Study Reveals Feasibility of Public Power in Tucson, But TEP Raises Concerns

A recent study commissioned by the city of Tucson suggests that establishing a publicly owned electric utility could be financially viable. However, Tucson Electric Power (TEP) has labeled the report as “profoundly flawed,” arguing it relies on unrealistic cost estimates.

The exploration of a public power utility has been ongoing for over a year, driven by rising electricity prices amidst extreme summer temperatures. The draft study indicates that acquiring the local power grid could cost city taxpayers as much as $1 billion, a figure that TEP officials argue is insufficient.

Despite Arizona’s electricity prices being slightly below the national average, the typical monthly bill reached $148.40 in 2023, making it the second-highest in the U.S., just behind Texas, according to a University of Arizona analysis.

Document: Tucson public power draft study

The idea has garnered support from local political groups, including the Pima County Democratic Party and Tucson Democratic Socialists of America. They argue that municipal ownership would lower rates, improve service reliability, and create more sustainable energy solutions. “Public utilities tend to be much cheaper,” stated Lee Ziesche, a Tucson DSA spokesperson, during a rally at TEP’s headquarters. “Public power is a popular idea in Tucson because people recognize its potential to enhance their everyday lives.”

Ziesche also cited successful public utility models in cities like Sacramento and Massena, noting that such systems often cost consumers up to 13% less than private alternatives. However, the transition to public power is not without challenges. The study estimates that the city would need to invest between $1.4 to $3.7 billion to purchase TEP’s distribution system.

If the price is on the lower end at $1.4 billion, customers using 750 kilowatt-hours monthly could save approximately $20 within the first five years. Over 16 to 20 years, savings might rise to around $90 per month compared to TEP’s projected rates. Conversely, a purchase at $3.7 billion would yield lower savings initially and over time.

Current TEP rates range from 12.64 to 15.73 cents per kilowatt-hour, depending on usage. While higher than the Arizona average, these rates remain below national averages. TEP also offers time-of-use plans that vary in cost based on demand and capacity.

The feasibility study indicates that a public utility could generate net positive revenues over ten years and help Tucson achieve its goal of renewable energy by 2045. However, any change would require voter approval, and TEP, owned by Fortis, would need to consent to asset divestment. If TEP resists, the city could resort to eminent domain, a course fraught with legal complexities.

TEP’s President and CEO, Susan Gray, criticized the study as “misleading” and raised concerns about the underestimated costs and operational complexities of a municipal utility. She highlighted that if the city only serves Tucson, it may result in increased costs for both utilities due to duplicated efforts in infrastructure and staffing.

Gray stressed that collaboration between TEP and the city is crucial for addressing long-term energy needs, arguing that the study might sow discord. The feasibility report anticipates significant opposition from TEP as a major hurdle for implementing public power.

TEP’s current franchise agreement, which allows the utility to operate in the city, expires next year. A vote could occur in November to negotiate a new agreement, but failure to reach consensus would leave Tucson residents vulnerable to increased costs and inefficiencies.

City Councilmember Paul Cunningham emphasized the need to secure lower electric bills in any new agreement and suggested the gradual acquisition of “microgrids” as a possible compromise to shift towards public ownership over time.