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LP&L June 2013 Tariff Amendment Frequently Asked Questions & Answers

Start Date: August 16, 2013, 5:45 PM
End Date: August 31, 2013, 12:00 AM

Rates

1. What changed with the June 1 rate increase?
There are two main components to your bill. First, you have the base rate. LP&L has a winter and a summer base rate. This base rate covers all expenses of the electric utility minus wholesale power. Operational costs, long-term capital projects and all payments to the City of Lubbock are housed within the base rate. Second, you have the purchase power cost recovery. LP&L buys 100 percent of our wholesale purchase power from Xcel Energy. That wholesale power is what LP&L delivers to its customer.
The biggest change in the way the new rates are structured deals with what is listed on customers’ bills as the purchase power cost recovery. LP&L did not have a true pass- through of purchase power under the old rate structure. Under the old rate structure LP&L did not pass through all four components of our purchase power in the purchase power cost recovery; which consists of demand, energy, transmission and fuel. In the past, LP&L passed through fuel and a portion of the transmission with the rest being covered by our base rate. This practice is what led to a problematic formula with the cost of energy steadily rising from our wholesale provider.

Under the new rate structure, LP&L has a true purchase power pass-through that includes all four components. This move has allowed us to lower our standard residential base rate from $0.054 per kWh to $0.032 per kWh in the summer and $0.022 per kWh in the winter. For all electric customers, the base rate is now $0.042 in the summer and $0.012 in the winter.
2. Why does LP&L have to raise rates?
Most electric providers will adjust rates on retail customers once a year as part of their power cost recovery. Prior to June 1 of this year, LP&L has not raised electric rates to cover the effects of wholesale power cost from Xcel in over four years. LP&L has been able to maintain financial stability by working hard to ensure that the utility is running as efficient as possible without sacrificing the reliability of service our customers. However, with the implementation of the latest rate increase this year by LP&L’s wholesale electric provider, forecasts showed an unhealthy deficit growing larger and a mandated cash reserve quickly diminishing.

In fiscal year 2011-12, LP&L lost $3.2 million as a direct result of the increased cost of purchasing wholesale power from Xcel Energy. As of March 2013, the unaudited change in net assets for LP&L came to negative $8.5 million. Without the rate increase to cover the cost of wholesale power, it was estimated that LP&L would have fallen short of expenses for this fiscal year. Given this troubling economic forecast facing the utility without an appropriate adjustment of rates, the decision was made that the current trend was unsustainable and needed to be corrected. 
3. Where can I find information on LP&L electric rates for all retail rate classes?
All charges and fees for LP&L electric service can be found in the most current version of the LP&L Electric Rates tariff document. The LP&L Electric Rates tariff document can be accessed 24 hours a day on www.lpandl.com under the Rates link. 4. What does it mean when someone refers to the LP&L “tariff?”

The LP&L tariff is the guiding document for the electric utility that spells out exactly how LP&L rate structure is implemented. 
5. Who has the authority to amend the tariff and how often does this happen?
In order for the tariff to be amended, the LP&L Electric Utility Board must recommend a change to the Lubbock City Council. The recommendation must be brought by a board member, seconded by a fellow board member, and the motion must be approved by a majority vote of the Electric Utility Board. The recommendation must then be approved by a majority vote of the City Council.

