COMMENTARY:
El Paso Electric (EPE) has filed for a 73% base rate increase for New Mexico residences and a 50% increase across all customers. If approved at the Public Regulation Commission (PRC), it would cost the average household $500 per year. $70 million annually would be diverted from Dona Ana County’s economy to Wall Street’s private equity investors. Financial calamity would visit low-income ratepayers.
EPE claims the rate increase pays for investments that improve reliability. But plans to power Texas data centers before enough peak hour generation is in place to serve them virtually guarantee reliability will decline. EPE has abandoned any pretense of providing affordable and reliable electrical service. EPE wants maximum profits; public be damned.
Since JP Morgan private equity acquired EPE in 2020, the PRC has scolded the utility for hiding the ball on important investments, entering energy market agreements without PRC consultation, and ignoring public input. EPE has been consistently late meeting its renewable energy commitments. The PRC has declined to levy penalties or enact other sanctions. Past leniency has only emboldened EPE. This rate proposal is a brazen test of what the PRC will let them get away with.
Two things are certain. 1. Private equity ownership of EPE has been a disaster. 2. The PRC is failing in its obligation to ensure reliability and fair rates. If the PRC saw this kind of rate proposal coming, it should have taken proactive steps to reduce the damage. If it did not see this coming, it was sleepwalking!
The most immediate step towards sanity is to reduce inflated rate and profit awards. The last twenty years of stock market data show investors are happy with 6.5% annual returns on safe utility investments. Yet regulators consistently build in 9-10% target returns when setting rates. Reducing returns to market levels, as the law requires, would result in noticeable bill relief without harming EPE’s viability. The PRC should also carefully evaluate the $400 million in capital investments EPE is using to justify the proposed rates. Customers are not required to pay for unnecessary expenditures known in utility circles as “gold plating”.
EPE’s disregard for the public requires prompt re-evaluation of corporate and private equity ownership of public utilities. Ratepayers must not be victims of flagrant profiteering under the protection of government established monopolies. Management that gives a fig about the public is needed. Regulators should base profit awards on affordability and reliability, not asset balances.
Government ownership models should also be considered. Municipal, county and state-owned utilities enjoy significant cost advantages over investor-owned utilities like EPE. They have no profit requirements, pay no federal taxes, and have access to substantially lower cost financing. High-cost California provides a stark example of what government ownership can achieve. Corporate owned San Diego Gas and electric charged residences an average of $.42 cents per kWh last year. Sacramento’s municipally owned SMUD charged $.18.
New Mexico should also consider purchasing EPE New Mexico through its $70 billion state permanent funds. EPE New Mexico could operate as an independently managed corporation subject to PRC regulation. EPE New Mexico dividends would go to the state permanent funds where they would finance education and other public services rather than enriching Wall Street. EPE board members nominated by the publicly accountable State Investment Council would almost certainly care more about the public than EPE’s current directors.
Reactive regulation practices must end. We need forward looking action from the PRC and elected officials. Press them for concrete proposals to reduce skyrocketing electric bills before the upcoming elections. No platitudes or excuses allowed.
Steve Fischmann served as a PRC commissioner from 2019-2022 and was New Mexico State Senator District 37 from 2009-2012. He currently heads the New Mexico Consumer Protection Alliance.
Steve Fischmann's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.