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Who pays?
Who pays the difference in up front cost?
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 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 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 , the Arizona Supreme Court stated that utilities must comply with local laws, even those that require undergrounding at utility expense (a.k.a. ). Every municipality that we have reviewed in the state has some form of legal undergrounding requirement. See the 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
SRP 2024-25 Operational Budget
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 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
City of Chandler's SRP Municipal Aesthetic Funds Status in 2017
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 , 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
, 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 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. are not as extreme as they have been in the past and the savings can be substantial.
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