At their meeting Thursday evening, the Lubbock City Council approved increasing funds for a capital improvement project for the City’s utility company.

The Council voted to increase funds for a project replacing a Lubbock Power & Light cooling tower from $3,925,000 to $5,930,000.

The Electric Utility Board voted to handle the increase out of cash reserves, but Lubbock City Manager Lee Ann Dumbauld and Gary Zheng, president and CEO of LP&L recommended paying for it out of bond funds, a measure which the council voted to support.

The City estimates that LP&L will end the 2011-12 fiscal year at a $3.2 million loss, but they do not have the final audited review for September 2012 back from the City’s external auditors.

“The problem in estimating for LP&L at year end is knowing what volume they’re going to sell for August and September,” said Dumbauld.

“Those are high volume months based on temperature, and all they can give the Council or the Board is an average of what that temperature generates in revenue,” Dumbauld continued.

Zheng said he did not support using the EUB’s recommended pay-as-you-go approach to the project increase, due to concerns of possibly dipping beneath their general reserve requirements of at least three months gross revenue from all retail electric sales, which is around $50 million.

City staff said the cost increase was due to multiple factors, including the cost of labor going up due to the oil and gas boom in midland, causing a labor shortage and a price increase for labor.

The utility also reportedly had to bring in an outside structural engineer to design the cooling tower, and the engineer recommended a structure designed to withstand a 140 mile per hour wind, as opposed to a 100 mile per hour wind.

The structural engineer had to be hired due to the City’s commercial building inspection permit process, but there was some confusion on whether or not LP&L was exempt from the City’s permit process.

Matt Wade, general counsel for LP&L, said that he believes there is a permit exemption available to the utility, but did not know why they were required to go through the permit process for this particular project. LP&L staff has been instructed to look into possible exemptions.

Lubbock Mayor Glen Robertson weighed in on the utility’s situation, saying “This board 60 days ago was told to expect a six and a half million dollar loss. Thirty days ago, they were told to expect to break even or better, and yesterday, we’re told they lose $3.2 million. So in less than 60 days, we’ve got a $10 million swing in estimating our year-end gain or loss.”

“This one project had a 51 percent increase in cost estimate. We’re doing something wrong. We’ve got to address these issues,” Robertson continued.

The measure passed 6-0, District Four Councilman Jim Gerlt absent due to illness.