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The state's utility watchdog wants Tucson Electric Power Co. to share more of the burden of higher fuel and wholesale power costs with customers as part of its new rates.

In its current form, a rate settlement approved by a state regulatory judge would add pass-through surcharges for wholesale power and fuel purchases to TEP customers' bills.

The Residential Utility Consumer Office, or RUCO, maintains that, when it comes to fuel-adjustment and purchased-power impacts, additional costs above the base level should be divided — with customers paying 90 percent and TEP paying 10 percent.

The so-called 90/10 sharing arrangement would provide incentive for TEP to keep its fuel and power costs down, which would save ratepayers money, said Dan Pozefsky, RUCO's chief counsel.

The Arizona Corporation Commission will review the rate settlement at an open meeting Nov. 25, at which point it can consider or ignore RUCO's suggestion.

RUCO, which has maintained that the settlement comes at too high a cost to ratepayers, filed its legal objections on Thursday to the agreement approved by ACC Administrative Law Judge Jane Rodda.

That same day, UniSource Energy Corp., TEP's parent company, announced a net loss of $11 million, or 31 cents per share, for the third quarter. That compares with a profit of $25 million, or 66 cents per share, for the third quarter of 2007.

UniSource said the loss was largely due to the deferral of $30 million in revenue collected by TEP as part of its current rates. Rising fuel and purchased-power costs, power-plant outages and maintenance expenses also played a part, the company said.

"It's obvious to me that our current base rates are inadequate," Unisource President and CEO James Pignatelli, said in a Friday conference call with analysts.

The settlement would grant TEP a 6 percent base-rate increase plus a new charge to recover those fuel and purchased-power costs, which could increase average residential customers' bills by another 3 percent to 4 percent.

That 6 percent base-rate increase would boost annual revenue by $47 million, Pignatelli said.

While the new rate-settlement agreement, which could go into effect as soon as Dec. 1, could increase customers' rates by as much as 10 percent, most customers wouldn't see that big of an increase, said Joe Salkowski, a TEP spokesman. Charges from the purchased-power and fuel-adjustment clause, which will add the 3 percent to 4 percent, would not get added until April, Salkowski said.

At the Nov. 25 meeting, the ACC will also determine what will happen to roughly $59 million that TEP expects to collect through the end of November as part of its retail rates, which have been frozen since 1999.

As part of a 1999 settlement agreement, a fixed competition transition charge, or fixed CTC, was established to recover money TEP had spent on power generation. The fixed CTC would end Dec. 31 of this year — or when TEP had recovered $450 million. TEP had collected that much money in May, but the ACC ordered the fixed CTC to continue because of the rate case.

The $30 million TEP deferred in its most recent quarter was from the CTC over- collections.

The fate of that money was not addressed in the settlement, Salkowski said. But Judge Rodda recommended that it be returned to ratepayers to offset the fuel adjustment and purchased-power costs.

TEP disagreed with that decision because current rates are lower than they should be when compared with the company's costs, Salkowski said.