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TEP’s proposed rate increase, announced Tuesday, would add about $16 per month, on average, to electric bills for households with median usage of 638 kilowatt-hours per month.

The month-by-month impact would be higher in the summer and lower in the winter, and customers who use more energy would see higher impacts, the utility said.

The increase will have to be approved by the ÃÛèÖÖ±²¥ Corporation Commission. It last approved a TEP rate increase, of 10%, in 2023. If approved by the commission, the new increase would take effect in September 2026, the utility said.

TEP’s announcement that it wants the rate hike came just hours after the Pima County Board of Supervisors voted to approve and sell land for the massive data center complex known as Project Blue.

The board was not told of the proposed rate increase while discussing Project Blue earlier Tuesday, when it was assured that TEP ratepayers will not be affected by the data electricity use and the increased demand it will put on TEP’s system.

County Supervisor Matt Heinz is now calling for the board to reconsider its approval as a result of TEP’s move.

Heinz said he still supports the data center but wants further discussion of the proposal because “the optics were bad� for TEP to propose a rate increase right on the heels of two crucial votes to approve a land sale and a specific plan for the center.

Heinz had voted in favor of both measures. But because they were approved by only 3-2 margins — Supervisors Jen Allen and Andrés Cano voted — Heinz’s move to reconsider would create a 3-2 majority against approving the data center plans. Under the board’s rules, the supervisors can vote to reconsider a past vote if the motion to reconsider is made by a supervisor who voted for the measure originally.

The reason for Heinz’s concern is that both County Administrator Jan Lesher and TEP officials had assured supervisors prior to their votes that residents would be “protected� from having to pay higher electric bills because of increased demand from the data center. TEP had said the data center would generate enough revenue on its own to cover the costs of the new infrastructure the utility needs to build to serve it.

“I do believe them that they’ll bear the cost of infrastructure for their project,� Heinz said. “But then minutes after we vote, 3-2 after two hours of discussion, this (TEP’s rate increase proposal) comes out. That chronology, that tick-tock, that temporal relationship is just untenable.

“It doesn’t mean I’m changing my support for the project. But I would say after what just happened, it’s appropriate for us to hit pause. Maybe now we should have a month or two of discussions before we vote,� said Heinz, a Democrat.

But TEP spokesman Joe Salkowski said the utility’s filing for the rate increase just now results from the timeline associated with developing new rate proposals — and had nothing to do with Project Blue. TEP filed its rate increase request Tuesday with the ÃÛèÖÖ±²¥ Corporation Commission, basing it on cost data from 2024, he said.

TEP had already determined that 2024 would be a “test year� it uses to set the foundation for future rates. It took utility officials five to six months to develop a comprehensive rate proposal after 2024 ended, Salkowski said. But the utility gave the commission notice in May that it would be filing a rate increase request in June, he said.

“We never considered the possibility that our application to recover historic costs could be seen as connected to a future project like Project Blue,� Salkowski said Wednesday. “That said, we appreciate now that the timing was awkward and regret that it has caused concern.�

Council delays election

TEP had another setback Tuesday when the ÃÛèÖÖ±²¥ City Council voted to delay a public vote on a proposed city-utility franchise agreement past a previously planned Nov. 4 special election.

Its rate increase proposal was not the reason for the delay, but City Council members made it clear during Tuesday’s meeting that they weren’t happy with TEP’s rate increase proposal, particularly its timing coming after the supervisors’ vote to approve Project Blue.

“TEP has just filed for a rate increase … are people getting a 14% raise? Are people on fixed incomes getting that sort of cost of living increase? No,� Councilman Kevin Dahl said. “This is so very disappointing.�

The two sides have been unable to agree on terms of a new franchise agreement, and Mayor Regina Romero accused TEP officials of “dragging their feet� on getting to an agreeable point for a new franchise agreement.

“It’s not because of the lack of interest from mayor and council, it’s not because of lack of interest from the community, it is solely on the shoulders of TEP at this point,� Romero said.

TEP’s Salkowski said utility officials are disappointed by the comments by City Council members.

“They are unfair and inaccurate. We have been fully engaged in active negotiations with city staff, and we have made significant progress toward potential agreements,� he said.

In April, the City Council voted to establish a Nov. 4 election date so ÃÛèÖÖ±²¥ voters could have their say on a franchise agreement between the city and TEP. ÃÛèÖÖ±²¥ voters rejected the last franchise agreement two years ago.

And now, a vote on a new franchise agreement will not likely occur until April, city attorney Mike Rankin said, which will have to be called by September. The current franchise agreement expires in April next year, but a provision in it would extend the agreement by one year if a new franchise agreement isn’t approved in time, he said.

TEP’s statements

TEP said in a news release that the rate boost is needed to recover investments it has made in electric grid upgrades and in new energy resources.

The proposed residential rates also reflect the impact of inflation on the cost of maintaining TEP’s service reliability “in the face of more extreme weather,� the news release said.

By that, TEP meant both extreme heat due to human-caused climate change and the increasingly severe summer storms the ÃÛèÖÖ±²¥ area has experienced in recent years, said Salkowski, adding, “We have no quarrel with climate science.â€�

As part of its rate request, TEP is proposing to update its discount program for lower-income residential customers to offer much larger discounts to customers it considers most economically vulnerable.

Customers earning incomes between 101% and 200% of the federal poverty level would receive an approximate 20% discount, or about $25 per month on average.

Customers with lower household incomes would receive a 50% discount, or about $63 monthly on average.

The proposed rates would recover increased costs and necessary investments since 2021, the last year reflected in current rates, the utility said in its news release announcing the rate increase request. TEP has invested about $1.7 billion since then to maintain reliability, improve resiliency and serve customers’ expanding energy needs, the utility said.

Data center’s electricity use

The data center developer, Beale Infrastructure, along with ÃÛèÖÖ±²¥ Water and TEP would not say how much water or electricity the complex could use, nor would they give estimates when asked during Tuesday’s board meeting. County and city officials and others have signed nondisclosure agreements with the companies involved.

The data center complex will have a long-term power agreement with TEP to “protect existing rate payers, promote overall system reliability, and help create a cleaner energy portfolio,� Lesher, the county administrator, wrote to the board before the vote, in recommending approval of Project Blue.

Over time, Project Blue, near the Pima County fairgrounds on ÃÛèÖÖ±²¥â€™s southeast side, will become one of TEP’s largest customers, county officials said.

Heinz acknowledged late Tuesday that the rate increase is based largely on a retrospective analysis of its expenses and on inflation in general.

But, “you can’t make all these assurances in public and have us vote then have rate increases come out of TEP in minutes. It needs more time. I don’t know how much time. We’ll see what my colleagues think.

“I don’t believe this is directly related to Project Blue. Otherwise, this is the dumbest move ever,� Heinz said.

In emails to the Star this week, Salkowski said residential rate revenues won’t be needed to pay for electric service to Project Blue because the project will generate enough revenue on its own to cover the costs of serving it.

The utility is developing a number of renewable energy projects that would serve Project Blue and other customers, but the only one of those projects reflected in the rate request filed Tuesday is the first phase of TEP’s Roadrunner Reserve battery energy storage project, which will be completed and go online this month. It will lie on the southeast side and enable the utility to make more use of solar energy which needs a way to have some of its energy stored for use when it’s not sunny.

“That project was planned, procured and developed to serve all TEP customers, and would be necessary even if Project Blue is not built. So no, it would not be subsidizing service to the project,� Salkowski said.