Tucson Electric Power proposes nearly 10% rate increase

Tucson Electric Power customers could see their electricity bills rise by nearly 10% as soon as Dec. 1 if the Arizona Corporation Commission approves the utility’s latest proposal. TEP’s amended request would increase rates by 9.8%, adding about $13.50 to the average residential customer’s monthly bill. For Tucson households already managing high summer cooling costs, the decision could have a direct effect on budgets, utility assistance needs and how much residents use air conditioning during the hottest months.

The proposal is scheduled for consideration at the commission’s Nov. 17 open meeting, where regulators can approve, reject or modify the recommendation from administrative law judge Julia L. Matter. Matter’s recommended outcome would produce a somewhat smaller increase, about 9.4%. Under that recommendation, a household using an average of 805 kilowatt hours per month would pay about $12.93 more, bringing its average monthly bill to $150.52. During summer, when average usage rises to 1,045 kilowatt hours, the typical monthly bill would reach about $190.76.

The case has changed substantially since TEP first filed it. The utility initially sought a 14% increase in May 2025. It later reduced the request to roughly 12.5%, then to 11.6% by early summer, and ultimately presented an 11.2% position before Matter issued her recommendation. Matter proposed reducing the amount TEP could recover through rates and setting a lower return on equity, or the profit regulators allow the investor owned utility to earn for shareholders. TEP then filed an amendment seeking the slightly higher 9.8% overall increase.

TEP says the additional revenue is needed to recover the cost of investments in its electric grid and the effects of inflation on providing service. The utility has emphasized that its request remains below the inflationary increase over the period in which it is seeking to recover those costs. TEP also points customers toward low income assistance and bill management programs, urging people who need help to contact the company. The utility has said gradual increases could be easier for customers to absorb than larger adjustments requested less often.

A central dispute is TEP’s request for an Annual Rate Adjustment Mechanism, known as ARAM. The formula would allow rates to be adjusted each year based on a process approved by the commission. TEP says the mechanism would not guarantee that rates increase annually. The company would still have to submit information supporting a requested adjustment, and commissioners would retain the final authority, along with an opportunity for public comment. TEP has argued that the approach could make changes more gradual.

Consumer advocates and some public officials are concerned that the mechanism could effectively make yearly rate increases routine while reducing the scrutiny applied to a traditional rate case. The Residential Utility Consumer Office, a state agency representing residential customers, is challenging Matter’s recommendation and the legality of ARAM. RUCO Director Cynthia Zwick said the record included evidence supporting smaller increases, particularly because of affordability concerns. She also warned that the mechanism could lead to an increase in 12 months and every year afterward. Attorney General Kris Mayes has likewise argued that the formula could promise annual increases with too little oversight.

RUCO is also challenging the recommended return on equity. The agency proposed a return of 9.2%, or 9% if ARAM is authorized, compared with the higher figure under consideration. Zwick said the return on equity directly affects customer bills because a higher allowed profit increases the amount the utility can collect through rates. RUCO also objects to more than $1 million TEP requested for rate case expenses. Those expenses include legal work, transcripts, public notices, expert consultants and studies used to prepare and present the utility’s case. Because those costs are included in the requested rates, RUCO is seeking a reduction.

The case has drawn opposition from a broad group of interveners, including the city of Tucson, Pima County, the Department of Defense, Walmart and Kroger. In filings submitted near the Oct. 30 deadline, the city called Matter’s recommendation problematic, with particular concern about ARAM. The Public Power Tucson Coalition, which has repeatedly urged the Tucson City Council to begin exploring a publicly owned electric utility, called the potential increase unreasonable. The group said higher electricity costs are especially serious when power is essential to survive Tucson’s extreme summer heat.

The commission’s Nov. 17 decision will determine whether TEP receives the increase recommended by Matter, the higher amended request, a different amount or no increase. If approved, the new rates would take effect Dec. 1. The outcome will affect not only monthly household bills but also large commercial and institutional customers that participated in the case. For Tucson residents, the immediate question is how much more they will pay, while the broader issue is whether the commission will establish a system that could bring customers back to the rate debate every year.