Tucson, Ariz. – Tucson Electric Power (TEP) is cautioning the City of Tucson against pursuing any of three potential options for creating a municipal electric utility that were proposed by city staff last week for discussion by the Tucson Mayor and City Council tomorrow.

The proposals, contained in a Feb. 16 memo from city staff, call for creation of a municipal electric utility to serve either an unspecified new development, an existing city facility, or the city-owned building occupied by the Museum of Contemporary Art (MOCA), which the memo says will be sold and redeveloped.

The creation of a municipal utility would require approval from city voters as well as an investment in staff, equipment, and other operational requirements. One or more of the proposed options also could require the seizure of TEP facilities through condemnation and extended litigation that would add cost and time.

“Pursuing any of these options would undermine a longstanding collaboration between TEP and the City of Tucson that has generated real progress toward the city’s energy-related goals,” said TEP CEO Susan Gray. “It also would start the city down a dangerous path toward a larger takeover of our local electric grid, which would result in higher bills, daunting debt, and reduced electric reliability for city residents.”

Impractical and unnecessary

The city does not need to create a municipal utility to expand its use of on-site energy resources, including renewable or conventional generation. The city already owns and operates a natural gas-fired combined heat and power plant that serves the Tucson Convention Center and some surrounding city buildings, including the one occupied by MOCA.

“We have helped more than 55,000 TEP customers connect solar power systems to their homes or businesses,” Gray said. “If the city wants to expand its use of either renewable or conventional generation on site, we can help with that as well.”

Creating a municipal utility would not expand the city’s use of clean energy. TEP is already providing the City of Tucson with a supply of 100-percent clean energy through an Arizona Corporation Commission-approved tariff. A municipal utility, by contrast, could end up buying power from the wholesale energy market, either directly from TEP or delivered through TEP’s local energy grid.

A municipal utility would necessarily duplicate capabilities already in place at TEP, increasing our broader community’s overall investment in energy service. It also would create new financial burdens for a city already facing a significant budget deficit in the upcoming fiscal year.

A step closer to the brink

The city staff’s memo describes the proposals as part of a “phased municipal utility strategy” to “establish authority and operational competence” while retaining a takeover of TEP’s local grid “as a long term possibility.”

The City of Tucson has studied the potential seizure of TEP’s electric distribution system within city limits through condemnation to create a municipal electric utility. Because TEP is unwilling to sell its system, the price and other aspects of the acquisition would be resolved in court through litigation that could take a decade or more. The staff memo acknowledges the risks of a full takeover of TEP’s system and states that “litigation could last years before a price is even known.”

The acquisition ultimately would cost more than $4 billion, according to a study conducted by The Brattle Group for TEP. Paying off that debt and covering other costs necessary to provide service would drive rates much higher than the projected cost of continued service from TEP. The additional cost of service would escalate over time, from an extra $162 per year per average residential customer in the first year to an additional $900 per year after two decades, the study found.

“These latest findings reaffirm what we have consistently stated: A government takeover of our system would be an unrealistic, unaffordable, and unnecessary distraction,” Gray said.

TEP provides safe, reliable electric service to 457,000 customers in Southern Arizona and maintains one of the nation’s most reliable electric grids. For more than 130 years, TEP has invested in the energy infrastructure that powers homes, businesses, and community institutions while advancing toward a cleaner, more resilient energy future. Learn more at tep.com.

TEP and its parent company, UNS Energy, are subsidiaries of Fortis Inc. (TSX/NYSE: FTS), a leader in the North American electric and gas utility business. For more information, visit fortisinc.com.

News Media Contact:
Joseph Barrios
(520) 884-3725
jbarrios@tep.com