TUCSON–Arizona Corporation Commission (ACC) Chairwoman Lea Márquez Peterson on Tuesday voted in favor of giving $12.4 million in over collected surcharge dollars back to customers of Tucson Electric Power (TEP) and proposed to temporarily suspend the surcharge.

If approved, the refund would have given typical residential customers of TEP approximately $16.37 per customer, while temporary suspension of the surcharge would have provided an additional $24 million in economic relief to TEP customers amid the financial pressures of inflation.

On Tuesday however, the ACC voted 3-2 not to grant the refund, deciding instead to keep the funds in place and continue charging the surcharge during the economic challenges of inflation.

Background

Under ACC rules, utilities such as TEP are allowed to charge customers an additional surcharge to recover the cost of complying with strict electric conservation mandates set by the ACC.

The utility is then allowed to utilize the funds for a variety of purposes, such as offering rebates and incentives to third parties and customers to subsidize the cost of energy efficiency devices, such as ENERGY STAR appliances and smart thermostats, or energy efficiency programs, such as home weatherization and new HVAC systems.

The funds may also be utilized to cover the cost of administering and advertising the programs, and TEP gets to keep a portion of the funds for itself as an additional source of revenue.

Request for Refund

Due to COVID-19 restrictions and challenges in the supply-chain, TEP was unable to spend all of the money it had collected from customers in 2021, resulting in a $12.4 million over collection.

According to TEP, “Participation in TEP's approved EE programs has not reached anticipated levels and TEP has not expended its full EE Implementation Plan budget.”

In May, 2022, TEP filed a request to refund the $12.4 million in extra surcharge dollars. If adopted, it would have provided typical residential TEP customers a one-time bill credit of approximately $16.37. Small businesses would have received approximately $48.33.

Commission Precedent

Under typical circumstances, the Commission would direct a utility to reinvest the unspent dollars into ACC-approved energy efficiency programs, such as home weatherization, HVAC systems, and smart thermostats.

However, when economic circumstances such as COVID-19 have justified it, the Commission has been willing to grant refunds of the money in the past.

In 2020, for example, the Commission voted unanimously to grant a refund to APS and TEP customers. (See the 2020 press release here: REFUNDS COMING: Customers of APS, TEP, UNS can Expect Small Bill Credit in June).

This was due to the economic downturn associated with COVID-19, when many Arizonans were facing the financial hardships associated with job losses and reduced business. 

The refund for TEP customers in 2020 was approximately $8.3 million, which amounted to approximately $12.91 per average residential customer and $45.53 for small businesses.

Economic Impacts of Inflation

When reviewing TEP’s application for a refund, Chairwoman Márquez Peterson believed the economic circumstances surrounding inflation were similar to those that TEP customers faced during COVID-19.

According to the Bureau of Labor Statistics in June, some Arizona cities have faced some of the highest rates of inflation in the nation: 12.3%. (Cronkite News)

Chairwoman Márquez Peterson believed a refund was warranted under the circumstances and supported the opportunity to provide immediate financial relief to customers, even if some commissioners thought that the amount of relief was small.

“Arizona families and small businesses are feeling the economic impacts of inflation today,” said Chairwoman Márquez Peterson.

“Granting a refund would have provided immediate relief to customers that are struggling to keep up with the financial pressures of rising costs and inflation,” she said.

Concerns with the $12.4 Million

In contrast to granting a refund, the alternative was to force TEP to spend the remaining $12.4 million and hope that the benefits would reach customers fast enough to make an impact during the economic pressures of inflation.

According to Chairwoman Márquez Peterson, this option posed several problems.

According to TEP’s annual compliance filing, only about 60% of the approximately $15.8 million in surcharges it spent in 2021 actually went toward helping customers save money in direct rebates and incentives for the adoption of energy saving technologies.

The remaining 40% was spent on various administrative costs, such as program marketing and implementation, program measurement and evaluation, and regulatory compliance and reporting. (TEP 2021 Annual DSM Progress Report)

According to TEP’s 2021 filing, approximately $1.7 million of the surcharges (11%) did not go toward any energy saving devices or administration. Rather, TEP was allowed to keep this portion as an additional source of revenue.

In other words, if the ACC forced TEP to continue spending the funds, only a portion of the $12.4 million would actually go toward helping customers save money, and TEP would get to keep an additional portion of the funds for itself.

“In addition, there was no guarantee that the $12.4 million would be spent on the most critical programs, such as those that can provide immediate savings to customers, like home weatherization, HVAC systems, and smart thermostats,” said Chairwoman Márquez Peterson.

“To protect ratepayers, I offered limitations that would have held TEP accountable for the disbursement of these funds, but my fellow commissioners denied my request.”

Disappointed in Commission Vote

After a special interest group that benefits from the surcharges lobbied the ACC to keep the $12.4 million in place, commissioners sided with the special interest group and voted to reject the refund, denying Chairwoman Lea Márquez Peterson’s proposal to temporarily suspend the surcharge in the process.

“The Arizona Corporation Commission denied the opportunity to provide immediate financial relief to TEP customers,” said Chairwoman Márquez Peterson.

“The public will hear ‘TEP is spending $12.4 million’ and think TEP is offering rebates and incentives with its own funds, but that is not the case. These are not TEP funds. These are ratepayer funds.”

“As Chairwoman, I support the continued investment in beneficial energy efficiency programs when appropriate. If implemented correctly, I believe cost-effective energy efficiency programs can help customers save money and utilities operate the grid more effectively, thereby reducing costs for everyone.”

“However, I do not support using ratepayer funds to provide a handout to special interest groups or charging customers an additional surcharge when many Arizona families and small businesses are struggling with financial challenges.”

“The Arizona Corporation Commission had an opportunity to provide immediate relief to hundreds of thousands of Arizona families and small businesses in Tucson but decided to keep the surcharge in place and continue charging customers while they are struggling to keep up with rising costs and expenses during the economic pressures of inflation.”

“Their vote to expand the Commission’s surcharge program will result in fewer customers being able to participate in the beneficial energy saving programs this year, while increasing the amount of surcharges that customers will have to pay, next year.”

“In addition, there is no certainty or accountability regarding which programs or measures the funds will actually be allocated towards.”

“I am concerned the Commission’s program has gotten bloated,” said Chairwoman Márquez Peterson. “I think the Commission needs to take a hard look at the way it's spending ratepayer dollars and reevaluate how it makes decisions that impact the lives of everyday Arizonans.”

Vote Count

Chairwoman Lea Márquez Peterson and Commissioner Justin Olson voted in support of refunding $12.4 million in surcharges to TEP customers.

Commissioners Sandra Kennedy, Anna Tovar, and Jim O’Connor voted to keep the $12.4 million refund and continue charging TEP customers the surcharge.