TEP rate case: Judge backs 11% bill increase, yearly updates

The administrative law judge tasked with weighing in on Tucson Electric Power’s requested rate increase is recommending a double-digit rate increase that would raise average residential bills 11.2% and is backing TEP’s request for annual rate increases under a new formula.

In 2025, TEP asked the Arizona Corporation Commission for a 13% rate increase, and a change to an Annual Rate Adjustment Mechanism, or ARAM, which updates rates every year.

The monthslong legal process since then has involved hours of sworn testimony, legal documents and complicated electricity rate tables. Pima County, the City of Tucson, the Attorney General and the Residential Utility Consumer Office all weighed in during the process to voice their concerns about a double digit significant rate increase for Southern Arizona communities.

Administrative Law Judge Julia L. Matter, who is employed by the Arizona Corporation Commission, issued a 278 age order on Oct. 20 offering proposed resolutions on the many items considered in the rate case. The ACC is currently slated to review the judge’s recommendations, and potentially vote on them, during an open meeting on Nov. 17.

Shadowing each step of the discussion over TEP in Tucson is an ongoing and growing campaign for public power, led by the Democratic Socialists of America Tucson chapter but increasingly a regular part of city council discussions. The question of whether to grant Tucson Electric Power a 25-year franchise to use city streets, alleys and other public rights of way for its power lines and equipment will be on the Nov. 3 ballot. TEP is among a family of utility companies owned by Fortis, Inc., which the TEP website describes as Canada’s largest investor-owned gas and electric utility holding company.

Joseph Barrios, manager of corporate communications at TEP, told Luminaria the group was still reviewing the recommended order. We “appreciate the time and effort that the Administrative Law Judge and intervenors have invested in this proceeding,” Barrios said.

Daniel Dempsey, who worked as a licensed securities analyst for investors in energy companies and now continues to do analysis work while running Underground Arizona, said he was disappointed with the judge’s suggestions. “There is always a little bit of hope that they will go against the grain on something but they didn’t,” he said of the suggestion to put forward a rate increase close to the amount TEP requested. “Big picture: it’s disappointing.”

Rate increase

The revenue increase requested by TEP, initially about 14%, ended up about 13%.

Since 2021, TEP says it has invested $1.7 billion into maintaining and improving service, including the Roadrunner Reserve energy storage project, a battery storage system meant to support increased summer demand. Meanwhile, it’s become more challenging to recover costs, and inflation has risen in double digits over the last several years, it says.

Attorney General Kris Mayes’ office suggested that an appropriate rate hike would be 4%, writing in testimony filed with the ACC in February that “TEP can achieve the same reliability with just a 4% increase by aligning what customers pay with TEP’s actual costs.”

The administrative judge said that TEP’s proposed rate structure was scaled appropriately. That would mean an average monthly bill increase of 11.2%.

Those rates, if the judge’s order is approved by the Arizona Corporation Commission, could go into effect as soon as Dec. 1, 2026.

Rate updates

TEP also asked for a change in how rates are decided moving ahead. The company requested a process called an Annual Rate Adjustment Mechanism, or ARAM, which updates rates every year. That would provide more timely and predictable reflections of costs in customer rates, the company has argued.

The administrative judge agreed with the request for an ARAM, saying it would limit regulatory lag and could provide potential benefit to customers.

“We agree that the ARAM will improve transparency and oversight, reduce administrative costs, eliminate several of TEP’s adjustor mechanisms, likely allow TEP to access capital at lower rates for the benefit of customers, potentially result in rate decreases, and promote gradualism,” the recommendation said.

Next meeting

An open meeting of the Arizona Corporation Commission to discuss the judge’s recommendations is tentatively set for Nov. 17. It can be attended in person, or people can call in at 877-309-3457 Passcode 801972877. Follow the docket here.

Barrios, with TEP, said that if approved the ARAM would not necessarily result in automatic rate increases, and regardless would need to be approved by the ACC. “Annual adjustments would be based on filed documentation that describes the actual costs of maintenance, upgrades and other improvements for customers,” he said in an email statement.

Critics of the proposal had said that an annual increase, on an ever-increasing total, would be an unsustainable growth in electricity prices, and did not give enough notice for people to weigh in.

The administrative judge disagreed with the due process concern, saying: “due process requires notice and a meaningful opportunity to be heard, not a full evidentiary hearing in every circumstance or a specific amount of time for review.”

Dempsey said he disagreed with the judge’s analysis, noting that the sheer amount of paperwork filed to the ACC on the issue would require someone working full-time to oversee TEP. “It makes economic sense because fighting these fights saves the whole community money when they [TEP] are going for excess increases – and they are always going to go for excess increases. It’s their job,” Dempsey told Luminaria.

TEP’s low-income support program

The judge said she also approves of TEP’s proposal to restructure its Lifeline low-income program, which would create two categories of customers receiving assistance:

Customers at or below 100% of the federal poverty level will get a 50% monthly discount on their bill
Customers with a household income between 101% and 200% of the federal poverty level get a 20% discount on their bill

Still, the judge noted that affordability for low-income residents was a significant concern, and suggested an order for TEP to work with anti-poverty group Wildfire to sign more people up for its low-income discounts in certain ZIP codes.

“TEP works hard to manage costs in the face of rising prices for equipment, parts, construction materials and other aspects of our service,” Barrios said in a statement. “TEP continues to conduct community outreach and offers extended payment arrangements, payment extensions and other forms of assistance.”