TEP, City Tie Franchise Renewal to $56M Energy Collaboration

TUCSON, AZ (March 13, 2026) — Tucson Electric Power (TEP) and the City of Tucson are advancing a proposed 25-year Energy Collaboration Agreement tied to renewal of the utility’s franchise, a package that would direct an estimated $56.18 million toward climate, resiliency and low-income energy programs while asking voters to approve a new framework for TEP’s continued use of city rights-of-way.

According to TEP, the companion Energy Collaboration Agreement would begin at $2 million annually, with 2% increases every other year, for a projected total of about $56.18 million over 25 years. TEP says those funds would come from company resources and would not be recovered through electric rates, although the utility remains subject to the Arizona Corporation Commission’s regulation of its broader rates, rules, and operations.

The proposed franchise agreement would give TEP a non-exclusive 25-year right to construct, maintain, and operate its electric transmission and distribution system in city streets, alleys, and other rights-of-way. In addition to governing the utility’s use of public property, the agreement addresses construction, maintenance, permits, undergrounding, outage reporting, emergency coordination, and utility planning with the City.

TEP spokesperson Joe Barrios said the franchise agreement helps ease the utility’s work in city rights-of-way. While the current franchise agreement is set to expire in April, TEP officials said it would remain in place for another year regardless of whether voters approve a renewal.

A key point of debate is the proposed 2.25% franchise fee on applicable revenues, payable quarterly. Under the proposed agreement, those funds may be used by the City for low-income energy assistance, underground and renewable energy incentive programs. The current franchise agreement, approved by Tucson voters in November 2000, established a 2.25% franchise fee on customer bills.

TEP Director of Communications Joe Salkowski said franchise fees function much like other taxes collected from customers and remitted directly to the City of Tucson, with the utility not retaining or profiting from that revenue.

The proposal comes after Tucson voters rejected Proposition 412 in 2023. That measure would have renewed the City’s agreement with TEP and added an additional 0.75% fee on top of the existing 2.25% franchise fee to help fund undergrounding of midtown power lines.

The Tucson Mayor and Council are scheduled to review both the proposed Energy Collaboration Agreement and franchise renewal at a study session on March 17. If city officials move the measure forward, Tucson voters would have the final say. Before the item goes to an election, TEP must also deposit the estimated election cost with the City Clerk, as determined by the Council.

At a public meeting on Tuesday hosted by TEP and city officials, about a dozen residents attended in person. Fatima Luna, the City’s chief resiliency officer, said the proposed agreement reflects community input gathered through seven town halls held last year. She said residents asked for support for low-income programs that could help reduce energy bills, including retrofits, weatherization, solar panels, and workforce development, and wanted those efforts funded by shareholders rather than ratepayers.

Luna said the proposal was also shaped by public suggestions made to the Mayor and Council after Proposition 412 failed.

During the presentation, Salkowski said the agreement could be modified or terminated at any time by either TEP or City officials. That prompted questions from attendees about how voters could approve the framework while the City and utility would still retain the authority to amend or cancel it later without another public vote.

The meeting also drew protest, with three attendees interrupting the presentation by chanting “Public Power Now!” and raising questions about TEP’s work with data center developers in Pima County.

During public comments, some audience members questioned the 2% increase scheduled every other year, in addition to the initial $2 million annual commitment. Others suggested TEP should provide the entire projected funding amount as a lump sum so the City could address community needs sooner. Some also voiced support for municipalizing the electric grid as a possible affordability measure.

TEP is also framing the proposal with a broader message about its economic and civic role in Tucson. In a recent fact sheet, the utility said it serves about 457,000 customers in Southern Arizona, employs 1,800 people, including 760 union workers represented by IBEW 1116, contributed $47 million in 2025 to City operations through sales tax, utility tax, and franchise fee revenues, and invested more than $800 million in 2025 in grid upgrades and battery storage projects.

TEP said Tucson residents may continue submitting public comments on the proposed Energy Collaboration Agreement through Sunday, March 15. Comments can be made here: Tucson’s Energy Future – Community Input