Local opinion: Reliable power requires reliable facts

In the face of higher costs across our economy, it’s reasonable to ask hard questions about whether energy providers really need increased rates.

Tucson Electric Power’s average bills have been flat for the past three years, and the increase we’ve requested is less than the level of inflation since rates last changed. Even so, we should be pressed to prove the increase is warranted.

But that pressure should be based on facts, not false narratives. Unfortunately, recent claims advanced by Attorney General Kris Mayes and highlighted by Star columnist Tim Steller don’t meet that standard.

Based on testimony from a paid consultant, Mayes argues that TEP’s request could be slashed by more than half with no impact on safety, reliability, or service. While that sounds appealing, it reflects assumptions that don’t hold up in the real world of utility finance or regulation. In truth, following this course could cripple TEP’s ability to finance new investments, threatening both reliability and long-term affordability.

Mayes’ consultant claims that investors who fund TEP’s grid upgrades would be satisfied with a fraction of the return that regulators across the country have found reasonable for electric utilities. It’s not that he has it in for TEP; he has offered the same radical perspective in many other rate cases, including a pending request from Arizona Public Service (APS). But courts and commissions have repeatedly rejected it for a simple reason: It doesn’t provide equity investors with enough return to justify their risk.

Why should customers care? If utility investors don’t earn a fair return, they’ll put their money elsewhere. This would force utilities to incur higher levels of debt at increasing interest rates that reflect their eroding credit metrics. They also might be compelled to delay necessary upgrades, threatening reliability and their ability to serve customers’ increasing energy needs.

That’s why regulators across the United States have called this consultant’s proposals “inconceivable” and inconsistent with legal standards supporting returns that allow utilities to attract capital on reasonable terms.

Arizona has seen this dynamic firsthand. When the Arizona Corporation Commission (ACC) reduced APS’s return on equity in 2019 as a penalty for customer service issues, the resulting credit rating downgrade forced the company to hold off on debt and equity issuances until a reasonable return could be restored in its next rate proceeding.

Since then, the ACC has worked hard to maintain a constructive regulatory environment that balances affordability with long-term reliability. That balance is fragile, and proposals that have never been tested or adopted elsewhere could easily topple it. Arizona’s utilities could see capital flow elsewhere, leaving us without the resources we need to replace and upgrade aging infrastructure.

Providing utilities with equitable returns on equity generates earnings at levels that reflect the steep investments needed to maintain reliable service. For example, TEP invested $828 million in capital improvements last year and expects to invest more than $3 billion in necessary upgrades over the next five years. These investments will far outstrip our earnings and would not be possible without them.

It can be tempting to view utility earnings as excess or unnecessary. In reality, they show that a utility has the financial stability to make cost-effective investments in long-term reliability. A weakened financial foundation does not lead to lower bills in the long run. It simply leads to higher risk and fewer options.

We understand why readers — and voters — might want to believe claims that utilities are asking for too much from customers. But our customers deserve discussions grounded in established regulatory standards and real-world experience, not speculation. Reliable power depends equally on reliable facts and on thoughtful decisions that protect both today’s affordability and tomorrow’s reliability.