Empire to raise electric rates 15

Empire to raise electric rates 15%

Jan. 19, 2002

By Janelle Holden
Journal Staff Writer

Empire Electric Association is raising its rates by 14.88 percent in March, a move that General Manager Neal Stephens says is not directly related to its telecommunications subsidiary’s bankruptcy last year.

"We only have one source of income, and that comes from our ratepayers. And the consequence isn’t that we’re increasing rates because of REAnet; the consequence to them is that they are just not going to get capital credits back as soon as they would have if we had not done the REAnet thing," said Stephens.

But this year the electric company will raise rates and use any profits to pay off REAnet’s debt, instead of returning the money to users.

Over the last 11 years Empire has returned $7.7 million in capital credits to its members, at an average of $700,000 to $800,000 a year.

Empire and La Plata Electric Association partnered to form REAnet, a for-profit company, in 1998 to bring high-speed telecommunication services into the Four Corners and generate money to help the rural electric co-ops survive electric deregulation.

Because of REAnet’s bankruptcy, Empire had to take out a $7.5 million loan to cover half of REAnet’s $15 million credit line.

Empire pays $800,000 in principal and interest on the loan annually.

On Friday, Empire’s board of directors unanimously voted to raise rates after a consulting firm from Oklahoma City presented a cost-of-service study that recommended the increase.

Rates were expected to rise in March because Tri-State Generation and Transmission Association, which provides wholesale electricity to Empire, is also raising its rates by a little over 10 percent. Tri-State’s rates make up 65 percent of Empire’s cost of doing business, and only 5 percent of Empire’s rate increase.

Stephens said that labor and other costs caused the other 9 percent increase.

"We’ve just had increasing costs, we’ve had our labor costs go up over that time as (has) everyone else, and we’ve had material costs, insurance has gone up, and now we’re at a point to cover that," said Stephens.

Empire hasn’t raised its rates for 10 years, he said.

"We’ve stayed increasing costs over the past 10 years, and we’re at a point now where we need to have a rate increase to recover continuing increases in operating costs," said Stephens.

But the rates also had to generate enough of a profit for the association to pay down the debt left by REAnet’s bankruptcy.

In the past, Empire and LPEA said that state laws prohibit them from raising electric rates to pay for lost investments in for-profit subsidiaries.

Technically, Empire is following the letter of the law and paying for the loan out of its profit margin, officials maintained. However, without a rate increase, there would be no surplus funds.

"The electric rates really are meant to recover electric costs only and that’s why we tried to exclude (REAnet) in the rate design," said Stephens.

"We’re trying to do the same thing that La Plata Electric did, in terms of not showing the REAnet debt service in our electric rates. That was our goal," said Stephens. "If we’re taken to the PUC for any reason, ultimately these rates were designed under routine PUC guidelines and we can defend all those things."

Under the rate increase, co-op members will see an average increase of $10 per month on their electric bill. Residential user’s rates will rise by 14.5 percent with a $4 increase per month in basic service charges, and commercial and industrial rates will rise by nearly 6 percent. Basic service charges will also go up for commercial and industrial users, as well as street and security lighting costs.

REAnet’s bankruptcy is scheduled to be resolved March 1, the assets of which will be funneled into a new company called FasTrack Communications, in which Empire will own 25 percent interest and LPEA 75 percent.

FasTrack will provide wholesale broadband services in the Four Corners, beginning with Farmington, using fiber loops REAnet previously owned but had not finished.

With FasTrack’s Farmington profits, LPEA plans to connect and light fiber-optic strands from Farmington to Durango and Cortez.

If FasTrack makes a profit from selling wholesale fiber access, Empire expects to see a return from its investment in REAnet in 15 years, the board said.