Lubbock City Council Approves Lubbock Power and Light Electric Rate Increase
The Council gave the go-ahead to a 9.7 percent increase, which will go into effect on June 1st, 2013. LP&L says that the rate increase, which is the first in around four years, will result in a 12-month average of $7 to $10 more per month for most households.
Lubbock Electric Utility Board Chairman Gail Kring discussed three bond rating agencies’ outlooks for the City-owned utility.
The presentation showed that Standard and Poor’s rating for LP&L was an AA- with a stable outlook, Fitch Rating’s grade for the utility was A+ with a stable outlook, and Moody’s has LP&L listed as A1 with a negative outlook.
Kring said “The negative outlook takes into consideration the systems trend of weakened financial performance with infrequent base rate adjustments, resulting in declining debt service coverage and unrestricted reserve levels over the past two years. The challenges are infrequent base rate adjustments, trend of a weakening liquidity, and trend of narrowing debt services coverage.”
Kring asserted that if the utility’s bond ratings dipped, it could mean greater expense for Lubbockites later on.
“We presently have an RFP to look at someone building a plant for us, and maybe owning the plant, we buy the electricity and in so many years, we end up owning the plant,” Kring said.
“But if that falls through and we have to build a plant…for example, if we build a combined cycle plant, we’d be talking in the range of $725 million, and if you have a one percent increase because of a downgrade rating of your bonds, then that could cost the citizens of Lubbock an additional $134 million to build that plant,” Kring concluded.
In the first six months of the current fiscal year, LP&L has lost around $7.5 million, but the utility generates much of its income during the hotter months of June, July, and August. They showed a $3.2 million loss last year.
The rate increase is expected to generate more than $17 million over a 12 month period.
The June 2013 increase is expected to the first in a series of four recommended yearly increases. The recommended increase for 2014-15 is around 7.3 percent 6.2 percent for the following year, 1.1 percent for 2016-17, and 1.2 percent for 2017-18, though those numbers could be lower due to the earlier implementation of this year’s increase.
LP&L is currently required by the City to keep three months gross revenue generated from all retail electric sales in reserve, which is around $48 million dollars. In March, the utility had around $43 million in reserve.
The Council voted 6-1 for the rate increase, Mayor Glen Robertson voting against the measure. Robertson said he believes an increase is necessary, but preferred to put through the increase for October rather than June.