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Instead of faraway investors, El Paso taxpayers could become the next owners of El Paso Electric.
That’s if city voters in the May 6 election approve a ballot measure that would introduce a number of climate-related policies into the El Paso City Charter. One of those policies would have the city of El Paso “employ all available efforts to convert El Paso Electric to municipal ownership.”
The soft legalese wording of that provision masks the potentially massive impact of such a move. While the city would probably have to pay billions of dollars to acquire El Paso Electric’s assets – likely through voter-approved debt financing – doing so could create a new revenue source for the city and give residents tighter control of the utility.
El Paso Electric is owned by the Infrastructure Investments Fund, a multi-billion dollar fund headquartered in New York and managed by J.P. Morgan Chase. Its investors include entities such as the Chicago Teachers’ Pension Fund and the United Kingdom-based Strathclyde Pension Fund.
The utility said it is opposed to any efforts to bring it under the city’s control.
In a statement, El Paso Electric said converting the utility to a city-owned entity would raise complex legal and regulatory questions over how to divide its assets and what investments the city of El Paso would have to make. Turning EPE into a municipal utility would produce two utilities: One to serve residents within El Paso city limits, and another to serve customers in New Mexico and in its Texas service area east of El Paso, the utility said.
“It is not clear how either set of customers could effectively be served since the majority of our power generation resides outside of the city and EPE has committed generation and transmission resources to serve our New Mexico customers,” El Paso Electric said.
“Currently, EPE is highly regulated by local, state, and federal entities to ensure the affordability and reliability of our power,” the statement continues. “These experienced regulatory bodies determine what investments are prudent and how much the utility can earn.”
A lengthy process
But even if voters adopt the climate charter policies, the future that environmental organizers envision – in which El Paso voters could push the utility to do things like adopt more renewable power generation, change how it bills customers or enhance energy efficiency programs – would probably still be years away.
“Right now, a lot of interest (in municipal utilities) is because of environmental reasons: People want more access to renewables, and the incumbent utility isn’t providing the service that they want,” said Ursula Schryver, a vice president at the American Public Power Association, which advocates for city-owned utilities.
She said creating a municipal utility “is often a lengthy process” that can take up to a decade. Even so, the United States has seen 18 municipal utilities formed in the last 20 years.
“If you have a public power utility, and the community wants more renewable energy, then that’s what the public power utility will focus on. If there is a concern with rates, then that’s what they’ll focus on,” Schryver said. “The customers are the owners. You don’t have stockholders that you’d have to satisfy.”
El Paso is so far following the path that Schryver said most cities interested in publicly owned electricity take: Community organizers raise the issue and generate voter interest to spur a so-called feasibility study.
If the climate charter passes in May, the city would likely hire an outside consultant to examine things such as how much the city would have to pay upfront for the utility’s system and what legal barriers might exist.
The city has not previously done a formal study on what it would take to make El Paso Electric a municipally owned utility, city spokeswoman Laura Cruz-Acosta said.
But the city has “engaged” with Austin-based consultant Heather Bailey since January to “assist with what the potential scope would be for a potential feasibility study,” Cruz-Acosta said in an email. “And the outside consultant would also provide the estimated cost of the feasibility study.”
Bailey, who could not be reached for comment, worked for the city of Boulder, Colorado, a decade ago, when that city went through its own process to purchase the local electric power system from investor-owned Xcel Energy and form a municipal utility. Boulder ultimately re-signed its franchise agreement with Xcel, but only after the utility “offered a lot of concessions,” said Schryver with APPA.
Xcel Energy “agreed to a lot more renewable energy and environmentally-friendly options. And so that’s why voters decided to pause the effort” in Boulder, Schryver said. “So I think that’s another benefit of going through this process.”
El Paso Electric has previously denounced the climate charter as a whole, saying it is already on a path to generate carbon-free power by 2045 and that the climate charter’s policies are redundant. The utility has announced plans to add 700 megawatts of solar capacity by 2025, which would triple its current solar generation. One megawatt is roughly enough to power 200 homes on a summer day.
“While we share the same goals of an environmentally sustainable future for our region, we are embedding and evaluating all possible technology and generation to achieve these goals,” El Paso Electric said. “We believe the (climate charter) proposition is too limited and does not include the wide array of customer solutions and technology to affordably achieve the agreed upon goals.”
