Underground Arizona

Diminution in Property Value

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What does it cost?

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Please sign up for our mailing list here to receive periodic updates.⁠

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How much would it cost ratepayers to underground an electric line?⁠

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Are maintenance costs higher for underground lines?⁠

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How much do undergrounding projects actually cost?⁠

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Recent Projects in Arizona⁠

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SRP-Chandler 230kV Undergrounding Project 2021⁠

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APS-Scottsdale 69kV Undergrounding Project 2018⁠

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APS-Scottsdale 69kV Dale-to-Via Doña Project 2018⁠

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Other APS 2023 FERC Data⁠

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Scatter Plot and Table of Recent Arizona Underground Projects⁠

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Why do utilities exaggerate cost differentials?⁠

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Who pays the difference in up front cost?⁠

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1. How much would it cost ratepayers to underground an electric line?

Using APS as an example, under the worst case scenario, and using straight line depreciation, for every $10 million in underground expenses, it costs ratepayers 0.003% in increased rates. Under the best case scenario, underground electric lines save ratepayers money by reducing up front land costs, long-term maintenance and repair costs, and increasing safety and reliability.

Here’s the math for ratepayers:

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By law, an electric line must be expensed over its useful life. The rate at which it is expensed is called its depreciation rate. For example, a depreciation rate of 2% means the utility can recover 100% of the cost of the fixed asset over 50 years (50 years x 2% = 100%).

Most importantly, the depreciation rate controls how quickly a utility may recover expenses from ratepayers. Regulators protect ratepayers from utility companies trying to recover expenses too quickly.

Here is an example of depreciation rates from APS:

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Using an average of items 357 and 358 from the above image, let’s assume an underground asset depreciation rate of 1.44%. This equates to an average useful life of 69 years (1 / 1.44%). Thus, if an underground project costs $10 million, it would be expensed to ratepayers at $144,000 per year for 69 years ($10 million x 1.44%).

Now, let’s put this in context: APS collected $4.3 billion from ratepayers in 2023. $144,000 / $4.3 billion = 0.00003. This is three thousandths of one percent, or 0.003%.

Thus, for every $10 million in spending on underground assets, ratepayers may pay 0.003% more in rates.

We say may because there are offsetting factors that will reduce the cost to ratepayers, like the retirement of existing assets that are already included in rates, inflation, lower land costs, lower insurance costs, and lower repair and maintenance costs. It’s possible, perhaps even likely, that underground lines will save ratepayers money over the long-term.

This same back-of-the-envelope math applies to every utility in Arizona and not just APS.

2. Are maintenance costs higher for underground lines?

No. Two great resources on underground costs were produced by the electric industry:

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The Power Delivery Intelligence Initiative (PDI2): Utility Undergrounding Life-Cycle Cost Guide⁠

(1/2024)

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S&C Electric Company: The Changing Economics of Utility Investment in Undergrounding⁠

(5/2023)

According to research from PDI2 linked in Bullet 1 above (Section 3) and excerpted in the image below, underground assets can be 3-7x cheaper to maintain while also having lives 2-3x longer than overhead assets.

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Source: PDI2: Utility Undergrounding Life-Cycle Cost Guide

Source: PDI2: Utility Undergrounding Life-Cycle Cost Guide

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The biggest long-term cost advantage for underground lines is protection from severe weather and other hazards, like wind, lightning, fires, wildlife, trees, accidents, vandalism, etc. Downed power lines also create hazards to people and property, as evidenced recently in California and Hawaii. Over the 69+ year life of an underground asset, the cost savings from repairs and liabilities after only a few severe storms can be substantial. And severe storms are expected to continue trending worse.

Below is an illustrative figure of increasing severe weather from S&C Electric Company’s report, linked to in Bullet 2 above.

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Source: S&C Electric Company: The Changing Economics of Utility Investment in Undergrounding

Source: S&C Electric Company: The Changing Economics of Utility Investment in Undergrounding

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3. How much do undergrounding projects actually cost?

The best way to answer this question is with data from recent Arizona projects but first some notes.

Note on voltages. The utilities sometimes try to differentiate between voltages according to legal definitions rather than physical realities. While a 69kV line in Arizona may be legally classified as distribution or sub-transmission, the installation methods are identical to a 138kV or 230kV line, which are classified as transmission. The only difference is size. A 69kV line might be in a 3 foot wide trench while a 230kV line might be in a 4 foot wide trench. A 69kV line might be in 6” conduit while a 230kV line might be in 8” conduit. The wire might be thicker but the construction methods are identical and so understanding cost differentials across voltages is useful.

Note on land cost. In terms of land costs, underground projects require easements less than

1/10th the size⁠

of overhead projects (e.g. 3 feet wide instead of 100 feet wide). Overhead lines need room to swing and these wide easements affect what property owners can do with their properties. Thus, undergrounding reduces what a utility must pay to compensate property owners and thereby reduces up front land costs.

Moreover, according to

research⁠

, overhead transmission projects can reduce the value of adjacent private property by 10% or more. Arizonans have a

constitutional right⁠

to recover the value of damage to their property. Ignoring everything else, an overhead line can end up costing a lot more than an underground line after accounting for private property damage claims, especially in urban settings.

