It has been a long hot summer for the Lubbock City Council. It began with a month
long council fight over the performance of city manager Lee Ann Dumbauld which
finally ended with her termination two weeks ago. The citizens of Lubbock have still
not been given an explanation of why she was terminated or the anticipated cost of the
termination. Council members have refused to comment and all discussion regarding
the city manager’s job performance was held behind closed doors. Only a brief motion
to terminate the city manager and a vote on the motion were made in public. All of
this political drama took place in the middle of budget planning sessions. The council
must finalize a new budget before October 1 and at the same time they must begin the
search for a new city manager.
On top of the turmoil surrounding the city manager and new budget, the city council
approved a rate increase and new tariff structure for LP&L which took effect in June.
Unbeknownst to everyone but LP&L management, a billing error caused many
citizens to be under billed for their June electrical services. Rather than convene a
press conference to announce the error and to alert the individuals involved, LP&L
management decided in secret to simply add the unpaid June charges to the July bill
which caused the under billed citizens to receive an astronomical utility bill in July.
Looking for political cover, the City Council called a special meeting of the council
yesterday evening (July 30) to discuss how to handle the situation.
The first item on the agenda at the council meeting was an amendment to the LP&L
rate tariff to delete the fee charged by LP&L when it disconnects service as a result
of its own error. Yes, you read that right. LP&L charges to reconnect your service
even if you are terminated because of LP&L error. You would think that it would be an
easy, quick vote for the council to amend the tariff and bring a little common sense,
positive PR and customer service back to LP&L. Instead, with the entire EUB board
looking on, the tail wagged the dog when the majority of the council voted to continue
to charge citizens the reconnect fee even if they were disconnected through no fault
of their own. The vote against the amendment was the same block of four that have
continued to allow the EUB to run LP&L with almost no council oversight. The four
are Todd Klein, Victor Hernandez, Latrelle Bright Joy and Floyd Price. The remainder
of the meeting involved listening to a long, wonkish, presentation by the LP&L rate
consultant from Denver who explained why LP&L bills were so expensive in July. After
his presentation, a vote was taken to delay the rate increase until October. The vote
failed with the same block voting to “stay the course” except that Jim Gerlt joined the
EUB block. The Mayor, who voted to delay the increase, echoed my thoughts regarding
the special council meeting when he told Adam Young of the Avalanche-Journal, “I don’t
think it was a benefit to anybody.” I agree with the Mayor.
Where do we go from here? It’s painfully obvious that there is not going to be a
political solution to the LP&L problem as long as the EUB voting bloc remains on the
council. Although Victor Hernandez faces a recall in November, and a recall petition is
circulating regarding Floyd Price, it is improbable that either will be recalled. Until City
elections in May, it appears that the status quo is going to be what we get.
The rate increase that was enacted in June and the additional rate increases that will
take effect in the next four years are the result of two factors. Previous city councils
refused to raise rates despite four years of repeated Xcel wholesale rate and fuel cost
increases which were being absorbed by LP&L. The second factor is that LP&L pays
10 Million a year in bond repayments to pay for the purchase of the Xcel customers.
As a result of these two factors, LP&L is losing $17 million a year and is dipping into
reserves to meet expenses. While there is plenty of fat in the LP&L budget in the form
of advertising and high salaries, the budget does not contain $17 million in fat. The sad
fact is that the rate increase was inevitable because of the bond payments and Xcel
wholesale rate increases. Rates are not going to be rolled back, and are only going to
continue to go up, even if a new council is elected in May 2014.
On top of this bit of bad news is the really, really bad news. LP&L can’t afford to provide
power in 2019 when the Xcel contract runs out. Well, let me put it another way: LP&L
can afford to provide it, but we may not be able to afford to pay for it. What I mean is
that the bids to build a new power plant to provide power to the City after 2019 were due
in May. To my knowledge, the bids have never been discussed in public and no agenda
item has been placed on the EUB agenda to approve a contract to build a plant. This
tells me that the bids to build the plant came in way over the anticipated amount. Again,
this is speculation because no bids have been released to the public and no public
discussion of how LP&L will pay for the plant has taken place. But since we are playing
the speculation game, let’s run the numbers on an 800 Million bond issue. The current
interest rate for municipal bonds is in the 3.5 to 3.75 range. Taking the lower interest
rate with a 15 year payout, the bonding cost would add 5.8 Million a year to the current
LP&L budget. The recent 25% tariff increase over five years will be insufficient to cover
the bond repayment requiring another increase of approximately 10%. My calculation
brings us to a base rate in 2019 that will be approximately 35% higher than our current
rate. And that increase is only to the base rate and does not take in to account fuel cost
surcharges or Xcel wholesale rate increases, both of which will be passed on to the
consumer. My prediction is that if we build the power plant, utility costs will more than
double in 2019 from current rates.
There is more bad news. There is nothing we can do to prevent our rates from doubling
short of selling LP&L. We can change the City Council, amend the charter to eliminate
the EUB and eliminate the reserve requirement and we will still have to either build a
power plant and pay for it with revenue bonds or we will have to have someone else pay
to build the plant so that we can purchase power from them over the next 40 – 50 years.
Either way, electric costs are going to at least double from current rates. The only other
choice is the one I favor but almost no one is talking about in public. That is, we sell
LP&L and purchase power on the market. Amarillo and almost every other city in Texas
purchase their power from private companies. Amarillo’s rates are lower than ours and
the statewide average cost is lower than ours. For those who resist the idea of selling
LP&L, I’m open to other solutions. But I have yet to hear any. The bottom line is that all
of us need to prepare for dramatically higher electric bills over the next ten years. There
is no political solution to our problem short of electing new council members who will
agree to put LP&L on the market and get rid of it once and for all. For many reasons, I
just don’t see that happening.