“Our TEP bills are too high now,” writes Janelle Menick in a public comment on the ongoing Tucson Electric Power rate case. Hal Bergsma asks how people on fixed incomes will 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?”
As Tucson prepares to enter the dog days of Southern Arizona’s extreme summer heat, those questions are among the many raised in an ongoing rate case in which Tucson’s electric utility is asking state regulators to raise rates given both the high cost of maintaining the local energy grid and the need to keep making a return for investors.
TEP provides services to about 455,000 customers in Pima County and the Fort Huachuca U.S. Army base in Cochise County. About 90% of the company’s customers are residential.
To raise rates, TEP, an investor-owned utility company with a monopoly on providing electricity in Southern Arizona, must apply to the Arizona Corporation Commission.
That monthslong process is happening now. It involves hours of sworn testimony, legal documents and complicated electricity rate tables. The next deadline in the process is July, when closing arguments are due.
If, or when, the rate increase passes it will appear on customer bills. The request from TEP is to start the rate change in September 2026.
TEP is asking for a 13% rate hike
The revenue increase requested by TEP is about 13%, which would mean most residents would see about a 13% hike in their bill.
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.
To offset those costs, TEP is asking for an increase in retail revenues of approximately $172 million, or about 13%. TEP requests the new rates go into effect on Sept. 1, 2026.
“TEP is filing this rate case to: (i) 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,” as well as provide safe and reliable services and improve its credit rating, the company said. “all of which will benefit TEP’s customers and the Company.”
Attorney General Kris Mayes’ office has 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.”
In response, TEP spokesperson Joseph Barrios said the AG’s proposal could not be implemented without impacting the reliability of TEP service and would damage the utility’s ability to raise money from investors that the company then would use, in part, to invest in the local energy grid.
“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,” he said.
TEP is asking for a rate update every year
Along with an immediate rate increase, TEP also wants to change how rates are decided moving ahead. The company is requesting 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 Arizona Corporation Commission recently approved its first ARAM for UNS Gas, which is also a subsidiary of TEP’s parent company, Fortis. Commissioner Rachel Walden wrote an op-ed about the tool in the Arizona Republic. Walden said the new method would reduce costs and allow utilities to access lower interest rates.
Under the proposed change, the hearing officer could still schedule a formal hearing if there is a need for one, Barrios noted. The company would not, however, go through a formal procedure as it is doing right now.
TEP would also be able to propose protocols of how customers are given notice of annual rate changes, which some advocates worry could be confusing for consumers or leave them out of the process of weighing in on rate changes.
Critics of the proposal also say that an annual increase, on an ever-increasing total, is an unsustainable growth in electricity prices.
The Residential Utility Consumer Office, or RUCO, which represents Arizona residents in rate cases, recently filed a notice of appeal in the UNS Gas case, asking the court to determine whether the implementation conflicts with the law.
Dustin Madsen, a rate expert hired by RUCO to testify to the commission about the proposed ARAM rate, said during his testimony that the mechanism was “tantamount to a blank check,” and would be used to push costs onto consumers. “There is simply no incentive for the company to reduce costs under the ARAM because it would lead to lower future earnings.”
Madsen pointed to Mississippi as an example, which limits increases to no more than 2% a year.
“It’s like a frog in boiling water,” 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, where he comments on energy and utility decisions. He notes that few advocacy groups have the resources to police the regulator steadily to watch for waste or unfair costs in the annual increase.
Tucson city council member Miranda Schubert, who has spoken in favor of public power, said she was concerned about the ARAM. “The ARAM is potentially one of the most dangerous losses of public oversight of utility rates in decades,” Schubert told Arizona Luminaria.
The city council formally adopted a motion, put forward by Schubert, opposing the ARAM and supporting the attorney general’s proposal for a 4% rake hike at its May 19 meeting.
The backdrop: Tucsonan residents struggling to afford bills
Cynthia Zwick, the director of RUCO, said her main concern was an ongoing rise in costs. RUCO held around 14 public meetings about utility cost increases across Arizona, and the high cost of utility rates across water, electricity and gas were issues for most people
“They are having a difficult time managing bills today. Introducing potential increases on an annual basis is more than they think they can manage,” she said during her testimony in the rate case. “We see no benefit to residential customers, honestly. “
Claire Michael with Wildfire AZ, an organization that works to address the root causes of poverty, testified to the commission that some of the most low-income TEP customers spend 11% of their earnings on electricity alone.
Along with the shift in how rates are calculated moving ahead, TEP is also proposing:
- To move from offering a $20 discount for low-income customers to giving residential customers at or below 100% of the federal poverty level a 50% monthly discount, while everyone at 101% or 200% will receive a 20% monthly discount on their bills
- Starting a program that would help convert manufactured home parks to individual on-site meters, an issue which organizers say has been at the core of utility overbilling and has made many residents ineligible for low-income utility discounts.
Affordability has become a key reason that local officials have stepped up as well.
The Pima County Board of Supervisors passed a resolution opposing both the rate increase and new 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.
The city of Tucson formally intervened in the rate case, noting concerns about energy affordability and the impact that rate hikes would have on the transition to clean energy.
In addition, city officials have said during hearing testimony, that the rate increase would add $2.1 million to the city’s electric expense, which would likely add further taxes and fees to residents.
“An increase of this size would essentially burden city residents and businesses with a double increase — once for their own electric bill, and again to pay the additional taxes and/or city service fees necessary to cover the increase in city electric expense,” city of Tucson Utility Manager Michael Catanzaro said in his testimony to the commission.