The LP&L Electric Rates tariff was last amended effective June 2013; prior to that the last rate amendment was March 1, 2009. There are 3 electric companies (LP&L, South Plains Electric Cooperative and Xcel Energy) serving citizens of Lubbock. Each company's tariff can be accessed on their website. South Plains Electric Cooperative's tariff is approved by their Board of Directors. Xcel Energy's tariff is approved by the Public Utility Commission of Texas.
6. Is LP&L the only electric provider with a winter and summer rate?
No. Other providers also operate with season rates although some choose not to. Xcel Energy is one that operates with residential seasonal rates. Prices are higher in the Summer Months (June-Sept) and lower in the non-summer months (Oct-May).
7. How much did the bond rating of LP&L play into the Electric Utility Board’s decision to recommend a rate increase effective June 1, 2013?
The indications from the major ratings agencies of a potential downgrade in LP&L’s bond rating played a large role in the decision making process of the Electric Utility Board. The official comments by the three major rating agencies were as follows: April 16, 2013 Fitch Ratings A+ Stable - "FURTHER DECLINE IN FINANCIAL METRICS: Financial metrics remain adequate for the rating level at the end of fiscal 2012 but will decline in fiscal 2013 given the delay in implementing rate increases and a planned reduction in cash. Further deterioration in financial metrics beyond fiscal 2013 would likely lead to a downgrade."

April 30, 2013 Moody's Investors Service A1 NEG - "OUTLOOK The change of the rating outlook to negative from stable reflects the system's trend of weakened financial performance as reflected in declining debt service coverage and unrestricted reserve levels over the past two fiscal years. The negative outlook incorporates the expectation that unrestricted reserves will decline further in fiscal 2013 and also reflects the system's increasing total debt service costs. Future reviews will focus on the system's ability to adjust rates to ensure financial metrics are maintained at adequate levels commensurate with the current rating category."

April 17, 2013 Standard and Poor's Rating Service AA- Stable - "Rationale The rating is constrained by the city's recent hesitation to approve rate increases recommended by LP&L's semi-autonomous governing board. LP&L's electric utility board recommended a 7% rate increase in 2012 (twice) and in 2011, and each time, the city council rejected the rate increase, mainly deferring to the completion of an integrated resources plan and subsequent rate study."
8. What was the benefit of implementing the rate increase sooner rather than later?
LP&L hired J Stowe & Co. in November 2012 to conduct a comprehensive cost of service and rate design study. For several months we worked with our consultants, with welcomed input and participation from city leaders, to come up with the rate adjustment that was adopted by the City Council in May. According to J Stowe & Co., implementing the rate increase June 1 instead of October 1 will effectively address three major issues:

  • Improve LP&L’s cash position by an estimated $6.5 million in FY 2012-13 which reduces any estimated future rate increases.
  • Lower the percentage of increase on any proposed multi-year staged-in rate adjustments.
  • Greatly improve LP&L’s standing with our credit rating agencies who recently issued warnings of a potential downgrade based on the previous rate structure.
It is necessary to highlight the status of LP&L’s bond rating and its effect on our future generation needs. Our bond rating is very important and played heavily in the decision to recommend a June 1 implementation date. Future self-sustained energy projects for the City of Lubbock will demand a strong bond rating. Looking to vital projects going forward, even the slightest of increases in interest rates could cost the taxpayers a great deal in the way of higher rates for money borrowed by the city to improve our infrastructure.

Finances

1. How often does LP&L participate in an audit process?
LP&L has an annual audit and LP&L issues stand alone annual audited financial reports. The reports can be found on LP&L's website under Financial Reports and LP&L's financial information can be found in the City's CAFR.
2. Why does LP&L have a reserve budget?
LP&L is mandated to keep a reserve equal to three months operating capital based on the annual budget. As of Sept. 30, 2010: LP&L's reserves were at $87.4 million dollars; Sept. 30, 2011: LP&L's reserves were at $70.4 million dollars; Sept. 30, 2012: LP&L's reserves were at $50.6 million dollars.

