Jul 11 - McClatchy-Tribune Regional News - Dale Quinn The Arizona Daily Star, Tucson



For decades, Arizonans' electric bills have subsidized the cost of powering up new subdivisions. But under new rules from the state's utility watchdog, home builders are now having to foot that bill.

The Arizona Corporation Commission says ratepayers shouldn't be forced to pay for new growth, but home builders argue the added cost -- some estimates put it at $8,000 per lot -- is stalling projects around Tucson and hobbling the already slow housing recovery.

"It's not the sole cause of the current market challenges, but it's an impediment to new-home construction and the economic development associated with it," said David Godlewski, a spokesman for the Southern Arizona Home Builders Association. "It's just one more huge challenge facing the home- building industry."

And ultimately, any additional building costs will get passed along to home buyers, builders said.

 Previously, Tucson Electric Power Co. paid the bulk of the cost for energizing new developments through customer rates. In December 2008, when the energy provider's new rate schedule went into effect -- increasing the amount most people pay for power -- the Arizona Corporation Commission required new developments to pay for their own power line extensions.

The commission had already begun to require that new growth pay for itself in other utilities across the state, said ACC Chairman Kris Mayes. The Phoenix area's major power provider, Arizona Public Service, or APS, cut funding for line extensions to new developments several years ago, she said.

"We felt it was becoming incredibly burdensome for the average ratepayer to be picking up the tab for these line extensions, sometimes to far-flung areas of the state," Mayes said.

Projects already under way when the new rate schedule went into effect were grandfathered into the previous line extension policies. Builders had until May of this year to enter a contract with TEP to get power to their developments under those regulations. But in any projects energized from now on, developers will have to pay for the power lines.

The cost adds an up-front expense, and with banks unwilling to shell out additional cash, developers say it's having a chilling effect on new-home construction.

Local developer Al LeCocq said the added cost was a main factor in the decision to put one of his projects -- a 34-unit townhome development on West Speedway near North Silverbell Road -- on hold. The line-extension costs tack an additional $300,000 onto a $3.5 million project, he said.

The developers purchased the land about two years ago and began dirt excavation about nine months ago, LeCocq said. Shortly after, LeCocq said he realized he was going to have to pay for power lines to get electricity to the homes. There was no way he could get the utility work done in time to qualify for the previous rates, he said.

The builders plan to target the development to low- to moderate-income families, LeCocq said, so adding nearly $10,000 to the cost of a home could price potential buyers out of the market.

"It's becoming where affordable housing just isn't affordable," LeCocq said.

But it's not just new-home buyers and builders the commission needs to take into consideration when deciding how the to spread the cost of getting power to new developments, said Jodi Jerich, director of the Residential Utility Consumer Office, or RUCO. Arizona has one of the highest foreclosure rates in the country, and energy costs are a hefty chunk of most families' living expenses, Jerich said.

Keeping those costs under control is a top priority for RUCO, which represents the interests of ratepayers in hearings before the Corporation Commission.

"The better policy to pursue would be to keep rates as low as possible and give Arizona families all they can so they can stay in their homes," she said.

For the most part, home builders said they understood they were going to have to pay more to energize their projects. But with the tight credit market and sluggish economy, the policy as it is will deliver a crippling blow to new-home development, said Chris Sheafe, another local developer.

"You're diminishing the ability of these projects to move forward, because you're requiring developers to have more and more money in each one," Sheafe said.

Sheafe said he was able to enter contracts to get power to two of his projects under the old policy. Had that not happened, those projects would likely have stalled, he said.

Builders argue that given current housing conditions, the ACC should reconsider its decision. New-home construction may have put a burden on existing ratepayers when the market was booming, but that's no longer the case, they say.

RUCO Director Jerich and ACC Chairman Mayes said there could be room for a compromise that takes some of the burden off home builders. To that end, SAHBA is working with commission staffers and TEP to reach a middle ground.

Mayes said she understands the new policy represents a significant shift for home builders, but over the decades consumers have forked over millions of dollars to power up new homes.

"We needed to ask ourselves whether 50 years was long enough," Mayes said. "Sometimes subsidies should come to an end."

Contact reporter Dale Quinn at dquinn@azstarnet.com or 573-4197.

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