TEP seeks rate increase to cover investment in service quality

Tucson, Ariz., July 3, 2012 — Tucson Electric Power is seeking new, higher rates no later than August 2013 to cover rising service costs, including more than $1 billion the company invested over the past five years to continue providing safe, reliable service.

The rates TEP proposed in a filing with the Arizona Corporation Commission would increase typical residential customers' average monthly bills by about $13, or less than 16 percent. The average residential monthly bill would remain under $100.

These new rates would represent TEP's first base-rate increase since 2008 and only the third such increase in the last 20 years. TEP's base rates have risen just 8 percent since 1992 while the Consumer Price Index has increased nearly 60 percent over that time.

Other rate components such as renewable energy and energy efficiency surcharges required to satisfy state-mandated programs, and a fuel surcharge, have contributed to bill increases during that period.

TEP's total rates lag behind its service costs. TEP's current rate structure is based on costs incurred by the company in 2006. Since then, the company has invested more than $1 billion to strengthen its distribution system, upgrade its power plants and make other improvements to serve customers' needs.

Operating costs also have increased over the last five years due to such things as rising materials costs, cybersecurity enhancements and expanding environmental regulatory requirements. During this period, sales have remained essentially flat due in part to a weak economy and government mandates.

Those investments include adding new solar generating facilities in the Tucson area, enhanced power generation environmental controls, a new downtown headquarters building, improved information technology systems that support automating distribution functions, and online customer service options. TEP also retired a lease and took full ownership of its largest local power plant, generating long-term savings and supporting plans to develop a solar thermal system on the site.

TEP's proposal includes a new funding plan for energy efficiency programs that reflects the company's focus on energy efficiency as a low-cost resource. Customers could partially offset monthly bill increases associated with higher base rates by participating in one or more of the company's energy efficiency programs.

TEP's proposed rates include a mechanism to help ensure the recovery of its system costs. A portion of these costs is recovered through rates that generate revenue based on consumption levels, which are reduced by state-mandated energy efficiency and renewable power programs. The mechanism would be adjusted annually to account for the reduced energy sales that result from these programs. A similar fee has been authorized for other Arizona utilities, including Phoenix-based Arizona Public Service and TEP's sister company, UNS Gas.

TEP's rate-increase request will be reviewed by the ACC, a five-member panel of elected officials that sets utility rates and oversees other aspects of the company's operations. That review typically includes public hearings before an administrative law judge who recommends a proposed order for the ACC. The review process typically takes about a year.

Tucson Electric Power provides safe, reliable service to 404,000 customers in southern Arizona. 

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