BY RANDALL RYTI
Chair
Los Alamos County Council

Question #3 on the November ballot would remove a County Charter provision requiring remaining utility operating profits to be transferred to the County General Fund. As the dollar amounts involved demonstrate, this is an important policy question, not simply a bookkeeping exercise.

The underlying question is whether Los Alamos County utilities should be expected to generate revenues beyond their operating and infrastructure needs to support the County General Fund, or whether utility revenues should be retained for utility purposes.

From 1994 through 2019, approximately $18 million was transferred from the electric and natural gas utilities to the County General Fund. Since 2020, approximately $6.4 million in calculated transfers has instead been returned to the utilities for capital improvement projects.

The term “profit transfer” is somewhat misleading. For nearly 30 years, the County has used a predetermined formula rather than calculating the actual operating profits remaining after meeting utility expenses. Since 1997, that formula has been 5% of eligible electric and natural gas revenues from residential and commercial customers. Water and sewer revenues, along with electric and gas sales to the County and public schools, are excluded.

This distinction matters because the Charter requires the Department of Public Utilities (DPU) to operate on a compensatory basis. The Charter also establishes priorities for utility expenditures, including operations, capital improvements, debt obligations, and reserves, before remaining operating profits are transferred to the General Fund. A calculation based on 5% of revenues does not necessarily establish that actual profits remain after those needs have been met.

I was serving on the County Council in 2019 when I questioned the need for the General Fund to receive these calculated profit transfers. What was clear then, and has remained clear in the years since, is that our utility systems have substantial infrastructure replacement needs. In 2020, Council adopted Ordinance 02-302, allowing the calculated transfers to be redirected to utility projects. Ordinance 02-324, adopted in 2022, continued that authority and provided for annual extensions. Council has subsequently authorized the return of these funds for needed infrastructure and other designated projects. The transfers have recently totaled approximately $1 million annually.

The existing arrangement requires Council to make decisions about transferring revenues to the General Fund and then redirecting equivalent amounts back to the utilities. While this may have little net financial effect under current practices, the decision to return the funds remains discretionary. A future Council could decide to retain them in the General Fund instead.

Another consideration is how the transfer affects different utility customers. The County Code excludes electric and gas sales to the County government and public schools from the 5% calculation. DPU also maintains separate governmental rate schedules.

However, the differences between governmental and commercial rates are not uniformly 5%. Under the current electric rate schedules, some County rates are higher than comparable commercial rates, while school rates are generally lower. The current natural gas schedules provide a lower fixed consumption charge for County and school customers. Determining how much of these differences results from the profit-transfer exclusion would require examining the underlying rate calculations.

If the profit-transfer requirement is removed from the Charter, Council would need to
review and amend the implementing County Code provisions, including the 5%
revenue-transfer formula and the related redirection provisions. Council would also
need to determine whether any changes to governmental rate schedules are
appropriate.

If Question #3 passes, the Charter requirement to transfer remaining operating profits to the General Fund would be removed. Under the anticipated implementation process, Council would then need to amend the County Code to address the existing 5% revenue-transfer requirement.

If Question #3 fails, the Charter requirement would remain, along with the existing County Code provisions that allow Council to return the calculated transfers to the utilities.

Under current budgeting practices, the amendment is expected to have little or no immediate effect on utility rates. Its longer-term financial effects would depend on subsequent Council decisions.

It is also important to distinguish the profit transfer from other payments the utilities make to the County. Franchise fees and payments in lieu of property taxes are separate obligations. These payments would not be eliminated by Question #3 and would continue providing revenue to the County General Fund.

Finally, passage of Question #3 would not remove Council’s oversight of DPU. Council would continue to approve utility budgets, rates, and contracts and expenditures requiring our authorization. The Board of Public Utilities would continue its role in utility governance and financial planning.

The issue presented by Question #3 is therefore broader than eliminating transfers between County accounts. It concerns the relationship between utility rates, infrastructure investment, and the financing of general County services. The existing Charter provision and the implementing revenue-based formula have served as a means of providing revenue to the General Fund. The proposed amendment would change that longstanding arrangement.

Note: This article represents the individual views of its author, not those of the Incorporated County of Los Alamos or the County Council.