Local opinion: Competition, not monopoly, is key to lowering electric costs

TEP/Fortis has requested rate increases totaling over 50% in the last six years after doubling its rate base from $2.1 billion to $4.3 billion. It plans to more than double its rate base again to nearly $10 billion over the next five years — $3.4 billion planned normally and $1.5 billion to $2 billion for Project Blue, per its investor presentations.

And, TEP/Fortis, along with a compliant ACC, are fighting against literally everyone else — ratepayers of all classes — to be allowed to increase rates annually, automatically, without rate cases whenever it spends more money. As such, you should expect more, very large rate increases soon.

The problem is that TEP/Fortis overspends because it earns a return on spending money, not saving money. This perverse incentive structure is the opposite of public-owned utilities like Salt River Project (SRP) — which serves all or parts of Mesa, Chandler, Tempe, Scottsdale, etc. — and City of Mesa Electric.

Yet, instead of questioning TEP/Fortis’s plans to double rates when neighboring utilities and states are not, we have the Southern Arizona Leadership Council (SALC) complaining that the City of Tucson is increasing fees and exploring solutions to Fortis/TEP’s runaway spending.

I fully understand that SALC and the Southern Arizona Chamber of Commerce are proxies for TEP/Fortis through its board memberships. What I don’t understand is why the rest of the business community is okay with it. Being uncompetitive electrically is not good for the region or economic development. Fortis/TEP’s interests are to increase rates to continue growing holding company compensation and dividends. That does not align with Arizona’s, the region’s, or any other ratepayer’s interests.

When SRP has rates 10%-50% cheaper than TEP — with the gap expanding — why would you locate a business in Southern Arizona? Or, for that matter, when Texas is 40% cheaper, why would you locate here?

Worse yet, some cities, like Mesa, own their own electric utility and send excess profits to their general fund, allowing them to have lower fees and taxes.

How can we compete with that? We can’t. Not without changing the system.

Texas split generation from distribution and forced generators to compete for customers. This competitive market has been successful in keeping prices down — as competitive markets tend to do. It has also resulted in the most rapid rollout of solar and storage in the country — because free, competitive markets with risk-taking investors are far more efficient at allocating capital than government-protected monopolies and aloof regulators.

Municipalization of distribution is the most straightforward way to split generation from distribution in Arizona. It would allow the city — IBEW really, who already does the job for SRP and partially, though declining, for TEP/Fortis — to manage the wires while allowing generation companies to compete for our business. Competition must be actively protected from capture/sabotage. Texas did a good job of that; California did not.

Municipalization is deregulation. It frees us of the broken, backward regulatory model.

We have overpaid Fortis/TEP by well over a billion dollars. Money that should be spent and circulate in the community instead leaves for no good reason. SRP, which takes no profits, consistently outperforms TEP by every metric: cost, reliability, etc. To help you understand how much money is wasted on the Fortis/TEP shell game, we built a Cost of Capital tool that you can play with (it is best viewed on a computer).

Southern Arizona needs leadership, and it is not getting it from SALC or the Chamber because their thinking is limited by having to kowtow to Fortis/TEP. We get recycled TEP talking points laundered through “third-party” op-eds. Real leadership may not be possible from our local “business leadership” groups so long as TEP/Fortis has control of the purse strings and boards.

Competition is the solution. Municipalize distribution and let Fortis/TEP compete on generation. The city is doing right by all of us in exploring real solutions.