The basics of TEP’s rate proposal

Back in June of 2022, Tucson Electric Power (TEP) filed an application with the Arizona Corporation to increase their rates for electric service. According to TEP, this rate increase is to account for increased costs, allow them to transition to cleaner energy sources, and allow them to better support the communities they serve. Other stakeholders such as ratepayer advocates have different perspectives, of course.

For residential customers, the proposed rate increase would be quite significant. It would raise bills on average around 12%, or about $14/month. Small residential users would see a slightly smaller increase, averaging around 11% or $12/month, while some large homes would see a 16% increase or more, with an average monthly increase of $35-45.

For commercial customers, small and medium sized businesses would experience similar percentage increases in their average monthly bills, while larger businesses would experience closer to a 6% monthly increase.

What Specific Changes is TEP Proposing?

For residential electric customers, your power bills typically have three components: Fixed charges, energy charges, and taxes & fees, as shown in the image below.

Fixed charges are pretty simple to figure out–you just pay that amount each month. TEP calls this charge the Basic Service Charge. For residential customers, TEP is proposing to increase these fixed charges by $2.00 each month. Most homeowners with TEP currently pay either $13.00/month for the residential basic plan or $10.00/month under the time-of-use plan.

Energy charges (often called “volumetric charges”) get a lot more complicated. These charges are based on the energy you buy from your utility. Depending on the specifics of each utility tariff, you might pay more for energy you use in summer compared to winter, or pay more for energy used during particular “peak” times during the day.

Many utility companies (including TEP) also have what are called “inclining block rates.” 

For example, the image below shows the summer rates proposed for TEP’s residential basic plan:

This means that when you use over a certain amount of energy each month, each additional amount of energy will cost you more per kWh. For example, very small users who only use 500 kWh/month would pay 14.35¢/kWh. But larger users would pay 16.50¢ for each additional kWh 3 they use in the 501-1,000 kWh block, and any kWh over 1,000 used in a month would cost 17.29¢. Although I’m only showing summer rates for clarity, there is also a difference in price depending on time of the year, and energy is more expensive in the summer.

For the residential basic plan that many non-solar homeowners use, TEP is proposing increases to the volumetric rates from around 12.5¢ to 15.5¢ for a typical customer–a significant increase! 

For the residential time-of-use rate that solar customers not on net metering must use, the volumetric rates are more complicated. This rate has an inclining block structure and seasonal differences, but also has peak and off-peak periods. As you can see from the image below, TEP is proposing that electricity would cost a lot more in the summer months during on-peak periods.

These are significant increases from the current rates. Currently, customers on the residential time-of-use rate pay a maximum of around 15¢/kWh for summer peak rates, with off peak and winter rates around 11-12¢/kWh.

Last, we have taxes, fees, and adjustments. They usually scale with the size of your bill, and can be between 5-20% of your total bill. They include things like state sales tax, city sales tax, fees to support the Arizona Corporation Commission, and adjustments for higher or lower fossil gas prices.

TEP is proposing several changes to the fees and adjustments on your bill, which they often call “Riders.” They are proposing eliminating Environmental Compliance Adjuster (ECA), the Renewable Energy Standard Tariff (REST) charge, and the Demand Side Management (DSM) charge. In place, they propose a new “Resource Transition Mechanism.” TEP says this fee would be used to facilitate lower-carbon resources and gradually pass these costs on to customers. TEP is proposing this charge be capped at 3% for now.  

How would TEP’s proposed rates affect existing solar customers who have net metering?

Solar customers who submitted an interconnection request to TEP prior to October 2018 had the option to use net metering. To learn more about how net metering works with TEP electric bills, see our post from 2017.

Because customers can stay on net metering for twenty years from the date of their installation and net metering stays with the house even if you sell it, there are still plenty of customers who have net metering.

Net metered customers would see an increase in their monthly fixed rates from $10.00 to $12.00. They would see the REST surcharge (currently $6-8 a month) go away, but other charges and fees would increase.

However, if you have a net metered solar electric system and your solar electric system produces 100% of the electricity you use in a year, you would experience a fairly small increase in your overall electricity bills.

If you have a net metered system and produce only a portion of your electricity use from solar, you’ll pay increased charges of around 11-15% on the net monthly electricity you purchase from TEP. 

What would the effects be for solar customers with export rates?

Newer solar electric systems have what we call export rates. These systems work in three different “modes” during a typical day – grid use, self-generation, and energy export. To better understand, please see our infographic.

TEP’s proposed rates would affect each of these modes in different ways.

First, let’s tackle grid use, when we’re importing energy from the grid. Solar customers would see the full increase in rates for this portion of the energy they use, with proposed increases in the 11-15% range, depending on how much energy they import from TEP. And on top of this, they’ll pay taxes and fees on any electricity they import. Not great.

Next, let’s look at self-generation (also called self-consumption). In this case, a home is producing energy from the sun, and using it immediately in the home. This reduces the need to purchase expensive electricity from TEP, saving customers more money if the proposed rate increases are approved.

Let’s now look at exported energy. Under TEP’s export rates, solar homeowners are paid a fixed rate for any energy they send out to the grid. This rate is fixed for ten years based on when a solar customer applied to interconnect their solar electric system with TEP’s grid. So even though electricity rates would be higher for energy TEP sells to you, they won’t pay you more for energy you sell to them. 

The image below shows the average prices for imported and exported energy for solar customers with export rates:

Last, like net metered customers, customers on export rates would see increased fixed charges of $2.00/month, but would no longer have to pay the $6-8 monthly REST surcharge.

The end result of the proposed changes is that all solar customers wouldn’t have as large of an increase in their power bills as folks without solar on their homes if the proposed rates are approved. However, all residential TEP’s service territory should expect at least small increases in their bills, even with solar.

How about for homeowners who install solar in 2023 or later?

For new solar customers, the effect of proposed rates would be similar to those experienced by current customers on export rates. Higher rates means higher savings from solar, but also higher cost for any energy imported through grid use. This means that solar becomes a more attractive option, both for current savings, but also as a hedge against any future increases in electricity prices.

For a home with average energy use that consumes 9,641 kWh per year, our preliminary modeling shows simple payback times for new solar installations will likely drop by about six months on average. For larger residential users that consume 18,741 kWh per year, we estimate that simple payback times may drop by as much as 3.5 years.

What happens next?

The rate case is currently moving through the Arizona Corporation Commission. Various stakeholders such as ratepayer advocates, large businesses like Walmart and Kroger, community groups, and solar organizations have “intervened” in the rate case. This means they are able to request data from TEP, fully participate in various hearings with judges and the ACC, file expert testimony, and respond to TEP and other stakeholders throughout the process. You can read all the filings on the rate case docket.

The administrative law judge in the case has also set out a schedule for the rate case. She’s scheduled several public comment sessions (the first tomorrow, February 21st), where TEP customers and other stakeholders can make comments via phone, or for some dates, in person at the ACC’s Tucson offices. 

The judge has also scheduled thirteen days of hearings starting March 29th, at the ACC’s Tucson offices. After final public comments are given on the first day, TEP, ACC staff, and intervenors will give expert testimony, and the same parties will be able to cross examine these expert witnesses.

From there, the case will go to the ACC for a vote, or if TEP, ACC, staff and intervenors agree, they may propose a negotiated settlement to be presented to the ACC for approval.

Questions? Please comment below!