Dallas Dukes: The facts and future of TEP's franchise agreement

Tucson Electric Power works hard to limit the costs reflected in our customers’ bills, but there are some we simply cannot control.

Taxes and fees imposed by state and local governments add significantly to the cost of our service, though the impact varies depending on where you live. In addition to sales tax, which varies by jurisdiction, many of our customers are required to pay local taxes on utility service, including fees associated with local franchise agreements.

Franchise agreements govern how utilities use public streets and other rights of way to install, maintain and upgrade their infrastructure. They are common across the country and are practical tools that allow cities and utilities to coordinate work efficiently and safely.

Franchise agreements must be approved by local voters and sometimes include fees that, like local taxes, are passed along on the bills of customers in that jurisdiction. The ballot measures placed before voters make clear that utility customers will pay this fee, as they commonly do in communities across the United States that impose them.

A critic on this page claimed recently that TEP should shoulder municipal franchise fees by itself, rather than passing them along on bills. But franchises create benefits for customers, not utility investors. They don’t contribute to TEP’s earnings and are treated under the law like any other government tax or fee.

TEP’s franchise agreement with the City of Tucson includes a 2.25% franchise fee that’s added to the electric bills paid by residents and businesses within city limits. Because that agreement expires soon, the Tucson Mayor and Council is considering asking city voters to approve a new agreement with TEP that includes the same 2.25% fee.

The good news in this case is that the City of Tucson’s franchise fee doesn’t increase customers’ bills at all. The City also imposes a utility tax of 5% that is partly offset by franchise fee payments, reducing its effective impact to 2.75%. If the franchise were to expire, customers would simply pay the full 5% tax.

That’s one good reason to support approval of a new franchise agreement between the City of Tucson and TEP. Another is that it allows more efficient operations, reducing permitting costs and work timelines for both TEP and the City.

Without a franchise, TEP and the City would have to fall back on standard, job-by-job permitting processes that are slower, more fragmented and more expensive. This would lead to higher bills while delaying routine maintenance and slow outage restoration, especially during extreme weather or emergencies. It also could undermine local economic development efforts by extending timelines and costs for extending service to new businesses and residents.

Our new franchise agreement will also be accompanied by a separate Energy Collaboration Agreement, or ECA, that commits TEP to providing significant funding and other support for efforts that support the City’s Climate Action and Adaptation Plan. Funding would come from TEP’s corporate resources and would not be recovered through rates or a charge on customers’ bills.

In a recent letter to city residents, Tucson Mayor Regina Romero said the agreement will fund sustainability projects that otherwise wouldn’t happen or would be threatened by the city’s budget limits.

“An ECA can help us continue funding the climate policies we all deserve,” Romero said. “With temperatures rising earlier in the year, we need to look at sources of revenue that can support our very real climate needs.”

TEP is proud to support these programs as part of a partnership with the City that includes a new, long-term franchise agreement. We’re hopeful that the Mayor and Council, as well as city voters, will support these agreements and help us work together toward a more sustainable energy future for our community.