Michael Giberson
Posts Tagged ‘Lubbock’
Lubbock’s municipal utility fights city hall
September 10, 2010Michael Giberson
Last week the Lubbock city council approved a plan to direct municipal utility Lubbock Power and Light to pay the cost of operating and maintaining the city’s street lights (see earlier post). This week the municipal utility fights back: “LP&L ready to fight city on street light money.”
The Lubbock Power and Light board met on Thursday in hopes of getting their voices heard.
“What we are trying to say as a board is that this is inconsistent with our charter and if its inconsistent with our charter then we don’t believe it is our issue,” said Rinehart.
As proposed by the city, almost $2-million of LP&L’s budget is set to power street lights, another million is in place for maintenance. That’s $3-million Rinehart says LP&L should not be responsible for.
But also see this key bit of information, from the related Lubbock Avalanche-Journal story:
The vote [by the LP&L board] … would be largely symbolic. Though given great authority over the operations of the municipal power company, the council, not the appointed board, makes ultimate decisions on the budget.
The city council puts Lubbock’s new municipal electric monopoly to use
September 3, 2010Michael Giberson
Are monopoly municipal electric utilities supposed to be treated like piggy banks by city councils? For over 90 years Lubbock Texas has had two electric utilities serving the town – one regional state-regulated investor-owned utility (Xcel) and a municipal utility (LP&L). Both ran wires throughout the city and most customers could switch between the competing utilities on a few days notice. For the most part LP&L stayed competitive by charging a slightly lower rate as Xcel. The LP&L website once trumpeted the benefits to consumers from the competition. Not any more.
Last November the city and the announced that city-owned LP&L would buy out Xcel’s distribution service and customer accounts in the city, making LP&L the monopoly electric power provider in town. The deal is expected to be completed in October.
Already the city council is beginning to treat the utility budget like a basketful of unattended Halloween candy. The deal is not even done, but the current city budget proposal for next year has LP&L customers picking up the $3 million tab for street light power and maintenance costs. The budget also tags LP&L with a $1.46 million payment in lieu of property taxes. (Not clear from the news story but I think LP&L already pays a percentage of gross revenue into the city budget.) One of two council members objecting to the plan said LP&L customers ought not to be tapped to support city-provided services.
Council members supporting the transfer assure us that “it was not council’s intent to tap the utility for more than the street light program it once supported.” Slippery slope arguments are overblown, they say. Sure the city council drained funds from LP&L in the past, almost pushing the utility into bankruptcy when it got caught by rising fuel costs a decade ago. “None of us on this dais would do that again — would start putting them into any kind of financial trouble again,” a city councilman said. “That is not what we’re after. That is not what we want to do in any way.”
Feel better?
RELATED PREVIOUS POSTS:
The REVISED history of electric competition in Lubbock
February 1, 2010Michael Giberson
At the time of the initial announcement that Lubbock Power & Light would acquire the distribution assets of competing electric utility Xcel within the city, leaving LP&L as a monopolist, I took note of several inconvenient statements about the benefits of competition included in official LP&L history. (See “The (soon to be revised) history of electric competition in Lubbock,” November 5, 2009.)
At the time I wrote, “I’m guessing the official story is about to change.” Guess what? Now available on the LP&L website, a somewhat revised version of the document, “The History of Lubbock Power & Light.”
Here is a comparison of selected old and new paragraphs from “The History of Lubbock Power & Light.” Old first paragraph (emphasis added in this quote and in quotes below):
In the electric utility industry, retail competition for electric customers is a relatively new concept. Not so in Lubbock, Texas. The good people of Lubbock have benefited from retail competition for electricity since 1916.
In the new history the first two sentences are:
Lubbock was a relatively new town at the time having been created in 1891 when two smaller settlements both moved their towns from several miles away to our present location. The first county court house was built at this time with the county itself having been created in 1876 by the Texas State Legislature.
Obviously a shift in emphasis (and a somewhat awkward first sentence) produced by the revision.
