Proposed New 2023 Rates to Support Cleaner Energy, Reliable Service

We’ve upgraded our local energy grid to provide more power to more customers since 2018, the last year reflected in our current rates. Our system serves more than 442,000 customers and spans 1,155 square miles.  It requires ongoing maintenance and upgrades to approximately 5,100 miles of transmission and distribution lines, more than 4,300 cable-miles of underground distribution lines, nearly 100,000 power poles and transmission structures and more than 120 substations.

TEP has invested nearly $1.8 billion since 2018 to upgrade and reinforce our system and facilities. Some of those investments include:

• New wind and solar resources, including the Oso Grande Wind project, which produces enough clean energy to satisfy the annual energy needs of nearly 100,000 Tucson homes.
• New substations, substation upgrades and other improvements to our local energy grid. Especially in response to more extreme weather and higher temperatures.
• New IT systems that facilitate smart grid operations and participation in regional energy markets.
• Safer, more secure facilities that provide enhanced protection against increasing physical- and cyber-security threats and support efficient operations.

These improvements help our system withstand extreme heat and powerful thunderstorms and stand up to the stress caused by increasing peak energy demands.

Learn more about our infrastructure investments here.

Our electric infrastructure is under growing stress. Warmer summer weather and the addition of more than 14,000 households and businesses over the last three years have increased peak usage by 5.7 percent since 2019. Just as your vehicles and home need regular repairs, our grid must be well-maintained to support reliable service under increasingly challenging conditions. We’re also bringing cleaner, more efficient and flexible resources online to replace retiring coal-fired power plants.

Thanks to these efforts, TEP has provided record reliability during a global pandemic and punishing heat. We continue to rank in the top quartile of all electric utilities across the country for service reliability.

TEP works hard to manage its operations and maintenance (O&M) costs through continuous improvement efforts and consistent scrutiny of expenses. The success of these efforts is reflected in the fact that TEP’s O&M increased just 2.4 percent annually, on average, from 2018 through 2021 despite average annual inflation of 3.6 percent during that period.

We also took steps to reduce other costs. Our finance team has issued nearly $1 billion of new debt since 2018 to help finance capital investments that were necessary to maintain safe and reliable service, as well as to retire higher-cost debt.  TEP’s strong investment-grade credit ratings allowed us to access capital markets on favorable terms, helping us reduce our average cost of debt from 4.65 percent in 2018 to 3.81 percent in 2021.

Many of our investments are designed to reduce long-term costs. For example, we upgraded systems to improve the efficiency of our power generation dispatch and support our participation in the Western Energy Imbalance Market. That marketplace has expanded our access to clean energy and balancing resources and is expected to lead to lower long-term energy costs for customers.

The new rates will pay for several new projects that are supporting our transition to cleaner, less carbon-intensive energy. The largest is our new Oso Grande wind farm in southeast New Mexico, which more than doubled our large-scale renewable energy resources when it came online in 2021. Combined with the substations that help deliver its clean energy to Southern Arizona, the wind farm plays an important role in our effort to provide more than 70 percent of our power from wind and solar resources while reducing carbon emissions by 80 percent by 2035.

We also built a new substation and other infrastructure to connect the new Wilmot Energy Center south of Tucson, which includes a 100-megawatt (MW) solar array and a 30-MW battery energy storage system – each the largest of their kind on our local grid. The new rates would recover those costs as well as other upgrades that have allowed customers to continue connecting rooftop solar arrays to our system without compromising safety or reliability.

Our plans for a cleaner, greener grid, outlined in TEP’s most recent Integrated Resource Plan, will avoid the production of more than 50 million tons of carbon dioxide over 15 years – equivalent to taking three-quarters of a million cars off the road.

The proposed rates would remove costs related to TEP’s share of Unit 1 at the coal-fired San Juan Generating Station, which will be retired at the end of June 2022. They also would reduce the number of years needed to recover the costs of Units 1 and 2 at TEP’s Springerville Generating Station, supporting our plans to retire those units in 2027 and 2032, respectively. Although this change would increase near-term costs for customers, leaving the current timeline in place would unfairly shift significant cost recovery to future generations of customers.

The proposed rates would eliminate three current surcharges while adding a new charge to help recover some costs related to TEP’s transition to cleaner energy.

The proposed Resource Transition Mechanism (RTM) would support the development of wind farms, solar arrays, battery storage systems and other investments that help reduce our community’s carbon footprint. Allowing these costs to be passed along more gradually as they occur will mitigate the larger impacts that result from accumulations over longer periods between rate requests.

The RTM would replace the Environmental Compliance Adjustor (ECA), which would be removed from bills. TEP also is seeking to recover the cost of our energy efficiency programs in base rates rather than through the existing Demand Side Management (DSM) surcharge. The proposed rates would eliminate that charge as well as the Renewable Energy Standard and Tariff (“REST”) surcharge, reflecting the central role that renewable resources now play in our resource portfolio.

Our Lifeline program would provide an increased monthly discount of $20 – up from $18 – to qualifying residential customers whose gross household income does not exceed 200 percent of the federal poverty level. We also:

• help low-income families make energy efficiency improvements to their homes through our weatherization program
• work with community partners to provide emergency bill payment assistance to qualifying customers. TEP received and processed over $9.7 million in agency funded bill assistance in 2021, an amount bolstered significantly by federal pandemic relief aid.

The proposed rates would increase the average bills of a typical residential customer using our Basic pricing plan by 12 percent, or $14.88,  compared to current levels. This estimate is based on monthly usage of 1,056 kilowatt-hours (kWh) in the summer and 623 kWh in the winter, for annual monthly usage of 803 kWh. Customers who use more energy should expect a larger increase.

For typical residential customers using other pricing plans, the proposed rates would increase average monthly bills by the following amounts compared to current levels:

• Time of Use (TOU): 12 percent, or $14.56
• Demand: 12.9 percent, or $16.42
• Demand TOU: 12.4 percent, or $15.35

These estimates are based on the average residential usage detailed above, so customers who use more power would experience larger increases, particularly those who are not successful in reducing usage during on-peak periods.

These forecasted impacts would vary with usage, and the estimates do not account for changes in surcharges or taxes that will occur before new rates take effect.

All of the projected impacts described below would vary significantly with usage and the customer’s chosen pricing plan.

The average bill for a typical Small General Service customer on our Basic pricing plan would increase by 9.6 percent, or $30.90 per month, under the proposed rates compared to current levels.

The average bill for a typical Medium General Service customer would increase by 11.75 percent, or about $625 per month, compared to current levels.

The average bills of larger businesses that use TEP’s Large General Service pricing plans would increase by 4.5 percent, or about $837 per month, though this figure will vary widely depending on usage.

All of these forecasts are based on average usage within each customer class. The potential impact for individual customers would vary depending on their electric usage, and customers with above-average usage should expect higher bills.