Tim Steller’s column: Election shows how unhappy Tucson is with TEP

As recently as February, the utility cited a survey of 500 customers and concluded “More than 80 percent of local residents are highly satisfied with TEP.”

If that’s the case, they have a funny way of showing it.

Voters in the city of Tucson slapped down a proposed 25-year franchise agreement between the city and TEP last week, by a 56% to 44% margin. Granted, not all TEP customers are in the city, but that election was as close to a referendum on Tucson Electric Power as we’re going to find, and the public registered clear disapproval.

The reasons seem clear: Rate increases, data centers, foreign ownership, dissatisfaction with home-solar and other renewable-energy policies. Those reasons didn’t have a direct relationship to the plan on the ballot, which would have continued TEP’s more direct access to Tucson’s rights-of-way, but they helped set the context.

The upshot isn’t completely clear. One thing is for sure, though: The election result will reopen the discussion of trying to wrest control of electric power in the city of Tucson away from the private utility and establish a public power company here.

“Something that wasn’t possible a couple of years ago now seems possible,” said Lee Ziesche, of Public Power for Tucson, who helped run the small, underfunded campaign against the franchise agreement.

The group decided to spend less than $1,600 on its campaign to avoid triggering requirements to file campaign finance reports.

TEP, by contrast, spent about $4.3 million supporting a political action committee called TEP for Tucson. Assuming they convinced a few people to vote yes, one can only imagine how much more negative the result would have been for TEP otherwise.

Why it failed

Take one look at the Democrats’ successful campaign theme this year, and you can see TEP was up against stronger odds than perhaps they or the City Council realized. Campaigning on “affordability” won the Democrats elections all over the American map.

At the same time as TEP was campaigning for the 25-year franchise agreement, it was pursuing a 14% rate increase in a case at the Arizona Corporation Commission. In the last days of the campaign, an administrative law judge recommended what could end up as around a 10% or 11% average rate increase.

This is on top of a 10% rate increase won in 2023.

“We completely understand where concerns about rate increases and affordability come from,” said Joseph Barrios, a TEP spokesman. “It’s at the forefront of discussion right now and on the minds of our customers.”

I asked Larry Lucero, the longtime government relations director for TEP, now retired, his thoughts. Lucero agreed that the atmosphere around rate increases made it hard for the franchise agreement to pass.

“Fourteen percent is a huge number,” Lucero acknowledged. “People don’t understand the economics of utility finance, how you have to borrow a billion dollars to do the work. That borrowing is always an item that has a lot of risk in it.”

“The service is the same, still reliable, nothing’s changed, so why should the rates go any higher?”

Daniel Dempsey, a longtime critic of TEP who has intervened against them in the rate case, noted a few other factors: TEP siding with data center developers last year, efforts that made home solar less affordable, and the ownership by Fortis Inc., a Canada-based conglomerate, since 2018.

“A lot of utilities were purchased by holding companies,” Dempsey noted, in reference to Fortis. “The purpose of the operating entity, like TEP, is to enrich the holding company.”

Ward 1 Council Member Lane Santa Cruz, who supported the agreement, put it this way to me in a text message: “With an out-of-state corporate owner, every (rate) hike reads as shareholders first, families second.”

The recent ruling would set TEP’s return on equity, or profit, at 9.65%.

Tucson council’s conundrum

Dempsey suspects Mayor Regina Romero and the council majority were overconfident about the franchise agreement’s prospects.

They negotiated a $2 million-per-year energy collaboration agreement that would go toward sustainability efforts, bill assistance and other programs. It would even increase by 2% every year and total $64 million over the life of the agreement.

“It got some people at the city excited. It got some people who do projects with the city excited. But it didn’t really get anybody else excited,” Dempsey said.

I’m sure that $2 million number took a lot of hard negotiation, but I know it didn’t particularly impress me, in a Tucson general fund nearing $800 million. Obviously, it didn’t sway many Tucsonans.

Now the council and TEP have some big issues to figure out. The first is how to ensure needed repairs to the grid get done quickly after the current franchise agreement expires in April 2027.

Both TEP and city representatives said some sort of arrangement for fast permitting will be worked on in the coming months to replace the efficient system afforded by the current franchise agreement.

But what about that background issue, the push for public power? That would require the city to buy out TEP’s infrastructure in the city limits and begin operating its own electric utility. It’s a big, expensive ask, one that TEP calls infeasible but that a city study found possible, if voters approve it.

“For the city, it’s a mandate to get a better deal for ratepayers and keep every option on the table, including community choice and public power,” Santa Cruz said by text.

The mayor and council underestimated public anger against TEP, but now the public has given them leverage and license to pursue a better deal, with TEP or without, on that public’s behalf.