Who decides what happens in a rate case?
The Arizona Corporation Commission establishes the rates charged by Arizona’s utilities to cover the costs of providing the service but also to give the company what the ACC determines is a fair profit. Applications have usually been based on the company’s costs during a “test year” of the utility’s actual expenses.
The process involves:
- An application from the utility company
- A hearing schedule is set
- Parties, like RUCO, applying to intervene in the rate case
- A public hearing presided over by an administrative law judge that can take weeks or months, and during which consumer advocates or residents can weigh in on the application
- A recommendation or opinion from the judge
- A public meeting during which the commission considers the recommended order, may suggest changes, and can vote
The hearing on the TEP case began April 22 and concluded May 12.
Crucially, the commission says it can’t just say no to a utility’s request for new rates.
“One of the constitutional responsibilities of the Commission is to set just reasonable rates; it cannot simply deny a utility’s application on the basis of not wanting to increase rates,” the commission said in a February press release. “The Commission’s regulatory responsibility is to establish just and reasonable rates and to ensure the utility is providing safe and reliable services to its customers.”
A central debate: How much profit TEP will collect for its shareholders
While part of TEP’s request is an effort to get a return on investments it made in clean energy and to keep the grid reliable, the company is also asking the commission for a specific return on equity, or an amount it will make back for shareholders.
The company is asking for an increase in the cap on the profit it can collect to move from 9.55% to 10.5%.
“A competitive return on equity will assist in maintaining TEP’s financial stability and allow it to meet its capital needs to address these challenges,” TEP attorney Michael Patten said at the start of the case.
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.
In a June 2025 investor presentation, Fortis Inc. showed that shareholder returns have been rising over the past decade.
Mayes, in her opposition to TEP’s request, said the company’s shareholder profit level is significantly higher than what it takes to retain investors in the current market. “TEP’s proposal is blatant corporate greed plain and simple,” Mayes said.
Mark Ellis, a consultant retained by the attorney general’s office to analyse the rate request, said Tucson could dodge a large part of the rate hike on residents if the company accepted a lower profit margin for shareholders.
“My analysis shows that customers are being asked to pay more than is necessary, not to keep the lights on, but to deliver returns well above what investors actually require,” Ellis said in a portion of his testimony shared in the Arizona Daily Star.
It’s an election year
While there are logistical and practical considerations in the rate case, there are also political questions hanging in the air for some commission members and TEP’s future relationship with Tucson.
Two of the corporation commission members, both Republicans, are up for reelection. Two Democrats are among the candidates running as a team to unseat them.
In November, Tucson voters will be asked to weigh the future of the city’s franchise agreement with TEP again after it was rejected in 2023. The current proposal includes shifting some shareholder funds toward low-income energy support and climate-related projects.
“The new agreement would not impact customers’ bills and would help to ensure timely access to our facilities for maintenance and emergency response,” Barrios said in a statement.
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.
Council Member Schubert said she believes public power offers the most secure path toward affordable electricity — and that the longer the city waits to purchase the utility the more expensive it becomes to transition to another option.
“We see a stark difference between rate increase proposals between investor owned, for profit TEP and city owned Tucson Water. Tucson Water recommended a 3.5% rate increase, roughly in line with inflation, while focusing capital investment on replacing aging infrastructure and improving efficiency through installing advanced water meters,” she told Arizona Luminaria.
Council Member Paul Cunningham said he is against the rate hike, but also didn’t see a direct path to public power. “For Tucson to have affordable power is super important,” he said. “Having a multinational for-profit company manage people’s energy needs is not an ideal model nor is it a sustainable model.”
Instead of the public power option, he pointed to an initiative recently passed by city council to begin considering a renewable energy initiative that would enable neighborhood-scale solar generation and shared battery storage within Tucson.
Data centers are a point of contention
How the Project Blue data center, as well as the one slated to be built in Marana, will impact energy costs is an urgent question for many Tucson-area residents.
“As a resident, I should not be forced to subsidize the specialized energy and infrastructure needs of massive data centers,” said one public comment on the rate case.
The ACC approved the energy request between Humphrey’s Peak Power LLC and Tucson Electric Power in December. During the hearing, commissioners raised concerns about the data center using TEP equipment that had been funded by customer rate payments in years past.
TEP said in June 2025 that its rate request was not influenced by Project Blue, saying it was for work that had been done since 2021. The company also said the operator of Project Blue would pay more than $1 billion for power over the next decade, which would reduce the amount TEP needed to collect from other customers.
A 2026 report by the The Electric Power Research Institute, a research group focused on equitable energy access, finds that Arizona is among six other states that could see their data centers exceed 20% of the state’s electricity usage by 2030. Nationally, the report finds, data centers could consume up to 17% of all American electricity by 2030, which is more than double the amount they use today.
Dempsey said he was concerned the data centers in Pima County would rely, in part, on equipment paid for in the past by ratepayers dollars. He also wanted to see what rate would be set for the centers when they came online.
“One of the biggest problems that I have with Project Blue is just the fact that they are taking all of the generation we paid for,” said Dempsey. “We paid for the megawatts they want to use.”
While Project Blue in Pima County is in the initial stages of construction, there is still not a rate class for data centers, meaning TEP customers could get the automatic rate for data centers, said
He points to APS in Phoenix as one model: the company said they want a 45% rate increase for extra-large users like data centers.
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