For the first time in its 95-year history, Lubbock Power & Light will have the freedom to operate and build reserves without the burden of subsidizing unrelated city costs.

"LP&L has been used as, for lack of a better word, a cash cow for the city," said John Zwia cher, who served on a City Council committee that studied LP&L's finances and organization.

"The city has taken out more than LP&L made," he said.

Since 1978, LP&L has transferred $122 million to the general fund to pay for non-utility salaries, vehicles and street and park maintenance. Even when LP&L showed an annual net loss, substantial transfers continued.

City Council members unanimously approved the committee's recommendation Thursday to adopt an ordinance that stops the money transfers until the city-owned utility, founded in 1909, has amassed $42 million in reserves.

Retired federal magistrate J.Q. Warnick, who has served on several committees related to LP&L, recounted a 32-year history of committees that have studied the utility.

"Every time that a City Council in this city has asked citizens to get together and study LP&L," he said, adding that those citizens have included experienced business leaders, "every time, they have come back to council and said create a board.

"... There's no reason to wait another 32 years. Get it done today," he said.

Councilmen agreed to create a five-member board, ap pointed by the City Council, that will govern and manage LP&L, prepare an annual budget and authorize annual audits.

The board will report to the City Council, which retains authority to set electric rates, approve the budget and issue debt.

W.R. Collier, who served as the committee chairman, explained the ordinance's re serve requirements.

When natural gas prices rose in 2002 and continued to climb last year, LP&L was unable to absorb the cost increase. Combined with the transfers to the general fund, LP&L incurred a $12 million deficit.

The crunch forced council members to raise electric rates and prompted more than 70 layoffs citywide, including more than 40 at LP&L.

To minimize the chance for a recurrence, Collier said, LP&L must reserve three months of operating expenses, two months for rate stabilization and one month capital for development costs.

At $7 million in current monthly operating costs, the total reserve requirement equals $42 million.

LP&L chief operating officer Carroll McDonald said it would take three to five years to accumulate such reserves.

Once bond requirements are paid and the reserves are in place, LP&L would pay the city the same franchise fee as any competitor or up to 5 percent of gross revenue, whichever is less.

If any money remained, the balance would be refunded to ratepayers.

The council's vote also wiped clean a $6 million debt that was charged to LP&L because the utility could not afford general fund transfers in recent years.

"It's funny money," Councilman Jim Gilbreath said. "It's money we owe ourselves, and it will go away on consolidation," of all funds.

The $6 million has been reflected as a receivable on the general fund balance sheet. Forgiving the charge will allow LP&L to begin accumulating reserves sooner.

City Council and committee members had hoped to call an election in May to amend the city charter and make city-owned LP&L a stand-alone public corporation.

Collier said the advantage of the ordinance would be an even stronger safeguard of LP&L funds because of the greater difficulty in amending the charter through public referendum. The ordinance may be amended anytime by the City Council.

The council also discussed the cost to reissue LP&L's outstanding debt, which is $53 million. That cost is estimated at up to $750,000, making such a move unattractive.

Council members will consider asking LP&L bondholders to approve a transfer of the bond issuance to a separate LP&L corporation from the city. Such a transfer would cost about $70,000.

If a majority of bondholders consent, the council could then call a charter referendum.

john.fuquay@lubbockonline.com 766-8722

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Lubbock Power & Light, a municipally owned entity of the City of Lubbock is separately governed by an Electric Utility Board appointed by the Lubbock City Council. LP&L has approximately two hundred employees working toward generating and distributing electrical service for the citizens of Lubbock, Texas. LP&L distributes over 85,000 monthly utility statements for electric, water, sewer, solid waste and storm water services. LP&L serves over 70% of the electric market in Lubbock, Texas.

Media: Chris Sims (806) 775-2502