Las Cruces, N.M., voters approve plan to create citizen-owned electric utility.

LOS ANGELES -- By a lopsided margin, voters in Las Cruces, N.M., last week approved a referendum designed to permanently banish an investor-owned utility from their city, replacing it with a newly created municipal utility.

With 65% of ballots cast in favor and 35% opposed, the vote set the stage for the issuance of up to $90 million of tax-exempt revenue bonds to finance the creation of a city-owned utility.

The utility would replace the city's existing electricity supplier, El Paso Electric Co., which has been operating under Chapter 11 of the federal bankruptcy code since January 1992.

Ballot results "do not mean the financing is in the very near future," said Jonathan D. Savage, vice president and director of public finance for St. Louisbased A.G. Edwards & Sons Inc., senior underwriter on the proposed negotiated issuance.

However. Savage said, the vote clears the way for the city to either negotiate with El Paso Electric over the purchase of the distribution system followed by a bond issuance whose proceeds would fund the deal or to acquire the system through eminent domain.

Last week's vote was believed to be the first time a city has separated itself from an investor-owned electric utility since passage of the National Ener.gy Policy Act of 1992, market observers said. The energy act is prompting major changes in how the nation's electric system operates, including the creation of more competition.

How the Las Cruces vote reverberates through the electric power industry remains to be seen, participants said.

"Private utilities are going to pay a lot more attention to municipalities which previously they might have taken for granted, especially in areas where franchises are expiring," said Clint Vince, a partner who heads the energy and environmental practice for the Washington law firm of Verner, Liipfert, Bernhard, McPherson & Hand. The firm provides special legal counsel to Las Cruces.

Residents of Las Cruces, a city of 61,000 located 45 miles north of El Paso, Tex., hope the proposed city-ran system will lower their electric rates, which are now 22% higher than New Mexico's average, and 69% higher than the national average, Barbara Willis, Las Cruces' finance director, said yesterday.

Voters cast 9,672 yes votes and 5, 159 no votes in the Aug. 30 single ballot-question referendum, a record turnout for a special election. A total of 46% of the city's eligible voters cast ballots.

Even before the vote was taken, city officials were prepaxing to find a new source of power for Las Cruces. El Paso Electric's franchise with Las Cruces expired in March 1993, and it was not renewed. allowing the city to seek other power suppliers.

As a result, Southwestern Public Service Co. of Amarillo, Tex., last month was awarded a $21 million annual contract to operate and supply wholesale power to Las Cruces for 25 years, beginning in 1996.

Under the city plan, decision-making authority on rates and service would be made by Las Cruces' six member city council.

But before that plan can take effect, Las Cruces must figure out how much it will need to spend to acquire El Paso Electric's distribution facilities, said John Keith, public information officer for Las Cruces. That effort has been smiled by El Paso Electric's bankruptcy proceedings, he said.

On Sept. 20, the city will go before a bankruptcy judge in Austin, Tex., and ask the judge to grant a city motion to "move forward with [Las Cruces'] efforts to determine a fair market price for El Paso Electric's distribution facilities," Keith said.

"Once the stay is lifted, the city will enter into negotiations with El Paso Electric in an effort to reach a mutual agreement," Keith said. "If an accord cannot be reached, the city will consider all its legal options, including its right to use eminent domain, to acquire the distribution assets."

Officials with El Paso Electric said in a release last week that they would challenge Las Cruces' efforts to remove them from the electric power supplier role. In the meantime, El Paso Electric will continue to provide electric service to the city, officials said.

"Regardless of the vote, serious legal questions remain regarding the ability of Las Cruces city officials to accomplish municipalization via condemnation," El Paso Electric said in the release.

Another complicating factor is an announcement made in May 1993 that E1 Paso Electric is proposing to merge with Central and South West Corp., a Dallas utility holding company, by the end of 1995.

Las Cruces is fighting the $2.2 billion merger, which the bankruptcy court approved last December. The two utilities must still win regulatory authorization from several state and federal agencies among other conditions.

The city has said the two investorowned utilities planned to incorporate an 8% utility rate increase beginning in 1995. Las Cruces accounts for about 8% of El Paso Electric's revenues.

"We are disappointed with the outcome of the election," Glen Files, chief transition executive for Central and South West Corp., said in a statement. "We will continue to work toward a solution that serves the best interests of the shareholders of Central and South West and the customers of El Paso Electric."

Files said legal proceedings surrounding the contemplated condemnation of El Paso Electric's Las Cruces facilities could take a number of years to resolve at a cost "millions of dollars."

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