The City Council Puts Lubbock’s New Municipal Electric Monopoly to Use

Michael 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?


2 thoughts on “The City Council Puts Lubbock’s New Municipal Electric Monopoly to Use

  1. Interesting. This suggests that the city had covered the lighting costs because LP&L was pressured by competition. I notice the implication that the lighting costs were being put *back* on the utilities’ books, implying that it was that way once before. For people paying both taxes and municipal power prices, this shift could seem unimportant except it appears that both current tax rates and current power rates are insufficient to cover costs. I suppose it wouldn’t matter which one goes up except that the article points out that there are 11,000 electric customers of South Plains Electric Co-op who will now be getting lighting services courtesy of the customers of LP&L. It’s not entirely clear (from the article) that this is true if those customers are on a separate distribution network.

    In any case, there is not enough attention paid to the finances of municipal and co-op utilities. They use the same cost-recovery accounting as IOUs, where property rights over invested capital and net income is clear. Co-ops’ managements have in many cases come to view net income as a reward, or as a sign that they’re doing a good job. Rather than treating it as paid-in capital, they re-invest it and recover it from customers a second time, as if someone other than the customer had invested it. As a result they over-collect, and in some cases pile up cash and operate entirely without debt. They’re proud of the fact that past customers have already paid every dollar of invested capital, and that they’re paying in more every day. That’s not pay-as-you-go, that’s pay-before/if-you-go. AARP sometimes gets into such issues with IOUs (in the various return-on-CWIP cases around the country), but they give co-ops a free ride.

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