Tucson Electric Power, attorney general debate rate increase

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(The Center Square) - Tucson Electric Power spokesman Joe Barrios said a proposal by Arizona Attorney General Kris Mayes would hurt the company’s ability to raise funds it needs for investment in its energy grid.

Last week, Mayes’s office filed expert testimony with the Arizona Corporation Commission to object to TEP’s proposed 14% rate increase.

Mayes said the company’s proposal was “blatant corporate greed.”

"Our expert analysis proves that customers are being asked to pay far more than is needed," the attorney general said. "Instead of a 14% rate hike, the expert testimony we just filed with the ACC shows that TEP can achieve the same reliability with just a 4% increase by aligning what customers pay with TEP's actual costs." 

The attorney general’s testimony said a 4% rate increase could fully compensate investors and preserve the company’s current investment-grade credit rating.

According to Barrios, the attorney general’s filing is “out of line” compared to other intervenors’ recommendations.

The TEP’s 14% rate proposal increase would result in a return on equity of 10.5%. According to Harvard Business School, ROE is a “financial ratio that indicates how efficiently a business generates profit from its shareholders’ equity.”

The state Residential Utility Consumer Office, which represents the interests of Arizona residential utility customers, recommended an ROE of 9.2%, and ACC recommended an ROE of 9.75%, Barrios noted.

He added that Mayes’ ROE recommendation was 6.07%.

Under Mayes’ proposal, TEP customers would save $148 million annually, amounting to an estimated $200 per person.  

"This case is fundamentally about whether Tucson families should be forced to pay more than necessary to enrich TEP's shareholders," Mayes said. "At the end of the day, it’s just a transfer of wealth from Arizonans struggling to make ends meet to TEP’s shareholders."

Barrios said the attorney general’s testimony noted that “an increase in rates is necessary."

Barrios said the rates TEP customers pay are based on 2021 costs. He added that the company is basing the rate increase in its current application on 2024 costs.

Since 2021, Barrios said, TEP has “invested” $1.7 billion in its energy grid, including upgrades to equipment and substations and maintenance at generating stations.

Barrios said TEP needs to continue to make improvements to its energy

TEP’s energy grid is becoming “increasingly sustainable and very reliable,” Barrios said.

He added that TEP will “have an opportunity to respond in more detail” in its own testimony in early March.

Any changes to customers' rates must be reviewed by a judge, Barrios said, adding that the ACC will make a final determination on TEP’s rate proposal increase.

He noted there is “still a way to go in the process,” saying additional rounds of testimony will be filed by intervenors and TEP.

Regardless of the outcome of its rate proposal application, Barrios said TEP will maintain its systems and continue its “ongoing resource planning process.”

TEP understands that any rate increase may affect customers’ bills, he said.

“It’s not something we take lightly. When we file these applications, we do feel we are justified in making this request based on all of the improvements and maintenance that we performed on our energy grid,” the TEP spokesman explained.

TEP customers with questions are welcome to call the company, he said, adding that the company frequently works with customers who “face financial hardship.”