The old version of the history noted that the emergence of competition in the city immediately produced lower rates. This paragraph remains the same in both versions:
The effort by those early Lubbock leaders was realized a success on September 28, 1917 as the municipal power plant began producing electricity priced at only ten cents a kilowatt-hour. The other utility cut its rates accordingly soon after. Imagine that!
In the older version of the history, that early success was followed by a report of steadily falling prices in subsequent decades and then the following claims about the continued value of competition: low rates and high quality customer service:
Today, the vast majority of Lubbock remains dual-certified and customers still have a choice of electric utility providers. Customers whose account balances are current are allowed to switch from one company to the other at their discretion. The competition for the electric dollar in Lubbock has resulted in some of the lowest electricity costs in the state of Texas and in the nation. Another major benefit of competition is that customers enjoy increased levels of customer service than would be found in cities this size with only one electric provider.
Lubbock Power & Light’s mission is to provide low cost, reliable electric service. We feel we’ve been successful in that mission. All electric customers in Lubbock have benefited from the decision of those early pioneers to begin retail competition.
In the new view of Lubbock’s electric power history, the report of steadily falling prices jumps directly to a claim about LP&L’s mission:
Lubbock Power & Light’s mission is to provide low cost, reliable electric service. LP&L has competed with many private companies, but in the end the majority of the customers have chosen LP&L, leaving the private companies looking for other options.
Compare the final sentence above, in bold, with the final sentence in the old paragraph. The old paragraph emphasizes the benefits to consumers, while the new official story shifts the viewpoint to that of the utilities. The shift seems to me a possible harbinger of the future of utility service for LP&L customers: a shift in viewpoint from customer benefits to a utility perspective.
UPDATE: Link to a copy of the history of LP&L showing the post-November 2009 changes.
How valuable will a monopoly be to Lubbock Power & Light?
January 31, 2010Michael Giberson
After over 90 years of operating in competition with a rival electric utility in town, late last year Lubbock Power & Light and Xcel announced a deal in which municipal electric utility LP&L would buy out Xcel’s distribution assets and customer accounts in the city for $87 million, leaving LP&L as a monopoly electric utility in the city.
Regulatory filings with the state reveal much more of the details of the deal. A newspaper story in the Lubbock Avalanche-Journal notes, for example, that the $87 million will buy assets that Xcel values at $64.2 million. Lubbock’s electric power consumers may wonder what the city is getting for that extra $22.8 million payment.
It is a complex deal that, in addition to paying Xcel to get out of town, accommodates changes in numerous existing contracts between the two companies. For example, a few years ago when LP&L was on the brink of bankruptcy, LP&L and Xcel entered into a deal under which Xcel controls operations at LP&L’s generating plants and LP&L began buying all of its power supply needs from Xcel. That deal expires in 2019, but under the acquisition plan Xcel would continue to make available some wholesale power to LP&L. Xcel purchases waste water from the city for cooling a power plant, and that agreement would be revised as well. All the complexities make it hard to evaluate what, exactly, the deal is worth to citizens of Lubbock – putative owners of the municipal utility – and the value to be created by the deal (if any).
One question to be asked, as a starter, is why LP&L needs to pay anything above scrap value for the Xcel distribution system in the city. After all, the city claims its existing system is sufficient to serve the entire city and that maintaining two utility systems is town is wasteful. So LP&L doesn’t need Xcel’s distribution assets to take on current Xcel’s customers, and adding the distribution assets will simply result in a costly, wasteful, and over-built local distribution system.
Scrap value would be too low, since some of the Xcel distribution system may be incorporated into LP&L’s system (in cases in which the Xcel system is superior to the LP&L segment that it duplicates), but book value on the assets seems a reasonable upper limit. In any case it is hard to believe LP&L should pay a premium over book value for Xcel’s assets.
Is having a monopoly going to be so valuable to LP&L that they are willing to pay Xcel a $20+ million bonus to get out of town? What does that imply for future electricity rates in the city?
