Local opinion: TEP is holding Southern Arizona back

Greater Phoenix enjoys a built-in economic development edge over Southern Arizona: Much of its power comes from public-owned utilities. Public-owned Salt River Project (SRP) supplies electricity in full or in part to Chandler, Gilbert, Glendale, Mesa, Tempe, Scottsdale and other cities, while most remaining customers are served by investor-owned Arizona Public Service (APS).

This arrangement creates a natural A/B test: Are public-owned utilities or investor-owned utilities more efficient operators and investors? The results couldn’t be more clear — public ownership wins, running away. APS customers pay up to 40% more than SRP customers for the same service, even when they’re across the street from one another.

Mesa offers an even starker comparison of the economic development edge. Mesa runs its own electric utility that purchases wholesale power from SRP and others and distributes it to the historic city center. This helps it to funnel $135 million per year — over one-fifth of the city’s general fund — into police, fire, and other public safety services that would otherwise rely on higher taxes.

Because Mesa collects a portion of utility profits instead of outside investors, it can advertise both lower electric bills and lower taxes, giving it a potent tool for recruiting new businesses — an economic development edge Southern Arizona lacks.

In contrast, Tucson Electric Power (TEP), a subsidiary of Canada-based Fortis, charges rates similar to APS. Last year, TEP earned over $250 million in profit yet returned nothing of comparable value to Southern Arizona. Meaning you paid hundreds or thousands extra on your electric bill for nothing. For power-hungry employers — semiconductor fabs, data centers, advanced manufacturers — the arithmetic is simple: Mesa or SRP-served cities cost less. And, it has nothing to do with politics: It’s a structural advantage provided purely by utility ownership.

Utility investor advocates claim they add discipline, but TEP’s investors demand a nearly 10% return on equity while bearing almost no risk; regulators routinely let them pass operational and investment mistakes onto customers — and they never deny rate increases. For comparison, the risk-free rate of return is the ten-year treasury rate, currently about 5%. Thus, once again, TEP demands massive premiums from customers for, effectively, nothing. Money that goes to public safety in Mesa just disappears from Southern Arizona.

Over time, the gap widens: Investor-owned utilities raise prices about 50% faster than inflation, whereas public utilities raise them 50% slower — meaning electricity from public-owned utilities gets cheaper over time compared to other goods and services.

This is what should happen — technology should lower costs over time. In a Texas-style competitive electricity market — where generation and distribution are separate and generation investors shoulder true risk — Arizona power would rank among the cheapest nationwide, especially during the day. The sun is our geographic advantage the same way natural gas is Texas’s advantage.

As long as we rely on TEP for distribution, we will trail Greater Phoenix on both customer costs and municipal revenues — forcing Tucson to levy higher taxes for the same level of services. Complicating matters, many local business advocacy groups depend on funding or leadership from TEP, obscuring the source of our competitiveness problem. Those groups have a financial interest in failing to see the problem. Moreover, in recent years, the ACC has been brazenly captured by the utilities. It’s time for change.

Mesa’s model points the way forward: Buy power wholesale, run distribution locally, and reinvest the savings in public safety, infrastructure, and lowering taxes. We would get more public safety, more control, and we would pay less. Small, token concessions from TEP to maintain the status quo will only enlarge the existing gap and place us further behind.

The City of Tucson already excels at delivering water, sewer, and waste services. Acquiring TEP’s distribution grid would build on that record and keep more money in the local economy. For the sake of competitiveness and fiscal health, I support municipal ownership of the distribution grid, and I urge my fellow investors and business owners to do the same. We can and must do better than TEP.