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The scorching heat in El Paso is both good news and not so good news for El Paso Electric’s finances.

While that means customers use more electricity, which leads to higher revenues, the company also has to spend more money on providing more power and making other improvements to maintain grid reliability, which in turn leads to loss of profits, says Lisa Budtke, the company’s chief financial officer.

In 2023, the company’s revenue rose 4.5% to just over $1 billion, excluding fuel costs for power plants, according to the company’s 2023 financial report filed with the Federal Energy Regulatory Commission (FERC). That’s better than an average year, Budtke said.

El Paso Electric officials no longer issue press releases about the company’s financial reports after the company was acquired by JP Morgan Chase-tied Infrastructure Investments Fund (IIF) in July 2020. The financial reports filed with FERC are more difficult to read than the quarterly and annual reports filed with the U.S. Securities and Exchange Commission when EPE was still a publicly traded company.

In the summer of 2023, a long series of over 100 hot days drove the energy supplier’s electricity consumption to a peak that meteorologists had not expected until 2029. The heat wave started again in early summer.

The gradual transition of households to chilled air conditioning from water-based evaporative coolers, which use less electricity, has contributed to the increase in electricity use, Budtke said. About 60% of households in the EPE system use chilled air, she said.

EPE has approximately 460,000 customers in West Texas and Southern New Mexico.

Official report: Palo Verde fund distorts profits

Increased sales and other factors helped the company’s profits remain high.

Profit rose 84% to $208.6 million in 2023. But that figure is misleading, said Budtke and Cynthia Prieto, EPE controller.

A large portion of that gain, $45.5 million, was a gain only on paper, based on the change in value of the utility’s investments in its Palo Verde Decommissioning Trust Fund, Prieto said.

That means the company’s actual profit was $163.1 million, she said, up 44% from the $113.3 million profit in 2022.

However, the company’s 2022 earnings were reduced by a $70.8 million accounting loss in the Palo Verde fund, Prieto said. That accounting loss also distorts the company’s 2022 earnings, making them smaller than they actually are, she said.

The investment fund, which has a $398.3 million endowment at the end of 2023, is designed to help the company pay its share of decommissioning costs, or the costs of a possible closure of the Arizona nuclear plant in the distant future. EPE owns nearly 16 percent of the plant, which supplies about half of the company’s electricity.

IIF shareholders help finance projects

IIF received just over $180 million in cash dividends or profits from EPE last year. However, IIF’s shareholders, large pension funds, returned $167 million of those profits to the company to finance construction projects.

This means that the IIF’s profit in 2023 was just over $13 million, well below the $92.7 million it retained in 2022.

One reason IIF returns profits to the company is that Texas regulators only allow EPE to offer a certain rate of return to investors, Budtke noted. So to achieve the required rate of return, some profits must be returned to the company.

While the sale of the 122-year-old El Paso-based EPE was opposed by some, Budtke welcomed it because EPE can now more easily draw on shareholders’ equity to finance construction projects than when the company’s shares were still publicly traded on the New York Stock Exchange, she said.

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EPE spends $1.7 billion on projects in 5 years

“Over the last five years, we have invested $1.7 billion in our (construction) projects. And the reason for this is that we want to offer our customers a reliable system,” said Budtke.

“And over the next five years, we will spend even more, not only to improve the reliability of our system for customers, but also to grow.”

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IIF shareholders have contributed part of this sum to the financing by paying millions of dollars in shareholder profits to EPE since IIF took over the company, Budtke said.

EPE also receives money to finance projects through bond sales. This year, for example, the company sold $180 million in bonds and received nearly $179 million after deducting bond sales commissions, legal fees and other expenses, according to a FERC filing.

CEO salary increases by $54,772

About 700 of El Paso Electric’s 1,100 employees, including management, received salary increases averaging 4.4% in 2023 and 3.9% in 2024. About 400 employees covered by a collective bargaining agreement received salary increases of 8% in 2023 and 5% in 2024 under a five-year collective bargaining agreement.

EPE CEO Kelly Tomblin is the company’s highest-paid executive. Her base salary in 2023 was $824,675, excluding bonuses that are not reported in the company’s financial report. That’s an increase of 7.1%, or an additional $54,772, compared to 2022.

The Company’s Board of Directors, which consisted of ten members in 2023 and now includes nine members, received $1.4 million in fees and expenses in 2023. The Company does not disclose the individual amounts paid to each Board member.

Vic Kolenc can be reached at 915-546-6421; [email protected]; @vickolenc on twitternow known as X.

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El Paso Electric 2023 Financial Highlights

Electrical sales: 1 billion US dollars, an increase of 4.5%✱

Fuel costs for power plants: 137 million US dollars, a decrease of 52%

Benefit: 208.6 million US dollars, an increase of 84.1%✱✱

Remarks:Electricity sales minus the fuel costs of the power plant.

✱✱ Profit falls to $163.1 million in 2023, up 44% from 2022, when excluding the value of investments or the $45.5 million book loss in El Paso Electric’s Palo Verde Nuclear Decommissioning Trust Fund.

Source: El Paso Electric’s 2023 Annual Financial Report Filed with the Federal Energy Regulatory Commission

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