BACKGROUND – Earlier posts on electric utility competition in Lubbock:
- BREAKING NEWS: RETAIL POWER COMPETITION TO END IN LUBBOCK AFTER MORE THAN 90 YEARS
- The (soon to be revised) history of electric competition in Lubbock
- Local TV news coverage of the proposed end of 90+ years of electric competition in Lubbock
- Even in Texas competition between electric wires companies is prohibited, except in Lubbock
Note that, technically speaking, one or two small neighborhoods will still have a choice between LP&L and South Plains Electric Coop, but otherwise LP&L becomes the monopoly provider in the city of Lubbock.
ADDED: The related regulatory filings at the PUC of Texas can be found via the PUCT’s Interchange document system. Start on this page, enter 37901 as the “Control Number,” and press the “Search Now” button.
The (soon to be revised) history of electric competition in Lubbock
November 5, 2009Michael Giberson
The city of Lubbock Texas has had two competing electric power companies since 1917. If a just announced deal goes through, competition will be eliminated.
The new “official story” is that competition produced inefficiency, but this view is in stark contrast to old “official story” as told in the “The History of Lubbock Power & Light” posted on the LP&L website. That historical review makes the case that competition has been a good thing for the city.
Here’s the first paragraph from the historical review, with some emphasis added:
In the electric utility industry, retail competition for electric customers is a relatively new concept. Not so in Lubbock, Texas. The good people of Lubbock have benefited from retail competition for electricity since 1916.
The short version of the story is that city officials were unhappy with an early electric utility supplying Lubbock, so started a municipal utility to provide more reliable service and reasonable rates. The private utility tried to sell its distribution system to the city at the time, but the city refused to buy it. (Various dates are mentioned here: 1916, 1917, and, below, 1942. See a note below explaining these dates.)
According to the existing LP&L history, competition began paying off right away:
The effort by those early Lubbock leaders was realized a success on September 28, 1917 as the municipal power plant began producing electricity priced at only ten cents a kilowatt-hour. The other utility cut its rates accordingly soon after. Imagine that!
The private utility had been charging 20 cents per kilowatt-hour and under pressure from the city had previously only reduced its rates a few pennies. Competition brought down rates.
Today, the vast majority of Lubbock remains dual-certified and customers still have a choice of electric utility providers. Customers whose account balances are current are allowed to switch from one company to the other at their discretion. The competition for the electric dollar in Lubbock has resulted in some of the lowest electricity costs in the state of Texas and in the nation. Another major benefit of competition is that customers enjoy increased levels of customer service than would be found in cities this size with only one electric provider.
Lubbock Power & Light’s mission is to provide low cost, reliable electric service. We feel we’ve been successful in that mission. All electric customers in Lubbock have benefited from the decision of those early pioneers to begin retail competition.
I’m guessing the official story is about to change. These remarks clearly may be seen as inconvenient given the recent agreement between LP&L and Xcel. (As mentioned here earlier, the municipal utility has agreed to acquire Xcel’s distribution assets in the city and take over retail power service to current Xcel customers.)
The new story, as explained in the LP&L news release :
Since 1942 Lubbock has been served by both companies, resulting in duplication of electric power services, lines, poles and substations. Both companies have determined this to be an inefficient and intrusive way to provide electricity to the community.
Here is the viewpoint from the Xcel representative, also in the LP&L news release:
“The duplication of retail electric service in Lubbock has not been efficient, and we believe we can best serve Lubbock and our other Texas retail customers by only providing the low-cost wholesale electricity to LP&L,” said David Eves, president and CEO of Southwestern Public Service, an Xcel Energy company.
Lubbock’s mayor, also from the LP&L news release:
“It’s natural for LP&L to pick-up the Xcel retail electric service, since the City of Lubbock already provides utility service to all the properties in Lubbock,” Mayor Tom Martin said.
Some questions based on the LP&L history:
- If the duplication of facilities has not been efficient, why did rates drop in 1917 after a duplicate system was built?
