Tucson Customers Face 13% TEP Rate Hike Proposal as Arizona Corporation Commission Weighs Utility’s Request

Tucson Electric Power is asking the Arizona Corporation Commission to raise electricity rates by 13% for its 455,000 customers in Southern Arizona. The request puts Tucson households in the middle of a months-long regulatory battle that will determine whether residents see higher bills starting in September.

The rate case pits the investor-owned utility against state regulators, consumer advocates, and the state Attorney General’s office, which has recommended a rate increase of just 4%.

What TEP Is Asking For

TEP is requesting an increase in retail revenues of approximately $172 million, which the company says is necessary to recover its full cost of service and maintain grid reliability. The utility says it has invested $1.7 billion since 2021 into maintaining and improving service, including the Roadrunner Reserve battery storage project designed to handle peak summer demand.

"TEP is filing this rate case to update its rates to provide the Company with an opportunity to recover its full cost of service, including an appropriate and competitive return on invested capital," the company said in its filing. "All of which will benefit TEP’s customers and the Company."

TEP wants the new rates to take effect on September 1, 2026. The next deadline in the process is July, when closing arguments are due before the commission.

The Attorney General Pushes Back

Attorney General Kris Mayes’ office filed testimony with the ACC in February arguing that TEP can achieve the same reliability with just a 4% increase. Mayes’ position is that the company’s requested increase exceeds what is necessary to cover actual costs.

Joseph Barrios, a TEP spokesperson, responded that the AG’s proposal would damage the utility’s ability to raise capital from investors.

"When returns are set too low, investors have little motivation to make investments in riskier, long term electric infrastructure. That makes it more expensive and more difficult to build and maintain the grid," Barrios said.

A Bigger Fight Over How Rates Are Set

Beyond the immediate rate increase, TEP is also seeking a structural change to how utility rates are determined in the future. The company wants the commission to approve an Annual Rate Adjustment Mechanism, or ARAM, which would allow TEP to update rates every year without going through a formal rate case hearing.

The ACC recently approved its first ARAM for UNS Gas, a subsidiary of TEP’s parent company Fortis. Commissioner Rachel Walden wrote an op-ed in the Arizona Republic supporting the tool, saying it would reduce costs and allow utilities to access lower interest rates.

Consumer advocates are fighting the proposal.

"The ARAM is potentially one of the most dangerous losses of public oversight of utility rates in decades," said Tucson City Council member Miranda Schubert in an interview with Arizona Luminaria.

The Tucson city council adopted a motion at its May 19 meeting opposing the ARAM and supporting the attorney general’s proposal for a 4% rate hike.

Dustin Madsen, a rate expert hired by the Residential Utility Consumer Office (RUCO) to testify before the commission, called the mechanism "tantamount to a blank check."

"There is simply no incentive for the company to reduce costs under the ARAM because it would lead to lower future earnings," Madsen said during his testimony.

RUCO recently filed a notice of appeal in the UNS Gas case, asking a court to determine whether the ARAM implementation conflicts with Arizona law.

Daniel Dempsey, a securities analyst who runs Underground Arizona, compared the annual adjustment to a slow boil.

"It’s like a frog in boiling water," Dempsey said. He noted that few advocacy groups have the resources to continuously monitor the regulator for waste or unfair costs in annual increases.

Tucson Residents Already Struggling

The rate case comes as Tucson residents report difficulty affording their current utility bills. Cynthia Zwick, director of RUCO, said her office held around 14 public meetings about utility cost increases across Arizona.

"They are having a difficult time managing bills today. Introducing potential increases on an annual basis is more than they think they can manage," Zwick said during her testimony. "We see no benefit to residential customers, honestly."

Claire Michael with Wildfire AZ, an organization addressing root causes of poverty, testified that some of the lowest-income TEP customers spend 11% of their earnings on electricity alone.

Public comments filed in the rate case reflect the anxiety. Janelle Menick wrote, "Our TEP bills are too high now." Hal Bergsma asked how people on fixed incomes would afford a rise in prices.

"Will they eat less, cut back on medication or set their thermostat at a higher, unhealthy temperature during the summer?" Bergsma wrote.

Local Governments Take a Stand

The Pima County Board of Supervisors passed a resolution opposing both the rate increase and the new ARAM formula.

"An increase in rates will have cascading consequences to County residents and businesses through increases in the total costs of living, increased demand for social services, and diminished economic competitiveness," the resolution said.

What TEP Is Offering Low-Income Customers

Alongside the rate increase request, TEP is proposing changes to its low-income assistance programs:

• Moving from a flat $20 discount to a 50% monthly discount for residential customers at or below 100% of the federal poverty level
• Offering a 20% monthly discount for customers between 101% and 200% of the federal poverty level
• Starting a program to help convert manufactured home parks to individual on-site meters, an issue organizers say has led to utility overbilling and made many residents ineligible for low-income discounts

The rate case continues with closing arguments due in July. A decision from the Arizona Corporation Commission will determine whether Tucson’s electric bills rise by 13%, 4%, or somewhere in between.