You can read much more on this subject on our

Diminution in Property Value⁠

page.

Recent projects in Arizona

There are many recent projects but we’ll focus on the few with the most robust public cost data. Because we’re focusing on costs in this section, we won’t get into detail about the myriad ways these projects were financed, which is just as fascinating as the costs.

1. SRP-Chandler 230kV Undergrounding Project 2021

Intel is building a new campus and needs a lot of power. To get that power, SRP had to run new high voltage 230kV lines through residential neighborhoods.

SRP and the City of Chandler agreed that the cost differential to underground 2.65 miles of 230kV lines was $17 million. This equates to $6.4m/mile. Assuming overhead 230kV lines cost $4.3m/mile (as estimated in a 2022 APS project;

page 77 here⁠

), that’s a cost differential of only 1.5x.

You can read the agreement here:

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20210624 City of Chandler SRP Undergrounding Agreement.pdf

9.6 MB

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2. APS-Scottsdale 69kV Undergrounding Project 2018

Some businesses in Scottsdale wanted to underground approximately one mile of 69kV lines to beautify the area.

APS and the City of Scottsdale agreed that the cost to do so would be approximately

$4 million⁠

. It ended up costing

only $3 million⁠

. This compares to an APS estimate of $1 million for overhead 69kV, or an underground differential of $2m/mile. That’s a cost differential of only 2x.

3. APS-Scottsdale 69kV Dale-to-Via Doña Project 2018

APS undergrounded 5.23 miles of 69kV lines through Scottsdale’s McDowell Sonoran Preserve.

This was done at a cost of $5.2 million, or $1m/mile. Given APS previously estimated overhead 69kV to cost $1m/mile, underground cost exactly the same as overhead — a 0x cost differential.

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4. Other APS 2023 FERC Data

While a bit messier because it is old, non-inflation-adjusted data of mis-matched vintage assets — among other things — the

APS 2023 FERC Form 1⁠

data on 69kV lines indicates the company has spent $848 million on 2,405 miles of overhead 69kV lines, or $345,000/mile, and $75 million on 59 miles of underground 69kV lines, or $1.26m/mile. This represents a cost differential of 3.6x.

Scatter Plot of Recent Arizona Underground Project Costs by Voltage

Scatter Plot of Recent Arizona Underground Project Costs by Voltage

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Table of Recent Arizona Underground Projects*

Table of Recent Arizona Underground Projects*

Name

Location

Year

Co.

Voltage

Miles

Circuits

Cost

Cost/Mile/Circuit

County Line-Buyan

Gila Bend

2020

APS

69kV

4.5

$13,689,972

$3,042,216

Indianola-Midtown

Phoenix

2019

APS

69kV

0.6

$2,954,869

$4,924,782

Country Club-Midtown

Phoenix

2019

APS

69kV

0.2

$984,956

$4,924,780

Dale-Via Dona

Scottsdale

2018

APS

69kV

5.2

$5,182,540

$498,321

Business District

Scottsdale

2018

APS

69kV

0.78

$2,962,721

$3,798,360

TEP

Tucson

2024

TEP

138kV

$25,000,000

Intel*

Chandler

2021

SRP

230kV

2.65

$28,395,000

$10,715,094

Price Road*

Chandler

2018

SRP

230kV

0.6

$15,800,000

$13,166,667

There are no rows in this table

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* This does not include any adjustment for wires (conductors) per phase. The 230kV projects have two wires per phase, which is double the wire count. Thus, these 230kV per mile costs may be overstated by double.

4. Why do utility companies exaggerate cost differentials?

That’s a great question! We don’t know. We hope the utilities are stuck on decades old talking points that need updating and not knowingly misleading regulators and the public. Our goal is to update everyone’s information so that decisions about our state and our communities are made based on facts.

Here is an example of attorney Meghan Grabel of Osborn Maledon, while representing APS, SRP, TEP, and UNS Electric, stating to the ACC in February 2023 that underground lines can cost 10-20x more than overhead (

page 4 here⁠

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We cannot find any recent data that supports a cost differential of 10x, let alone 20x. The only way to reach such extreme cost differentials is to omit material cost information.

And here are recent examples of those very same companies using less exaggerated cost differential claims in filings or testimony with the ACC:

TEP in August 2021 (

page 25 here⁠

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TEP’s estimates are still exaggerated because it is using worst case scenario, 20% cost overrun estimates for undergrounding costs when nearby recent projects have come in 25% under budget. So a realistic differential could be 50% less than it states and more in line with our research.

APS in February 2022 (

page 60 here⁠

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Mr. Wiley’s statement that “we have seen costs as high as 10[x]” is substantially different than Chairman Katz’s statement that “undergrounding costs are 10-15[x] higher.” Notably, Mr. Wiley did not agree with Chairman Katz.

In that same line siting case, APS estimated the overhead cost of 230kV lines to be $4.3m/mile. Based on the

above research⁠

, we know that SRP paid a cost differential of $6.4m/mile for 230kV undergrounding during that same time period. That would equate to a cost differential of <1.5x. Chairman Katz seemed to believe the cost differential to underground 230kV was $43-$64.5m/mile (10-15x $4.3m/mile). We know from the above research that such a belief is erroneous.

