...Improved Regulatory Compact: The regulatory compact in Arizona is balanced and has improved meaningfully in recent years, supported by constructive general rate case (GRC) outcomes, decreasing regulatory lag, decoupling for both electric and gas utilities, and implementation of regulatory mechanisms to facilitate more timely cost recovery outside of GRCs. In Fitch Ratings' opinion, regulation in Arizona will continue to be a key driver of credit quality for the state's investor-owned utilities (IOUs). Decreased Regulatory Lag: Regulatory lag remains a concern due to a mismatch of when costs are incurred and recovered, primarily reflecting use of historical test years in GRCs. However, rate case duration has been decreasing and has contracted from more than 20 months, in at least one instance, to approximately 11 months. Relatively timely GRC adjudication and adoption of various cost recovery mechanisms have improved earned returns. Unexpected deterioration in the regulatory compact could...