- If this system is inefficient, why is it that electric rates are comparable to other systems in the area and relatively low compared to elsewhere in the state?
- If the existing system is inefficient, and the new system is better, they why isn’t LP&L promising to lower rates after the wasteful, duplicative system are consolidated? Are they planning to reduce costs and not pass the savings along to consumers?
According to the now inconvenient history on the LP&L website, a “major benefit of competition is that customers enjoy increased levels of customer service than would be found in cities this size with only one electric provider.”
If this deal goes through, we will become one of the “cities this size with only one electric provider.” LP&L’s message is that we should expect customer service to suffer if the deal goes through.
NOTES ON DATES: The decision to start the utility was made in December 1916, but the system didn’t go into service until September 1917. The “1942″ reference above is to the date that Southwestern Public Service bought the Lubbock distribution utility from Texas New Mexico Utilities. Southwestern Public Service is now a unit of Xcel Energy. TNMU was a successor company to the private utility that the city was unhappy with in 1916/1917.
BREAKING NEWS: RETAIL POWER COMPETITION TO END IN LUBBOCK AFTER MORE THAN 90 YEARS
November 4, 2009Michael Giberson
This morning, November 4, municipal utility Lubbock Power & Light and local regulated utility Xcel/Southwestern Public Service announced that the city utility will buy out the Xcel distribution system within the city and LP&L would become the monopoly retail power provider.
The press conference hosted by the city emphasized the costliness of maintaining duplicate distribution system. The announcement didn’t explain why it made more sense for LP&L to buy out Xcel than for Xcel to buy out LP&L. A press release (reproduced below) contains more details.
(Oddly, the press conference held by the city seemed mostly focused on the redevelopment of Lubbock’s downtown area. Apparently the costs of moving two sets of wires was a significant problem for the company in charge of redeveloping the downtown area; with that problem resolved the redevelopment should be cheaper to manage. Will the developer be refunding the savings to the city? As part of the deal Xcel will donate its downtown building to Texas Tech University and consolidate its activities at a southwest Lubbock location.)
One local commenter observes this will mean an end to the big advertising spending by LP&L and Xcel, to the detriment of local media companies. A radio show host said on his blog:
Good bye Xcel Energy (at least in Lubbock) and good bye competition! Today Lubbock announced it was spending $87 million dollars to buy out the Lubbock customer base of Xcel Energy. According to the city, this is great for downtown redevelopment. OK, great.Mayor Tom Martin was quick to say at the presser that your rates won’t change because of this. Really? Does anyone buy this? LP&L has no competition in Lubbock (for the most part) and we shouldn’t expect rates to change? We shouldn’t expect customer service to change?
I’m sorry but the only people who will benefit from this buy out are the people in charge at City Hall. And how about the timing? The city keeps this whole thing quiet until after the bond election.
I can imaging that I’ll have updates once more information is available.
MORE DETAILS: From the LP&L press release:
Electric Companies Move to Benefit Lubbock
(Lubbock, TX) – Representatives from Lubbock Power & Light (LP&L), Xcel Energy and the City of Lubbock made an announcement today that will lay the foundation for the future of power in Lubbock.
LP&L and Xcel Energy have reached a mutually beneficial agreement that will allow LP&L to purchase Xcel Energy’s electricity distribution system within the city and to serve all of Xcel Energy’s Lubbock retail electric customers. Since 1942 Lubbock has been served by both companies, resulting in duplication of electric power services, lines, poles and substations. Both companies have determined this to be an inefficient and intrusive way to provide electricity to the community.
“The duplication of retail electric service in Lubbock has not been efficient, and we believe we can best serve Lubbock and our other Texas retail customers by only providing the low-cost wholesale electricity to LP&L,” said David Eves, president and CEO of Southwestern Public Service (SPS), an Xcel Energy company. “Xcel Energy customers in Lubbock will be served by LP&L, but Xcel Energy will continue to supply the wholesale power and transmission services.”