Business groups such as the El Paso Chamber and the Borderplex Alliance have voiced strong opposition against the climate charter. Kelly Tomblin, El Paso Electric’s CEO, is one of 23 members on the chamber’s board.
Past acquisition attempt failed
This isn’t the first time that El Paso Electric has fought attempts to form a municipal utility in its service area.
In the 1990s, Las Cruces residents voted to form their own city utility and purchase El Paso Electric’s assets within the city limits. When El Paso Electric refused to sell, voters in a referendum chose to condemn the utility’s property to municipalize. But after a decade of costly legal wrangling between Las Cruces and EPE, Las Cruces dropped the effort and re-signed its franchise agreement with El Paso Electric.
“Purchasing or municipalizing a utility is an extremely complicated process,” said Mike Siegel, political director for the advocacy group Ground Game Texas in Austin. Siegel, a former civil rights lawyer and Austin city attorney who twice ran for Congress, said he helped write the climate charter alongside the Sunrise El Paso group.
“But the idea was to start the conversation, and to create this requirement for an annual feasibility study where you would at least start to imagine ‘OK, well, (EPE) has got this valuation. If you tried to purchase it or if you used eminent domain or some other process, this is roughly the amount of capital you’ve got to generate,” he said. “And then to have the conversation go from there.”
How much would it cost?
El Paso Electric has said its system today is worth somewhere around $8 billion, and an El Paso Chamber-commissioned study on the potential impacts of the climate charter policies said the city would have to pay $9 billion to acquire the utility.
But it’s common for utility companies to overestimate the value of their assets when negotiating with cities in similar situations, Schryver said. Infrastructure Investments Fund bought EPE for $4.3 billion in 2020.
“Since EPE’s private owner is not voluntarily selling EPE, the (city of El Paso) would be forced to condemn the utility assets through a lengthy and complex process that would incur significant costs for both EPE and the city which would be paid by the taxpayers,” El Paso Electric said.
“The proposition never clearly estimated any of these costs. … Cooperation between EPE and the city is the most efficient and productive path to accomplish goals of an environmentally sustainable future.”
The 19 municipal utilities that operate in Texas and New Mexico are mostly in rural towns, but San Antonio and Austin each have city-owned electric utilities.
The city of San Antonio purchased CPS Energy – then called San Antonio Public Service Company – in 1942 for $34 million (equivalent to about $770 million today). And back in the 1890s, Austin’s nearly-15,000 residents voted to develop the city’s own water and electric distribution system financed with bonds, which became Austin Energy.
Owning their own utilities provides a kind of dividend for both San Antonio and Austin.
Rather than distributing profits among shareholders, Austin Energy transfers between $105 million and $114 million each year into the city of Austin’s general fund, which totaled $1.3 billion this fiscal year.
Meanwhile, in San Antonio, city-owned CPS Energy transfers roughly 13% of its top-line revenue into the city’s general fund every year. In its most recent fiscal year, San Antonio saw CPS Energy contribute $392 million into the city’s $1.5 billion general fund.
“It’s kind of like buying a house versus renting,” Schryver said. “You invest in it and you have it forever.”
Customer kilowatt costs
In terms of costs to customers, municipal power utilities in Texas and New Mexico charged household customers on average 10.8 cents per kilowatt hour of electricity they used in 2021, according to an El Paso Matters analysis of data from the Energy Information Administration. Data from 2021 is the most recent year available.
That price was about 16% cheaper than the average price per kilowatt hour – 12.7 cents – that investor-owned utilities and power retailers charged to households in Texas and New Mexico.
On the flip side, privately owned utilities generally charged lower rates to businesses and industrial customers, like factories, than municipal utilities did in 2021.
El Paso Electric charged 5.4 cents per unit of power to industrial customers, nearly 17% cheaper than the average price that city-owned utilities across Texas and New Mexico charged to big industrial users, according to the EIA.
Siegel acknowledged that the climate charter is aiming to set “aspirational goals” and that forming a city-owned utility is a monumental lift. But he said having greater control over local utilities is “essential” to address air emissions and climate change.
“Utilities have a tremendous ability to impact energy generation and transmission, and to advance this process of moving us to renewable energy,” he said. “And so, when you try to imagine ‘What’s the most El Paso could do?’ Well, community control of utilities is essential.”