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Fischmann: El Paso Electric Rips Off Ratepayers; Regulators Along For The Ride

Steve Fischmann

  El Paso Electric (EPE) is asking regulators to raise electric rates to cover $1.3 billion in investments in new plant and equipment made over the past few years.

The company waxed apologetic when announcing its proposed price hikes. “The rate case process is transparent, and in order to make sure we do not collect a single penny that is not justified, all parties are represented in the process,” said CEO Tom Shockley on the company website. 

With the $1.3 billion already spent, EPE hopes regulators will have a difficult time rejecting an increase.  But that begs the question; were the investments in the ratepayer’s interest to begin with?  The short answer is no.

EPE spent heavily on gas fired peak load power generation even though bids were in hand that would have delivered solar generation at half the cost.  On top of that, EPE bought so much peak power generation that half their capacity is either idle or selling excess energy at a loss at any given time. Ratepayers are stuck with the carrying costs.

The company is shutting down older power generation capacity without providing any financial or operational justification showing the plant is obsolete.  Why?  Perhaps because EPE would only be able charge ratepayers for fuel and operating costs if they kept the old facilities running.  They are guaranteed an approximate 10% return on the book value of new plant for 50 years.

EPE also attempted to charge the cost of solar generation capacity intended exclusively for use by Ft. Bliss to the general customer rate base.  Kudos to activist Merrie Lee Soules who intervened with regulators and convinced EPE to abandon these efforts.

The Real Agenda

While CEO Shockley publicly wrings his hands about charging a “single penny” too much, behind the scenes, EPE wastes billions of them.  The true agenda is simple.  The more new assets EPE buys, the more they can charge, and the more money they make.

With responsible management of peak power demand, much of the investment may not have been needed at all.   Utilities around the world have successfully avoided expensive plant investments through aggressive implementation of proven pricing strategies, energy efficiency programs and power consumption management technologies. Some plan to avoid new plants for decades.

EPE’s anemic peak demand management efforts are clearly intended to manage public perception rather than save us money. 

Where are the regulators?

If you wonder what utility regulators have been doing as EPE rolls out its wasteful strategies, the answer is that they have been approving the company’s plans each step of the way!

Rulings regarding rates, plant openings and closings, energy efficiency programs, renewable energy, and long term business plans are all made in separate proceedings.  The Public Regulation Commission (PRC) decides on each proceeding with limited understanding of how the pieces fit together.  Only EPE has the full picture because they control the content of each regulatory filing and often decide when they are initiated. Regulators are clearly the tail on this dog.

In addition, the PRC is outgunned by an industry that has unlimited access to ratepayer funds to push its agenda.  EPE can make regulatory proceedings as complicated and drawn out as it likes because all of their costs are charged back to customers in final ratemaking calculations.  Witness the 3400 page filing EPE submitted to wear down regulators considering their proposed rate increase.

Rocket scientists are not needed to remedy this situation. The PRC can take back control of the regulatory process with a few straightforward steps.

First, devote a couple of staffers to staying current on rapidly evolving power grid technologies across the globe.  Track what innovative utilities are doing and evaluate how those developments might impact New Mexico. Educate PRC commissioners and hearing officers about the findings.  It’s tough to regulate an industry when you have only a limited conception of where it could be headed.

Second require EPE and all utilities to consider promising PRC identified grid management techniques and technologies in their filings. Create incentives for rapid small scale testing of new ideas to keep utilities ahead of the curve and minimize ill-conceived long term investments in dying power grid technologies.

Third organize regulatory proceedings in a manner that insures the PRC can make decisions in the context of a clear and concise long-term strategy.  That means taking the legally required tri-annual long term planning process for electric utilities seriously, and summarizing key touchstones for all PRC personnel to keep top of mind.

A larger PRC staff is not likely to be part of the answer.  Simplification of the regulatory process, and caps on regulatory case spending by utilities likely are.

And about that proposed EPE rate increase?  The PRC should demand a comprehensive and concise management plan that utilizes up to date technologies and management tools before re-evaluating rates.  Until that is in hand, forget about it!

Steve Fischmann is a former New Mexico State Senator who worked extensively on energy policy while chairing the Legislative Science and Technology Committee.