Currently LP&L provides power to more than 77 percent of households in Lubbock but purchases its power wholesale from Xcel Energy.
“It’s natural for LP&L to pick-up the Xcel retail electric service, since the City of Lubbock already provides utility service to all the properties in Lubbock,” Mayor Tom Martin said.
Because LP&L will use its solid financial position and bond ratings to fund the purchase through electric revenue bonds, electric rates for their customers will remain some of the lowest in the state.
“We want all our customers to know that your electric rates will not increase as a result of this new relationship. LP&L electric customers will continue to see low electric rates,” W.R. Collier, LP&L Electric Utility Board Chairman, said.
Electric customers in the Panhandle and South Plains enjoy some of the lowest electric rates in Texas because of Xcel Energy’s low-cost power generation system and abundant renewable resources. Xcel Energy will remain a significant part of the Lubbock community and will continue its civic involvement in Lubbock as a regional hub of operations and as a wholesale electricity provider for LP&L and retail provider in other areas of the South Plains.
Xcel Energy has received approval from the Xcel Energy Board of Directors to proceed with the sale of these assets, and the company is expected to gain regulatory approvals within the next nine months. LP&L will be seeking approval from the LP&L Electric Utility Board and the Lubbock City Council.
“This decision was made in the best interest of the citizens of Lubbock as well as in the best interest of dozens of Texas and New Mexico communities where Xcel Energy will remain the sole retail provider. This will not be an immediate change, and we will do everything we can to make this transition as smooth as possible for our customers,” Eves said.
LP&L and the City were advised by RBC Capital Markets with respect to financial matters, R.W. Beck with respect to operational matters and Vinson & Elkins with respect to legal matters.
Customers with questions regarding their service are encouraged to contact their current electricity provider.
***Xcel Energy (NYSE: XEL) is a major U.S. electricity and natural gas company with regulated operations in eight Western and Midwestern states. Xcel Energy provides a comprehensive portfolio of energy-related products and services to 3.4 million electricity customers and 1.9 million natural gas customers through its regulated operating companies. Company headquarters are located in Minneapolis, with Amarillo serving as the headquarters for Xcel Energy’s regional operating company, Southwestern Public Service Company. More information is available at www.xcelenergy.com .
Lubbock Power and Light (LP&L) is the municipally owned electric utility of the City of Lubbock. LP&L provides electric service to over 70% of the electric market in Lubbock Texas and offers consolidated billing for City of Lubbock Utilities. LP&L has provided the lowest electric rates and most reliable electricity in Lubbock for more than 90 years. For more information, visit www.lpandl.com.
My favorite question on my electric power industry final exam
May 8, 2009Michael Giberson
- What is unusual about the retail electric power market in Lubbock? Is this regard is Lubbock a harbinger of the industry’s future or a relic of the industry’s past? Why?
This turned out to be my favorite question on the final exam I gave in my electric power industry class.
It wasn’t the most complicated of questions, nor did it elicit the deepest of answers. But most of the answers demonstrated mastery of the fundamental concepts involved in the question and put the Lubbock case into the broader context of industry restructuring. Some students cited possibilities related to distributed energy resources and referred to related readings in ways I had not considered when drafting the question.
Positive surprises are always good when grading page after page after page after page of short essays. Fortunately, I’m done now.
If you’re not from around here, you may be surprised to learn that Lubbock is served by two distribution utilities and most of the city is double-wired (a small part of the city actually can choose from among three distribution companies). Some of the students who grew up in Lubbock thought it was normal to have more than one electric utility in town and to be able to switch if you were unhappy with your current service.
I didn’t keep score while grading, harbinger vs. relic, but the clear preponderance of responses argued that Lubbock’s competitive wires companies were a harbinger of the future. I’m sure most in the industry would regard double-wiring a city as unnecessarily wasteful, and therefore unlikely to happen.
Ten years ago, folks in the phone and cable industries probably thought the same thing.
