State regulators have agreed to reinstate free power-line extensions to new customers within 500 feet of Tucson Electric Power Co.’s distribution system, responding to concerns that line-extension costs are stifling new development.

The Arizona Corporation Commission voted 4-1 Wednesday to modify a provision in TEP’s last rate case in 2008 that did away with the long-standing free-footage requirement.

Representatives of the real-estate industry, including the Southern Arizona Home Builders Association (SAHBA), had lobbied the commission to restore the free footage allowance.

And some individuals seeking new power hookups in outlying areas have told the commission they couldn’t afford the extensions.

The policy requiring TEP customers to pay for line extensions added thousands of dollars to the cost of each new home, chilling new development at a time when the industry is trying to break out of its prolonged slump, SAHBA President David Godlewksi told the five-member commission at a hearing in Phoenix.

Line extensions add $8,000 to the upfront cost of each home in a typical 220-home subdivision, while the cost for a larger, custom home can run up to $30,000, Godlewski said, citing TEP estimates.

“It certainly is an impediment – and I’ve heard this over and over again – to bringing new projects on line,” he said.

Commission Chairman Gary Pierce, a Mesa Republican, said reinstating the free footage is important to help the real-estate industry recover.

Under the restored policy, TEP can file to recover its costs in future rate cases, with its next rate filing expected in mid-2012.

TEP estimated new line extensions will total about $1.5 million this year but could rise to as much as $15 million annually in a few years as homebuilding recovers.

The estimated cost of line extensions this year would cost the average TEP residential ratepayer about 37 cents a year, or about 3 cents per month, TEP said.

The commission began reversing its long-standing free-footage policy in 2007, when it voted to drop a policy granting 1,000 feet of fee footage to customers of Arizona Public Service Co.

The commission subsequently eliminated free footage for customers of TEP and UniSource Energy Services (UES), a TEP sister company that serves Mohave and Santa Cruz counties. The panel reinstated free footage for UES earlier this year. APS’ free footage would be reinstated under a rate case the utility filed last month.

Commissioner Paul Newman, a Democrat and the only Southern Arizona member, voted to reinstate the free-footage policy, despite his concerns that the policy essentially subsidizes developers at the expense of ratepayers.

“I still think growth should pay for itself, and I will monitor this closely,” Newman said.

Democrat Sandra Kennedy of Phoenix voted against the measure.

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