City Council OKs Process To Push EP Electric To Lower Rates

EL PASO, Texas — The El Paso City Council voted unanimously to begin a process to try to get El Paso Electric to lower rates.

The City Council asked El Paso Electric officials on Tuesday to show why electric rates — which are some the highest in the state — should not be lowered, and the city approved establishing a temporary rate at its Oct. 25 meeting.

City Rep. Courtney Niland, who said she has been studying the issue, said the utility has not been able to justify the high electric rates. She said the city’s utility consultant, Norman Gordon, had been trying to negotiate with the utility for about three weeks and had a meeting with the company on September 13, in which the utility was asked to ‘show cause’ of their rates. Niland said the city had made every effort to get an explanation from the company, but electric officials had been unwilling — something disputed by El Paso Electric CEO David Stevens. He said that though electric officials had met with Gordon and city staff, they had never received ‘anything in writing from the city’, as is customary, he said, in negotiations.

Stevens also said that when he met with Niland in her office, she was unwilling to listen to his explanations of the rates. “I answered them in her council office and she refused to listen and if she’s not going to listen to my reasons, it becomes pointless and difficult to explain,” he said.

Niland contends that the electric company has averted the issue. “What are you not doing in your business that can’t make you competitive, because you and I both know that if you had competition and you had to get competitive, you’d do it,” she told Stevens.

Stevens said the utility’s rates are high because there’s less consumption in the area, while the cost of producing electricity remains high.

Niland said the explanation didn’t make sense. “With all due respect, Mr. Stevens, do you think we’re foolish and don’t understand the difference between price and consumption? Consumption has nothing to do with price, sir. It’s like saying this gallon of gas is going to cost you $5 but if you only drive a mile, it’s not going to be that big of a deal,” she told him.

Stevens maintained that having higher rates was customary with companies that have a high fixed cost of doing business but not a lot of consumption. “It’s how you spread that cost to a per kilowatt hour basis. If you have a lower denominator, you’re going to have a higher cost. It’s just that simple, so I totally disagree. You and I are going to disagree on this,” Stevens told Niland.

Niland, who gave the initial directive to find a way to lower rates, also questioned El Paso Electric’s high profits.

In a presentation titled “The rates are high, tell us why”, Niland showed that El Paso Electric had a 13.8% return of equity, according to Morningstar Stock Data. In the last rate case about a year ago, El Paso Electric had agreed to a rate of return that was not to exceed 10 and one-eighth percent.

The company, said Stevens, made higher profits this year because of an unusually cold winter and hot summer, which forced people to use more electricity.

Tuesday’s City Council meeting was at times contentious. Niland became visibly frustrated by some of Stevens’ answers. The only concession the company has agreed to is to freeze rates until the next rate case. Niland told Stevens that meant nothing, since he had already gone on record saying the electric company would not seek a rate case until 2013 and utilities can’t raise rates without getting permission from the state through such rate cases. When Stevens, prompted by City Rep. Susie Byrd, confirmed the company would not seek a rate case until 2013, Niland laughed out loud. Stevens asked Mayor Pro Tem Ann Morgan Lilly — Mayor John Cook was out of town — to ask Niland to be polite while he addressed the council.

The utility was ordered to file a rate-filing package with the city of El Paso no later than Feb. 1, 2012, at which point the city attorney would be authorized to represent the city in a rate case with the Public Utility Commission if the utility and city cannot agree on a rate.

El Paso Electric has three weeks to bring a proposal to City Council to lower its rates. If council is not satisfied with the proposal, Niland said they will force the utility to lower its rates by 5 percent until the rate case is decided by the state next year.

Niland also showed a list of El Paso Electric’s board of directors and major shareholders. She then showed a map of states where the board of directors live – Washington, DC; Los Angeles, Sante Fe, New York, and Greenwich — all in areas, she said, with competitive electric rates. “Why do they think it’s okay to charge us twice as much, when they live in cities that are charging half”, she said.

Stevens said each market had it’s own complex reasons for establishing rates and Niland didn’t understand the intricacies of electric utilities.

In her presentation, Niland also shared a letter from M&N Plastics, a plastic molding firm with a plant in El Paso, which employs 33 people, and one in Michigan. In the letter addressed to Niland, Chris Nagle, the CFO of the small business, stated “the current El Paso utility costs are a deterrent to expanding our Texas capacity.” In the letter, he wrote that the Michigan electric company has been flexible with the company and has provided special rates for manufacturing customers – something Nagle added El Paso Electric has been unwilling to do.

In what initially appeared to be a move to further her case, Niland asked that Bob Cook, the President of the Regional Economic Development Corporation (RedCo), speak about electric rates.

Cook said it had only been “a handful of times that a company has cited electric rate costs as the main reason for coming or not” to the city.

“That is completely different than what you said last time,” Niland told Cook, who last year, according to city council member, had told the council high electric rates could hinder businesses from relocating to El Paso.

“Your message is different than last time when you said (rates) were a competitive issue that made us less effective in recruiting businesses,” Byrd told Cook.

Representative Emma Acosta asked if David Stevens was a member of the RedCo board. Cook said yes.

Cook also said he hadn’t changed his story – and cited that electric rates had never been the main reason companies chose or rejected El Paso.

Richard Dayoub, President of the Greater El Paso Chamber of Commerce, told city council that “cooler heads should prevail” and that both parties ought to delay action and negotiate more before beginning “a contentious and expensive litigation process”.

Acosta also asked Dayoub if El Paso Electric was a member of the chamber. He said yes, but also added that he was not there to speak on behalf of the utility and that he was there representing more than 1800 members of his organization. Dayoub asked both sides to take a step back.

“You made a statement that we should take a step back, but I think El Paso Electric should take a step forward”, Acosta told Dayoub.

In an interview, Stevens said the utility, in the pending rate case, planned to include all of their investments they’ve made since the last rate case, which include about $260 million of improvements to the local Newman generating plant. He said that using those figures, the utility may ask for a rate increase.

The city, last week, received a 10-page letter from the company’s lawyers, advising city officials that the company believed they were not getting due process because Representative Niland had been rallying against the electric company before the September 13th meeting. “There is not even the most remote appearance of due process,” the letter reads. “We don’t see how we can get a fair hearing,” said Stevens. The letter points out that Niland passed out her research of the utility to “city executives, council members and others” but not El Paso Electric. The utility did manage to obtain a copy of Niland’s research, but said it dealt mostly with a specific customer of the electric company – Jobe Materials. The company pointed out that Niland received a $1,000 donation from Stanley Jobe, owner of Jobe Materials. “Political positions of some members of the regulatory tribunal are already staked out before a hearing is had or evidence taken; conflicts of interest taint the proceedings,” the letter states.

Niland said the letter did not answer her questions about rates and instead deflected from the issue.

“You’ve intimidates us through the letter, you’ve lobbied for us to stop inquiring, you leave me no choice but to take action,” she said.