Sunday, June 21, 2015

El Paso Electric, the PRC, and Us

About five years ago, El Paso Electric's electricity supply was mostly adequate, except during brief but sharp spikes in usage on summer afternoons.

EPE could have changed its rate structures to offer us a deal we couldn't refuse. Hike the rate at peak hours and perhaps discount off-peak usage. Only a mooncalf would run his dryer or dishwasher at 2 p.m.

Knowledgeable critics claim this could have solved the problem – while serving the public interest. EPE says it has rate structures to encourage off-peak use; but critics say the choices EPE offers are relatively limited and aren't marketed well.

EPE convinced the regulators it needed much greater capacity. (As part of the tradeoff for monopolizing a valuable and socially important resource, EPE has to ask “Mother, may I?” before taking such a step.)

Critics say EPE could have acquired additional capacity contractually, through a solar source. They say solar would have cost less than half the cost of building and running two more gas-fired generation stations. (Customers would ultimately pay the cost for either alternative.) Building a gas-fired plant with a 50-year life expectancy doesn't seem real smart in a world trying to wean itself from fossil fuels.

NM regulators approved EPE's construction of the plants, which could be dinosaurs well before New Mexicans finish paying for them. (In a quick initial conversation, EPE executives said they could not recall a viable alternative, noted that an independent consultant assesses the bids they get, and promised to look into it.)

The main reason for the present rate case is “Gee, we had to build these huge expensive plants, and now you have to pay for them.”

Why would EPE make such a choice?

Critics say the key is in how EPE profits. With most EPE expenses, like buying power from the solar folks, customers ultimately must reimburse EPE. But on capital investments in non-depreciated assets, EPE is entitled to “a reasonable rate of return.” Profit.

“Solar would have cost less than half,” says Rocky Baca. “In my opinion, they chose the plants because they could make the profit, even though it costs the rest of us more than double.”

Steve Fischmann says the regulatory system “forces companies into bad decision-making.” Make one choice, and we'll reimburse your expenses; buy a new asset, and you can make a profit. That's wrong, and should change; but the problem is the system. (EPE execs say the PRC has approved its moves by granting a certificate of necessity.) Fischmann says the PRC is frequently “asleep at the switch” and that EPE has skillfully “gamed the regulatory system and manipulated the regulators.”

But mostly we must pay more attention next time around. (I hasten to add that I'm just starting to look into the allegations about EPE's conduct and motives.) The system, which I think even EPE execs would admit could theoretically push a company toward bad decision-making appears a problem. (Corporations exist to create profits. Acting morally outraged when they try to do so seems kind of silly; but setting watchdogs to keep us informed makes sense.)

The piecemeal regulatory process (“Balkanized,” Steve called it) means that if you argue in the current rate case that EPE shouldn't be rewarded for bad decisions, EPE might waggle its finger at you and chortle that you should have paid more attention five years ago. And EPE would be right.

For future rate cases, what matters is now. That's why our local governments must “intervene” in all these proceedings: some of them carry huge and perhaps stupid costs a few years down the road.


[The column above appeared in the Las Cruces Sun-News this morning, Sunday, 21 June, and will appear shortly on KRWG-TV's website as well.]

[I think it's important to change and improve the quality of the dialogue between El Paso Electric Company and the public.  Since I like to ask questions but have no deep knowledge of the subject, I hope I can help. 
At the start, it's useful to step back and think about our relationship with EPE.  EPE is not "the Enemy", but a purveyor of an important resource.   Nor is EPE our dear friend, always looking out for us and the environment, as some of its advertising might suggest.  Ain't so.  Can't be so.  EPE is a corporation, and thus legally tasked with maximizing shareholder profits.  Yes, it does some good things in the community, for which it deserves credit; but it ain't our pal.
EPE is both like and unlike the Vescopo folks, from whom we actually bought a modern car a few years ago.  They're alike because we deal at arms' length.  We know Vescovo's in business to maximize profit; they know that if we could find an ethical way to buy our Prius for $1,000 less, we'd do so.  But EPE differs from Vescopo in important ways: EPE has zillions more customers, for fewer dollars per transaction, so we matter more to the Vescopo folks as potential repeat customers or as potential word-of-mouth reporters, positive or negative.  EPE also differs because most of what it's talking about is unfamiliar to most of us.  Above all, we can't easily go buy electricity from a competitor.  EPE is a monopoly.  Therefore the New Mexico PRC, at least theoretically, steps in to permit EPE a reasonable profit and protect us from getting hammered. 

So we should neither assume everything EPE says in a PRC proceeding is truth or assume everything is a lie.  EPE is quite naturally trying to get the PRC to approve what's best for EPE.  Some of what EPE would like is not in our interest.   Some probably is.  Other things may not much matter to us, but enable EPE to function more efficiently.   But I'm not smart enough to know which is which.  Nor are most of you.  Therefore (a) I'm asking, out of my own curiosity and on others' behalf, trying to steer a path through the contradictory claims and outlooks of EPE and its critics and (b) there's a push to have our municipal and county governments pay someone to take a close look  and "intervene" in these proceedings.  Sounds like basic prudence.  
In addition, some EPE decisions are really public policy decisions that should be made by us or our elected representatives.  (Nor is the PRC the ideal decision-maker in these areas.)   How strongly to discourage peak-time usage of electricity or encourage use of renewable energy are not mere business decisions such as how fast a gas-fired plant needs to be able to get up to speed when turned on.
Do I start with some skepticism toward EPE's stated rationales for its requested rate hike?  Of course.  You betcha.  Just as I'd listen critically to the claims someone made who was trying to sell me a computer, car, or motorcycle.  But neither does that skepticism mean that after some investigation and a little consultation with folks who know a little more, I might become convinced.
Maybe this should be obvious.  But I see folks yammering all night about what the City or County does wrong, while ignoring a PRC proceeding that likely has more impact on each of us individually.  I see other folks unwilling to listen at all to EPE.]

[Having said all that (less succinctly than I'd have wished to), I do suspect that some of what we need to be looking at is changing a few of the rules.  Whether or not EPE hosed us by building two -- ultimately four -- power plants when it could have done something far more cost-effective (with our dollars), one does have to wonder if the rules should be written in a way that apparently encourages someone to waste our money. ]

[There's a lot to say about these matters, and I'll hope to write several more columns on EPE and the PRC this season.]

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