Study finds public power in Tucson is feasible; TEP disagrees

A study commissioned by the city of Tucson found that a publicly owned electric power utility is financially feasible, but a Tucson Electric Power spokesperson warned consumers the report is “profoundly flawed” and relies on unrealistic cost estimates.

The city has been exploring the possibility of a public power utility for more than a year, after triple-digit summer temperatures and equally high electric bills left some Tucsonans frustrated and looking for a cheaper alternative.

The draft study found that taking over the local power grid could cost city taxpayers upwards of $1 billion. Company officials said it would be even more.

Although Arizona’s average electricity prices were slightly lower than the national average, high usage, especially in the summer, drove the state’s average monthly electric bill to $148.40 in 2023 — the second-highest in the United States behind Texas, according to a University of Arizona analysis.

Document: Tucson public power draft study

The city-backed study, conducted by the independent Georgia consulting firm GDS Associates and released last week, found that public power in Tucson could be financially feasible, predicting a net positive operating revenue for the city and potential cost savings for customers over the next decade under a public power utility.

The idea of starting a publicly owned electric company has garnered support from the Pima County Democratic Party and the Tucson Democratic Socialists of America, who say that if local government owned the power supply instead of TEP, rates would be cheaper, service would be more reliable, and power would be more environmentally friendly.

“Public utilities tend to be much cheaper because you’re taking out that profit incentive,” said Tucson DSA spokesperson Lee Ziesche at a rally in front of TEP headquarters at 88 E. Broadway last week. “Public power is a popular idea in Tucson, and I think it’s popular because people know it would actually improve their lives.”

Ziesche pointed to cities like Sacramento, Calif. and Massena, N.Y., which operate using publicly owned electric utilities, as examples for Tucson’s potential future. The American Public Power Association says public power utilities cost consumers as much as 13 percent less than privately operated ones, and are more likely to be climate-friendly.

Converting to public power is not without its political, logistical and financial challenges, the study found. To start a municipal electric utility, the city would have to buy TEP’s distribution system, which would cost anywhere from $1.4 to $3.7 billion, the report estimates.

If the city bought TEP’s assets for a price on the low end of the spectrum at $1.4 billion, the study predicts that the average residential customer using 750 kilowatt hours monthly could see savings of around $20 per month within the first five years. After 16 to 20 years, customers could save around $90 per month than compared with projected TEP rates.

If the purchase price comes closer to higher estimates of $3.7 billion, customers would see lower savings of around $9.60 per bill that wouldn’t start until six to 10 years after the switch. After 16 to 20 years, customers could save almost $59 on their monthly bills under this model, according to the report.

TEP charges from 12.64 to 15.73 cents per kilowatt-hour, depending on usage and time of year, for residential customers on the company’s “basic” plan. TEP’s highest basic price is higher than the Arizona average of 15.27 cents for February, but less than that month’s national average of 16.44 cents per kilowatt-hour.

The company also has a variety of time-of-use plans, which cost more for electricity during high-demand periods in the summer months and less when the grid has more excess capacity from October through April.

The draft study indicates that over 10 years, the city’s public power utility would see net positive revenues, and would achieve Tucson’s goal of a fully renewable power supply by 2045.

For this all to happen, the change would have to be approved by voters, and TEP — owned by the Canadian holding company Fortis — would need to sell its assets to the city, which seems unlikely at the moment. If the company doesn’t agree to sell, the city could try to seize its assets via eminent domain, which could take years of litigation.

In a press release, a TEP spokesperson said the study was “misleading,” and “highly unrealistic,” adding that the estimates given for what it would cost the city to buy and operate the utility were “artificially low.”

“Taking this report at face value could put our community’s future at risk,” said TEP President and CEO Susan Gray. “The city has not received the sound advice it sought regarding the cost and consequences of a hostile takeover of the systems we all depend on for safe, reliable energy.”

Gray argues that the study underestimates the cost and the complexity of starting and operating a municipal utility. The proposed public utility would only serve customers within Tucson city limits, so TEP would need to continue supplying power to 190,000 of its customers beyond city jurisdiction, leading to two sets of facilities, staff and systems that would end up increasing the cost for consumers of both utilities, the statement said.

“The study seems intent on driving a wedge between the city of Tucson and TEP at a time when we should be working together to address our city’s long-term needs,” Gray said.

The feasibility study anticipates pushback from TEP as one of the biggest challenges associated with adopting a public power utility in Tucson.

“TEP may publicly highlight concerns about the city’s operational readiness, infrastructure, resource adequacy, and leadership experience,” the report said. “These concerns could be broadly communicated to constituents, especially in advance of any public vote regarding the renewal of TEP’s franchise agreement. The impact of potential TEP public outreach could shift the support from stakeholders such that the majority favor the current arrangement.”

TEP’s franchise agreement — which allows the utility to use city property to install power lines and other infrastructure without a permit — will expire next year, and the city may hold an election in November to secure the new terms of the agreement, if TEP and local officials can come to a consensus on the terms.

TEP customers pay the franchise fee — 2.25 percent of your monthly bill in the city of Tucson, and 2 percent in South Tucson — which is then forwarded to the city.

The current franchise deal was approved by voters in 2000 and will expire in 2026. Voters rejected a previous attempt at renewing the agreement in 2023.

Without a franchise agreement, TEP spokesperson Joe Salkowski said, customers would still receive power but may see higher bills and less efficient service, because securing land rights for certain projects could be costly for the private utility company.

At last week’s City Council meeting, Councilmember Paul Cunningham said the best way to get voters onboard with a franchise agreement is to make sure it guarantees them lower electric bills, perhaps by including a clause that would prohibit rate hikes for the foreseeable future.

Cunningham suggested the city keep its arrangement with TEP, but slowly purchase parts of the electric grid, known as “microgrids,” over time, in order to gradually switch to a public option.

“Ultimately, it may be TEP that manages that as a public utility, but we kind of change the structure of what we got,” he said.