That Chairman Katz was repeating an easily debunked talking point represents a serious failure of process. A failure that we hope to correct going forward.

5. Who pays the difference in up front cost?

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We see variations of the statement above repeated regularly by utility companies: someone else has to pay the difference for underground vs. overhead or it cannot be done. Is that true? No. Undergrounding can be, and regularly is, performed at utility (ratepayer) expense.

Underground Districts

First, to the image above from a TEP presentation to the public, Arizona Revised Statutes

48-620⁠

provides a mechanism for creating an underground district. However, the existence of this law does not mean an undergrounding district is required. It merely provides a structure for how to do it if you want to do it. This very subject was ruled on in

APS v. Town of Paradise Valley (1980)⁠

by the Arizona Supreme Court. We liken it to a city code about privacy walls: if you want to build a block wall, the code says how you have to do it; but it does not require that you build a block wall. You could build a wood fence or plant bushes instead.

Thus, it is misleading for a utility to tell the public that it has to form an underground district to underground electric lines.

Local Laws

In that same

court case⁠

, the Arizona Supreme Court stated that utilities must comply with local laws, even those that require undergrounding at utility expense (a.k.a.

ratepayer expense⁠

). Every municipality that we have reviewed in the state has some form of legal undergrounding requirement. See the

regulations page⁠

for some examples.

Where it becomes interesting is where there is no local legal undergrounding requirement but the city or people want the utility to install new lines underground. In those cases, a utility district or third party funding can be used to pay for the difference. For example, recently Intel and Microsoft have paid for some undergrounding. We say can because it seems to be the exception rather than the rule. Intel and Microsoft were having new lines run for the benefit of their businesses. Paying to underground was likely deemed prudent to build goodwill and avoid delays.

SRP Municipal Aesthetics Program

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SRP 2024-25 Operational Budget

SRP 2024-25 Operational Budget

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In 1965, SRP launched the Community Styling program to better integrate its facilities into surrounding communities. In the 1980s, it became the Municipal Aesthetics Program. It allocates a portion of SRP’s annual collections to municipalities in its territory so that they can further allocate those funds to aesthetic priorities (see examples in images above and below). SRP has budgeted $18 million to the program in 2024 and 2025. Given its $3.2 billion in retail electricity revenue in 2023, this represents a budget of 0.06% of its revenue.

So, sometimes, you may read that a

city is paying⁠

for the difference but when you actually dive into the details, it’s SRP paying for the difference through this program. It’s not taxpayer funds. We suspect SRP formed these programs because it deemed them a prudent business expense. After all, if municipalities can simply pass laws that require undergrounding or other aesthetic requirements, why not give them budgets and a process for prioritizing? Ratepayers will end up covering the cost either way and it provides a pathway to resolving disputes without new laws.

City of Chandler’s SRP Municipal Aesthetics Fund Balances in 2017

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City of Chandler's SRP Municipal Aesthetic Funds Status in 2017

City of Chandler's SRP Municipal Aesthetic Funds Status in 2017

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FERC Data: Ratepayers Pay for a Lot of Undergrounding

That said, utilities do not underground only where required by law or where “third-party” funds are received. By law, the utilities must file financial data with the Federal Energy Regulatory Commission (”FERC”). Among the financial data required is the net cost of distribution and transmission lines in service. The cost is net because it excludes “contributions in aid of construction,” also known as third-party funds. So these net costs are ratepayer expenses.

As of the end of 2023, APS had $3.5 billion of underground conduit and conductors in-service. This compares for $3.1 billion of overhead conductors, poles, towers, and fixtures in-service. During the same period, TEP had $535 million of underground conduit and conductors in-service, and $1.1 billion in overhead conductors, poles, towers, and fixtures in-service.

According to

court filings⁠

, SRP uses the same FERC accounting standards as APS and TEP but we have been unable to find a detailed balance sheet. We believe it is fair to assume, given their equivalent sizes, that SRP and APS have similar balances. Thus, Arizona utilities have over $6 billion in underground infrastructure in service paid for by ratepayers.

ACC Policy Statement 79140

As we have covered

here⁠

, after a request by a utility lobbyist, the ACC issued a policy statement that undergrounding is more expensive and should be paid for by third parties. This has been spun by at least TEP to mean that it can ignore local laws that require undergrounding. We can find

no support⁠

for this argument. The ACC is simply repeating something that is already known: in the absence of laws requiring undergrounding, the utilities are not required to go underground.

If you want your utility company to do more undergrounding, get your local municipality to update its laws.

The costs⁠

are not as extreme as they have been in the past and the savings can be substantial.

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Please sign up for our mailing list here to receive periodic updates.⁠

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Table of Contents

1. How much would it cost ratepayers to underground an electric line?

2. Are maintenance costs higher for underground lines?

3. How much do undergrounding projects actually cost?

Recent projects in Arizona

Scatter Plot of Recent Arizona Underground Project Costs by Voltage