While we rely on energy from natural gas, sunlight, wind and coal, our local electric service would not be possible without another critical resource: money.
Tucson Electric Power spent more than $1 billion in 2024 to provide safe, reliable service to more than a million local residents and businesses. On top of that, we also invested $733 million last year in necessary upgrades to our local energy grid.
Our ability to access such significant financial resources at an affordable cost depends on the potential profit our investors hope to earn. Those returns are tightly regulated through a rigorous public process overseen by elected members of the Arizona Corporation Commission (ACC).
While it’s easy to criticize profit as a product of corporate greed, it’s probably more productive to understand how it contributes to lower rates and more reliable service.
Attracting Investment
There are two main ways to get the money necessary to maintain and improve our local energy infrastructure. We can borrow, and pay interest on that debt. Or we can use equity – money invested by shareholders who expect a return for the risk they take.
We work hard to find the right mix of both. If we only borrowed money, our credit rating would drop, leading to higher interest expense and higher rates. The same would be true if we relied exclusively on equity, as that would require higher returns. Using both options wisely leads to lower costs and more affordable rates.
We also use TEP’s earnings to fund system upgrades directly. In 2024, about 70 percent of our earnings were reinvested directly into the local energy grid, helping us maintain and upgrade 9,000 miles of transmission lines, 120 substations, and more than 3,000 megawatts of generating capacity.
In this way, TEP’s profits help fuel the financial engine that powers our community. They help us fund major projects like our new $350 million Roadrunner Reserve battery energy storage system and the nearly $430 million in local grid upgrades we completed during the last three years. These long-term investments will help us ensure safe and reliable service to all of our customers.
Everyone Profits
Our profits are limited and tightly controlled. Our rates are based on proven, historic costs and are designed to pass most of them along without any markup. We can earn up to a 6.93 percent return on invested capital, but that’s a cap, not a guarantee. Our potential profits depend on our ability to operate efficiently and control costs. This financial incentive drives great benefits for our customers, since lower costs lead to lower rates over time.
Of course, some costs are out of our control. Since 2021, the year used as the basis for our current rates, the prices for large substation transformers increased by 77 percent. Wood poles cost 88 percent more, while prices for power line materials like insulators, connectors and other components are up nearly 40 percent. Our pending request for higher rates would allow us to begin recovering those higher costs in late 2026.
TEP’s electric service remains one of the best values in your household budget. We know our desert heat drives summer bills to higher levels, but our average monthly residential electric bills are about $146 – significantly less than the national average of about $190, according to J.D. Power. In 2024, our average daily cost of service for residential customers was just $4.91, with a median cost of $4.09. That’s comparable to what many people spend on coffee, and it powers everything from your phone and Wi-Fi to your refrigerator, lighting, and air conditioning.
Our focus on affordability is reflected in every decision we make. Our plan to convert our coal-fired units at the Springerville Generating Station to run on natural gas is a good example. A company that prioritized profits might have chosen instead to invest $1.5 billion in a new gas plant or $4.5 billion in solar plus storage systems to provide comparable capacity. Instead of seeking an opportunity to earn on that capital, we opted to convert the existing plant at a capital cost of less than $200 million. We know some critics may never acknowledge it, but we remain committed to keeping our service as affordable as possible.
A Profitable Partnership
TEP is proud to serve Southern Arizona as a regulated utility that balances financial responsibility with public accountability. Our ability to earn a reasonable return is a carefully designed mechanism that enables us to invest in the infrastructure, reliability, and cleaner energy future our community deserves. We operate under strict oversight, reinvest in our grid and our neighborhoods, and remain focused on keeping service affordable for all customers. The real story isn’t unchecked profit—it’s a partnership that powers progress, protects affordability, and puts Tucson first.
Caleb Adcock is Vice President and Chief Financial Officer for Tucson Electric Power
