Hernandez claims credit for ending mandatory LP&L rebates - KCBD NewsChannel 11 Lubbock

Hernandez claims credit for ending mandatory LP&L rebates

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LUBBOCK, TX (KCBD) -

City Councilman Victor Hernandez says it was his idea to get rid of mandatory customer rebates at LP&L.  Under a proposal approved by City Council last week on first reading, Lubbock Power and Light's excess revenue "may" be paid back to the customers instead of "shall" be paid back.

In a written statement to the media on Tuesday evening, Hernandez says in part, "I included the ‘may' change in language."

Hernandez says he had three reasons to put the change into the ordinance that he sponsored. 

He says it will provide LP&L greater flexibility to manage assets and debts.  Hernandez also says the LP&L board backed his idea, "because they have a preference to use these monies to pay off existing debt."

Hernandez says the rebates unjustly benefit commercial customers at the expense of residential customers.  He says commercial rate payers receive the biggest rebates even though they already get the lowest price.

"The average rebate for residential customers was $11.24 in 2011 as compared to the average rebate for commercial customers of $23,255.40."

And he says other members of the City Council are fiscally irresponsible.  "There are those on the current City Council who are opposing an electric rate hike before the elections but will be the first to propose one, once they get re-elected."

The municipal election is May 12. 

Hernandez accurately points out that LP&L has been selling electricity below cost ever since Xcel Energy raised wholesale power prices.  Customers have thus far escaped $16 million in higher costs.  But due to the extreme heat last summer, LP&L made a profit of nearly $15 million for 2011. 

"The way the proposed ordinance is written, a rebate could be approved," Hernandez said in his written statement.  In order to become official, the elimination of mandatory rebates must pass a second reading by the City Council.

Mandatory rebates were part of sweeping reforms of LP&L in 2004 as the city-owned utility was recovering from a financial meltdown.  There was a concerted effort by the City Council and other community leaders to never treat LP&L as a "cash cow" ever again. 

As part of those same reforms in 2004 there was a requirement that major changes to LP&L must be preceded by a public hearing.

In April of last year, Mayor Tom Martin said it was Councilman Hernandez who sponsored a failed attempt to do away with the requirement for public hearings concerning major changes to LP&L.  At that time, Councilman Beane was quoted as saying, "It appears to me that this item was spirited onto the agenda late Friday so as to not draw any attention over the weekend… "

UPDATE: LP&L Board Chairman Mike Davis says the change from "shall" to "may" did not come from Hernandez but instead came as a recommendation from an LP&L subcommittee to the City Council.   Davis says the full board also approved.

The following is the full text of Hernandez statement.

I sponsored (and drafted along with Andy Burcham, former Chief Financial Officer for the City of Lubbock) the changes to the LP&L ordinance. The proposed changes are wide-sweeping as to how LP&L conducts its' business; the issue concerning the rebates is but one area where changes are being proposed. Second reading of the proposed changes is to take place on April 10, 2012.
 
The language concerning the rebates was changed from "shall" give a rebate to "may" give a rebate. The issuing of rebates is now discretionary with the LP&l Board and the City Council. The requirement of having sufficient reserves available before being able to give a rebate is still in place. This means that a rebate may be given only if LP&L's reserve requirements have been met. Right now, the proposed change is to change to reserve requirement to three (3) months operating expenses or approximately $50 million dollars.
 
The reason I included the "may" change in language is three-fold:
 
First, to provide the LP&L Board with greater flexibility in managing their assets and debts. The average rebate issued in 2011 was $11.24 per residential customer. The input I received from my constituents was that they preferred that LP&L kept the rebate because the rebate amount received was not significant and because my constituents would rather have LP&L use the total amount to keep the electric rates low. Just as an aside, the LP&L Board voted for this change in language because they have a preference to use these monies to pay off existing debt that LP&L has, in order to save the interest they would have to pay on outstanding debt. Additionally, the LP&L Board knows that the use of this rebate money would be better used in paying off debt because the alternative that is, LP&L investing the money and not giving rebates would not generate enough income as compared to the interest they are paying on the debt they have. So, to sum up, this change provides the LP&L Board with greater flexibility, customers want low rates, using this money in lump sum to pay off existing debt generates greater benefit than saving it and investing it which in turn means lower rates for everyone.
 
Second, the rebates give unjustly benefit to commercial electric rate payers (rate 16) as opposed to residential rate payers. Commercial rate payers such as, the Company XYZ, generally speaking, pay a lower electric rate than residential electric rate payers. And yet, commercial rate payers receive the biggest rebates. Of the electric rebate checks issued on May 2, 2011, over $580,000 went to 25 commercial customers. The average rebate for residential customers was $11.24 in 2011 as compared to the average rebate for commercial customers of $23,255.40 each in 2011.
 
Finally, and as an aside, let me say that being fiscally conservative doesn't mean you should be financially irresponsible. I'm saying this because there are those on the current City Council who are opposing an electric rate hike before the elections but will be the first to propose one, once they get re-elected. Truth be told, we are buying our electricity from Excel at a higher rate than we are selling it to LP&L's customers. A company cannot do this long term because then they will either go bankrupt or have a rate hike so high, and all at one time, that everyone will suffer immensely especially those who are low income or on fixed incomes. It's better to have small incremental rate hikes over a much longer period of time and it's better to be up front with the public and not play the campaign game.
 
I appreciate the chance to further explain this language change.
 
Victor Hernandez
District 1 Representative

P.S. It has been mentioned on several occasions that rebates are no longer essential inasmuch as LP&L and Excel Energy are no longer in direct competition with each other. Although the original intent of the rebates were to create a competitive edge, the fact that LP&L is in effect a monopoly does not, by itself, require eliminating the possibility of a rebate. The way the proposed ordinance is written, a rebate could be approved.

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