Shocking News from Las Cruces, New Mexico: Showing the Way for Munies in a Deregulated Environment
Good, Christopher, Nation's Cities Weekly
As part of its ongoing efforts to provide city leaders with different perspectives about strategic opportunities as the federal and state governments move on impending deregulation in the electric utility industry, this article provides an insight on the historic struggle of Las Cruces, New Mexico, a city of about 62,000. With many local government leaders wondering what will become of the "munies", municipally owned electric utilities, the 2,000 citizen-owned electric utilities in the United States, the City of Las Cruces, New Mexico, has recently made great strides toward local control of its electric utility, which could serve as a model for municipal power in the new, deregulated environment. Las Cruces got to this point after a ten year struggle for independence from the El Paso Electric Company, based 45 miles away in the Texas border city. This article was put together by Christopher Good, Public Information Officer for Las Cruces.
In 1987 city leaders began investigating their options regarding electric energy. The investor-owned El Paso Electric Company (EPEC) was caught in a death spiral, with rates going through the roof and consumer demand failing to meet their expectations. Poor investments, like those made in Palo Verde nuclear plant, clearly spelled doom for EPEC and its customers, and the City Council knew it. By 1991 the city's consulting firm, R.W. Beck, had determined that high electric rates could be reduced by finding an alternative source of electric energy. The city could build a duplicate electric distribution system throughout the community, or acquire the system that EPEC had built with ratepayers' money. This separation plan would mean that EPEC would lose 32,100 customers, resulting in a loss of approximately seven percent of its annual revenue. Desperate for the income, EPEC opposed the city's efforts. However, the company's franchise agreement with Las Cruces was set to expire in March, 1993, and the city saw this event as the opening it needed to set itself free.
Before, this opening arrived, EPEC did something only one other investor owned utility had done since the great depression; it filed for bankruptcy relief. This event had vast economic and political ramifications for their entire service area, and served to push the people of Las Cruces further toward the goal of local control and lower rates. A Dallas-based company, Central and South West (CSW), proposed to merge with EPEC to bring it out of bankruptcy. CSW showed little interest in either setting Las Cruces free to pursue lower rates, or in reducing the record-breaking rates paid by EPEC customers. The city asked for and received state authorization to sell up to $90 million in municipal bonds to purchase the local distribution system from the failed utility and to set up a citizen-owned system with reduced rates.
The city then sent out a request for proposals for power supply, and for operations and maintenance of the new municipal utility. The low bid for both was submitted by Southwestern Public Service (SPS), a company that had been founded in New Mexico, and is presently head-quartered in Amarillo, Texas. SPS cut a figure radically different from the electric company Las Cruces had known. Their rates were the lowest in the state, they were well managed, with a far reaching plan for competition in the deregulated market. They wanted to be a part of the Las Cruces model, and they won a role to play through competing and providing the best bid to participate.
The state was now set. On one side were the residents of Las Cruces, their city council, and SPS, with an offer of citizen-ownership, local control and lower rates. On the other side was the bankrupt El Paso Electric Company and its suitor from Dallas, CSW. The city council set August 30, 1994, as the date for a referendum regarding the electric utility. The question on the ballot was: "Shall the City of Las Cruces acquire, through negotiated purchase or eminent domain, an electric utility system serving Las Cruces, including distribution, subtransmission and transmission facilities for the purpose of providing electricity to the citizens of Las Cruces? …