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Fischmann Clarifies Reasons for EPE Franchise Concerns

Steve Fischmann  submitted the following response  to questions we sent him seeking clarification of El Paso Electric’s tratment of parties who finance alternative energy systems. We then sent Fischmann’s comments to EPE, hoping to get a response from CEO David W. Stevens. We have had not had any answer to our inquiry. Editor

1.  Since the incentives for renewable energy installations are tax credits and accelerated depreciation, institutions and individuals that have little or no taxable income (non-profits, churches, public agencies & schools) cannot typically take advantage of them.  That is typically remedied by having a third party financing company that has taxable income own the system and “rent to buy” to the party having the system installed.  The two parties then essentially share the tax incentive savings.

2.  El Paso electric is making it impossible to set up these financing arrangements by classifying third party financing companies as “utilities.”  This imposes so many regulations on the transaction that it no longer makes economic sense.  EPE’s logic is that since the financing company technically owns the system, they are selling power to the party that had it installed – thus they are technically a utility.

3.  Court interpretations in Oregon & regulatory regimes in California and many other states have basically said that these types of  financing arrangements do not create a “utility” relationship.  They are essentially financing transactions, so long as the power primarily serves the facility where the installation is located.  A “utility” can only be created if the financing company is selling power from the installation to multiple customers, or if it is selling significant net amounts of power back to the grid.

4.  Finally, a franchise agreement between the city and EPE does not in any way regulate this issue, or any financial issue between EPE and power consumers.  A franchise agreement primarily regulates rights of way for utility lines.

My argument is that the city should not be locking itself into a long term agreement that benefits EPE when EPE is adopting policies that hurt consumers and hinder economic development in our area.  That’s bad business.  We should make signing of a franchise agreement conditional on a declaratory decision by the PRC and supported by EPE that third party financing companies are not “utilities”.  That way we get value for value.

State statute requires that we continue the current franchise agreement on a month to month basis if we cannot reach agreement.  In many ways this is preferable to signing a long term franchise agreement because it gives the city maximum flexibility to adjust to a rapidly changing market.    Albuquerque has worked with PNM on this basis since 1993 without apparent harm.  In other words, if EPE chooses not to sign a deal, the city has little or nothing to lose.  If the city chooses not to sign, EPE has far more to lose.

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