all customers.