Just what does TEP's guarantee program guarantee?

Hidden Charge 

Critics Are Shocked And Appalled By TEP's Guarantee Program.

IN THE SMARMY parlor of Arizona politics, developers sure have a lock on the big easy chair. If you disagree, just check out this charming program: Thanks to Tucson Electric Power and the Arizona Corporation Commission, we're all padding builders' bottom lines every time we turn on the lights.

By the same token, fees added to our monthly electric bills are helping TEP ward off future competitors, according to one expert.

Here's how it works: TEP pays developers up to a reported $850 per home to be part of its Heating and Cooling Comfort Guarantee Program. To participate in this cash-cow, developers must use energy efficient home designs, and install hook-ups for all-electric appliances. In turn, home buyers qualify for bargain-basement electricity rates by agreeing to bask solely under electric heaters and coolers.

And who pays for this comfy little package? You, me and every other poor schmuck who can't afford a spanking new house included in the guarantee program.

Still, argues TEP spokeswoman Wendy Erica Werden, those buyers "get the cost savings as a reward for buying a home that conserves on energy. They qualify for the lowest residential rate, for all of the energy that they use for the life of the home."

According to Werden, the ACC granted the special rate bracket, similar to discounts customers can receive for switching their prime electricity use to off-peak hours.

As for the gravy train extended to builders--who apparently require a cash incentive to do the right thing--Werden refuses to detail how much TEP has already paid them under the program, begun in 1998. "You know, I don't think that's something we would disclose," she says.

But just for kicks, let's say a builder gets a payback from TEP somewhere in the range of $500 for every Comfort Guarantee home. For a development of 1,000 houses, that comes out to a beefy $500,000. And one energy-industry staffer, who asked not be named, says the paybacks can range upwards of $850 per unit.

Werden refused to confirm that high-end number.

Participants in TEP's program include stucco kings like Doucette Homes, Genessee Homes, the John Wesley Miller Company, KE&G Homes and New World Homes.

Still, "Let's say you have a builder that gets $200 for building a 'guarantee' home," Werden says. "If he has put in $200 for improvements such as insulation to make the home more energy efficient, that's normally what the (program) money goes towards. We simply help him offset the cost to become a more energy-efficient builder."

She says homes are inspected three times by TEP during building to make sure they comply.

According to ACC spokeswoman Heather Murphy, based on an average $70 monthly bill, the average TEP rate payer dishes out "a whopping $1.42 per year" for Comfort Guarantee. Multiply that by TEP's roughly 330,000 customers, and you come up with $468,600--nearly a half-million dollars average folks cough up annually to benefit a few.

Like Werden, Murphy says the ACC "wouldn't have approved a program like that if we didn't think it was useful." Building a highly efficient home "is going to be significantly more expensive" than its less efficient counterpart, she says. "What TEP does is help bring that cost down so that (energy efficient) technologies get used more.

"I know it sounds strange that a company would want to drive down consumption, when that's how they're compensated," Murphy says. "But in an area with rapid growth like Arizona, it behooves them to do that, because it's extremely expensive for them to bring a (new) power-plant on-line, and to construct transmission lines."

Still, the question lingers: Shouldn't the proliferation (or disappearance) of energy-efficient homes be left to marketplace forces so otherwise revered by Arizona's conservative power brokers? Lewis Campbell thinks so.

Campbell, a New Mexico attorney who serves as a consultant to the U.S. Department of Energy, says allowing TEP to favor one set of customers over another smacks of economic meddling by the ACC.

He says most states have laws prohibiting a utility from "granting any unreasonable preference or advantage to any person or class of customers. But the rub comes with the word 'unreasonable,' and commissions and courts have taken advantage of that vague modifier."

Energy companies justify such incentive packages by claiming they help spread operating costs over a larger rate-payer base, Campbell says. "This argument falls apart, of course, if the utility at some time has to build a new plant to serve its customers. Then the fixed costs go up. And the costs might not have been incurred but for the additional consumption caused by the subsidized rates."

"In my estimation, there's never a justification for subsidized rates," he says. "Only in an industry with captive customers could such a cross-subsidization among customers take place."

For example, "Can you imagine Toyota or General Motors trying to get customers to pay above-market clearing prices so that Toyota or GM can favor some class of customers with lower cost vehicles?" he asks. "The customers would just take a hike to a company that didn't engage in the practice, which TEP's customers can't do.

"What is occurring today, however, is attempts by public utilities to gain advantages before competition comes to the electric industry."

Cutting breaks to certain customer segments--in this case, developers and new home buyers--is tantamount to TEP gaining long-term contracts, Campbell says. "Once they have gotten the electric appliances (in the new homes) and (the homeowners) get the lower rate, a competitive supplier cannot compete for these customers."

In November 1999, the ACC voted to allow electric competition in Tucson. To date, three companies--New West Energy, Sierra Southwest Electric Power Cooperative and APS Energy Service--have made rumblings about locking horns with TEP.

But the ACC's Murphy denies giving TEP an upper hand in the looming battle. "There's nothing preventing any other company from creating such a program, with customers who are going to use a smaller amount of electricity over the same sort of time period," she says.

Still, lucky home buyers who have their comfort guaranteed by TEP "might be reluctant to switch," Murphy says. "It comes down to, can you buy that Ford Escort at the same price across town, or can you only buy it at one place at that price?"

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