El Paso Electric seeks rate increase that could add $23 a month to average household bill

by Diego Mendoza-Moyers, El Paso Matters
January 27, 2025

El Paso Electric on Monday said it’s seeking a rate increase that would boost El Paso households’ monthly power bills by nearly $23 on average, the starting point in what likely will be a contentious negotiation among the utility, its regulators and customers that could last a year or longer.  

The rate increase El Paso Electric is proposing would lift Texas customers’ bills by 10% on average. Residential customers – who make up almost 90% of EPE’s Texas customer base – would see the biggest percentage increase in bills, which El Paso Electric is asking to lift by 19%. Small and large businesses would see bills increase by between 3% and 7.5%, while medium-sized businesses will see power bills decline by 2%. 

El Paso Electric said its industrial and commercial customers have historically subsidized rates for residential customers, but the utility is now wanting to charge all customers what it costs to serve them. El Paso Electric’s executives prefer to have regulators and intervenors, such as the city government, decide on subsidies and where to allocate costs instead.

The last half-decade has marked a period of significant transformation at El Paso Electric, which has added a new power plant and its first major solar farm over the last two years. And the utility has built out new transmission lines and distribution wires in eastern El Paso County to ferry power into the city from incoming solar fields and battery storage arrays that the utility is building. El Paso Electric has also installed new smart meters throughout the city, and added new ways to export power to Mexico and to the Western United States.

Since the end of 2020, EPE said it has spent $1.55 billion on capital investments such as new generation resources, but also on replacing wooden power poles with steel poles and building new substations to serve power as El Paso sprawls out further, for example. El Paso Electric is asking the Public Utility Commission of Texas to let it raise rates and recover the money El Paso Electric has spent in recent years, according to Kelly Tomblin, the utility’s chief executive. 

El Paso Electric plans soon to separately pursue a rate increase for its New Mexico customers. 

Monopoly utilities in Texas such as El Paso Electric are overseen by the PUC, which determines the profit margin a utility is allowed to make, and regulators also approve or reject rate hike requests. Texas utilities are required to conduct a rate review at least every four years. 

Monopoly utilities in the state make money by spending on capital investments, such as power plants or substations. Then, utilities ask regulators to let them set rates to recoup from customers the money the utility spent on capital assets, plus the predetermined profit margin.

El Paso Electric says it needs to collect an additional $85 million from customers annually to pay off the capital investments the utility has made since its last rate hike in 2021, plus a profit margin of 10.7%. If its rate request is approved as is, El Paso Electric said the average residential customers’ bill will rise from about $106 per month today to more than $129 monthly. 

El Paso Electric is also asking regulators to fatten its authorized rate of return – called its “return on equity” – up to 10.7% from 9.35% currently. 

The average return on equity that regulators authorized for electric utilities was 9.6% in rate cases decided in 2023, and 9.54% in 2022, according to S&P Global.

“The growth in capital investment and the need for EPE to recover its investment and a return on its investment are driving the need for this case,” George Novela, El Paso Electric’s senior director of regulatory policy and rates, wrote in testimony to the PUC. 

But the city government, as well as local business groups and consumer advocates, are almost guaranteed to intervene and try to either block the rate hike or negotiate it down. It could take a year or more before the new rates take effect and customers see their bills rise.  

Part of the reason El Paso Electric wants to raise rates is to satisfy the credit rating agencies that grade the utilities financial health to indicate to bondholders how likely El Paso Electric is to pay back debts. A good credit rating means El Paso Electric can pay a lower interest rate to investors who buy the debt the utility issues to fund its operations. 

Moody’s, one of two rating agencies that grade El Paso Electric, said last summer that the utility could face a credit downgrade if it can’t promptly make back the money it has invested. The utility has to seek approval not only from the PUC, but also from El Paso City Council. Six out of nine council representatives and the mayor were elected late last year – so how they’ll receive El Paso Electric’s rate request is uncertain.

Historically, El Paso city representatives have opposed El Paso Electric rate increase requests before entering negotiations.

“A downgrade could be considered if a more contentious political or regulatory environment emerges in Texas or New Mexico, or if political intervention by the El Paso City Council creates material uncertainty over cost or investment recovery,” Moody’s credit analysts wrote last June. 

El Paso Electric is not alone in seeking to raise rates; utilities across the United States have been jacking up electricity rates in recent years as their costs have escalated as a result of inflation and elevated interest rates. 

El Paso Electric and most other electric utilities are also seeing increasing demand for electricity for the first time in decades, because of a mix of hotter summer temperatures, the proliferation of power hungry data centers and more customers shifting to refrigerated air from evaporative coolers.

El Paso Electric saw record-setting demand in the summer of 2023 that far exceeded its expectations, as weeks of triple-digit temperatures that year led El Pasoans to run their air conditioners around the clock. El Paso Electric saw a near-record demand again last summer. 

“EPE has made significant investments to maintain safe and reliable service for customers and to support new and existing loads during a period of increasing customer growth, increasing residential usage per customer, and extreme weather,” Novela said. 

“Since EPE’s last rate case … EPE’s management has shepherded the Company through a period of required, high infrastructure growth while maintaining relatively flat” operational and maintenance spending, he said.