Dive Brief:
- Most residential customers of Tucson Electric Power will see their bills rise about $11/month beginning Sept. 1, following a 4-1 decision by the Arizona Corporation Commission on Tuesday.
- TEP had requested about a 14% increase but regulators said they took steps to limit average bill increases to roughly 10%. The utility said the higher rates reflect almost $1.8 billion in “recent grid upgrades,” including new poles, transformers, power lines and renewable resources.
- In order to limit the rate increase, regulators adopted amendments that eliminated the addition of energy efficiency and demand-side management resources into TEP’s rate base, lowered the utility’s return on equity and eliminated an incentive for electric vehicle owners.
Dive Insight:
The utility did not get everything it requested but “all in all, it was a good day for TEP,” public policy advocate and Arizona energy consultant Autumn Johnson tweeted. “All the worst amendments for them were withdrawn or modified to be kinder and gentler.”
TEP’s application had proposed a return on equity of 10.25%, but regulators set the utility’s return at 9.55%.
An amendment introduced by Commissioner Nick Myers eliminated a reduction in standard rates paid by electric vehicle owners.
“It is unfair for certain customers to get a discount on all of their electric energy usage simply because they own an electric vehicle,” Myers said.
Other amendments require TEP to refund unused demand-side management surcharge funds remaining at the end of this year and eliminated the addition of efficiency and demand-side management resources into TEP’s rate base. “Adding these types of resources into Rate Base makes them less transparent to customers and creates additional costs because TEP would earn a return on these resources,” Myers said.
According to Myers, the higher rates will result in a “relatively modest increase” in bills.
Another amendment, introduced by Commissioner Lea Márquez Peterson, spread more of the utility’s rate increase to business customers. That move will save residential customers as much as $24 million annually, she said in a statement.
“Tucson renters and homeowners shouldn’t be burdened with shouldering the majority of the utility’s costs,” said Márquez Peterson. “This is an important step to lessen the rate shock on residential customers.”
Commissioner Anna Tovar cast the lone vote against TEP’s rate increase.
“I believe the Commission took us backwards with this decision,” Tovar said. “We have an obligation to think of more than just the utility’s bottom line; we must also look out for the customers.”
According to TEP, the higher rates are needed to build out the grid to meet local growth.
“Peak energy demands on TEP’s local grid have increased nearly 6 percent since 2019, the result of hotter summer weather and the addition of more than 14,000 customers,” the utility said in a statement.
The higher rates will help to add new wind, solar and storage projects, and recover the cost of a new substation necessary to connect the Wilmot Energy Center south of Tucson, TEP said. That project includes a 100-MW solar system and a 30-MW battery energy storage system.
TEP also noted the new rates will provide increased assistance to low-income customers, raising monthly discounts to $20 from $18 for qualifying families.
Customer advocates at the Sierra Club called the decision “a blow to Tucson Electric Power ratepayers.” The group pointed to an amendment that limits support for rural and Tribal communities impacted by coal-fired power plant closures.
“The ACC’s decision enables utilities to continue to double down on dirty coal and gas at the expense of low-income communities whose dollars and public health are on the hook for the bad business decisions utilities like TEP introduce and that the ACC validates,” Sandy Bahr, director of the Sierra Club’s Grand Canyon Chapter, said in a statement.
