Tucson leaders continue to discuss a public takeover of the city’s electric utility in the face of rising costs and long-term rate uncertainty.
That’s why, at the request of Mayor Regina Romero, city council members discussed what transitioning to a city-owned electric utility could look like during Tuesday’s study session.
The city is considering four options.
The first is community choice aggregation, which would allow the city to procure power on behalf of residents while the current utility, Tucson Electric Power, continues to operate the grid.
Fatima Luna, the city’s chief resilience officer said that this could be a tool for accelerating renewable energy procurement and advancing city climate goals. It would also be a more long-term policy looking forward, she said.
This option isn’t legal in Arizona yet but is on Tucson’s legislative agenda.
The second would be the city using an existing city facility such as a rec center, where the city would act as both the utility and customer and would be a controlled low-risk operational environment.
The third option would be a new development, a utility built from the ground up that would avoid the acquisition of existing assets which would be cheaper for the city. This option would be able to serve about 1,300 to 2,000 homes or 20 to 40 acres of commercial development or a single large industrial customer at 5 megawatts of power.
Limitations of this option, however, include the location, identification of service-territory conflicts and upfront capital that would be needed.
The fourth, and the basis of last year’s city-commissioned public power study, is full municipalization, in which the city would become the retail provider for the entire territory within the city, have full control over rates, resources and planning.
It could also cost between $1 and $3 billion, withTucson Electric Power projecting costs up to $4 billion.
The city of Tucson holds about $1 billion worth of debt between its water utility and pension obligations and spends about $100 million annually to service that debt, said Tim Thomure, Tucson’s city manager.
“At a $4 billion debt, that is something that would be well beyond the scope of anything we’ve attempted before. So that doesn’t mean it’s impossible, that just means it’s a fundamentally different approach than something we’ve attempted in the past,” he said.
The city would have to pay about $300 million a year on top of its current spending to pay for the acquisition, however, it would have the revenues from the utility to help finance that.
Ultimately, if the city were to operate a utility, it would call for voter approval before fundraising as well as condemn the privately-owned utility, TEP, which would be costly and could be dragged out for several years in court, said Roi Lusk, Tucson’s city attorney.
Lusk also suggested floating the bond before acquisition, which means the city would issue a bond to investors to raise money for this initiative.
The city is also exploring a new franchise agreement with Tucson Electric Power. Romero said that the community brought forward the idea of adding an energy collaboration agreement to ensure that the city meets its climate goals.
“It also defines investment by our energy utility company in our climate action work,” she said. “As of now, unfortunately because of the Trump Administration cutting funds for sustainability and climate work, one of the possibilities to be able to add funds for our Tucson Resilient Together Plan is through the energy collaboration agreement.”
The franchise agreement between Tucson and TEP is set to expire this April after a 25-year term, however it will remain in effect until April 2027 according to TEP spokesperson Joe Barrios.
City officials say that a new energy collaboration agreement and franchise agreement are expected to be released for public comment soon as well as community meetings coordinated by TEP.
“Between all the comments and all the feedback we received about rate hikes, about Project Blue, we have heard loud and clear that Tucsonans prioritize climate resiliency, affordability, transparency and accountability,” said Miranda Schubert, councilmember for Ward 6.
Schubert, who co-hosted a public power town hall with the Tucson Democratic Socialists of America last week, has said it is important to keep families impacted by rising costs at the forefront as these conversations continue.
TEP serves about 414,317 residential customers and 40,166 commercial customers in the region, according to the utility.
On Monday, the electric utility put out a press release cautioning the city against pursuing potential options for a municipal electric utility after releasing its own study that suggested rates would become significantly more expensive for customers.