3. How much has LP&L paid to the City of Lubbock in franchise fees and PILOT in recent years?
LP&L paid the City of Lubbock $7.1 million dollars in 2010 for FFE/PILOT.
LP&L paid the City of Lubbock $12.5 million dollars in 2011 for FFE/PILOT.
LP&L paid the City of Lubbock $12.2 million dollars in 2012 for FFE/PILOT.
4. What has the expense been for LP&L to cover street lights in recent years?
In FY 2010-11, electricity costs incurred by LP&L equaled $1,781,374 while operations and maintenance equaled $1,074,713 for a total of $2,856,087.
In FY 2011-12, electricity costs incurred by LP&L equaled $1,674,158 while operations and maintenance equaled $1,105,244 for a total of $2,779,402.
In the amended FY 2012-13 budget, electric costs incurred by LP&L equaled $1,264,661 while operations and maintenance equaled $1,119,492 for a total of $2,384,153. I
n the proposed FY 2013-14 budget, LP&L is projected to spend $1,289,394 in electric cost while spending $1,713,408 on operations and maintenance for a total of $3,002,802.

5. Did LP&L recently give $3.1 million in raises while only adding one new employee?
No. The figure in question is the comparison between FY 2011-12 and FY 2012-13. If one looks at the actual compensation and benefits for FY 2011-12 and the budgeted compensation and benefits for FY 2012-13 you will come out with a difference of $3,157,646. This is not a fair comparison because you are not comparing two like items.

n order to get an accurate apples-to-apples comparison of financial data, one must compare actual compensation and benefits from FY 2011-12 to budgeted compensation and benefits in the same year of FY 2011-12 or compare the budgeted compensation and benefits from FY 2011-12 to the budgeted compensation and benefits from the next year of FY 2012-13. For the budget to budget comparison from FY 2011-12 to FY 2012-13, the compensation increased $271,645 or 1.8% while the benefits increased $806,337 or 13.4%. Taken together it comes out to a total increase of $1,077,982 or 5.1%. (It should be noted that compensation is under the control of LP&L, while benefits are not. Compensation is the salary a worker receives while a benefit refers to the amount required to be paid by LP&L for social security, TMRS retirement, medical insurance, dental insurance, life insurance, workers’ comp insurance, and unemployment insurance.)

There is a second part to this equation. In FY 2011-12, the actual compensation and benefits came under budget by $2,079,664 due to vacancies not filled, retirements and employees leaving LP&L for other opportunities. Just because a position is budgeted for does not mean that it must be filled and in this year LP&L lost employees in positions that were not dispensable. One “new” position being created in FY 2012-13, does not mean that only one new person was brought on board at LP&L. It simply means that a new position was created. The vacant positions that existed at the end of FY 2011-12 were still there and needed to be filled since they had fallen vacant in the previous year. So, in truth employees were hired in FY 2012-13 and all but one were filling vacant existing slots.

Additional Questions

1. How can we help our low income neighbors in need?
With the new rate plan set to take effect on June 1, a renewed focus has been put on the important question of how we as a community can best help our low income citizens manage their summer billing cycle. If you would like to help your neighbor in need, LP&L encourages you to join in the Project Helping Hand program. Project Helping Hand is a fund currently administered by Catholic Family Services.

There are two ways you can support this program:

  • Round Up: You may elect to Round Up your total LP&L bill. Round Up simply rounds up your total LP&L bill to the nearest dollar. It is easy to sign up for this automated service. The program is designed so that if your total LP&L bill is $80.80, the bill you receive would be rounded up to an even $81.00 and the additional .20 cents you pay is transferred into the Project Helping Hand fund for distribution to qualified applicants.
  • Pledge: You may prefer to Pledge a set amount each month. The Pledge allows you to elect a specified amount to be added to your bill each month. It is easy to sign up for this automated service. The program is designed so that if your total LP&L bill is $80.00 and you elect to pledge $1 a month, the bill you would receive would be for $81.00. The additional $1 would be transferred to the Project Helping Hand fund for distribution to qualified applicants.
 You can sign up for either of these two programs by visiting our website at www.lpandl.com or by calling (806) 775-2509. Customers needing help paying their utility bill can contact Catholic Family Services at (806) 765-8475.
You can find much more information on Lubbock Power and Light by visiting http://www.lpandl.com/Rates.htm.