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Power plan passes
Council approves measure to halt wholesale rates

Wednesday, October 10, 2012

By MICKEY POWELL - Bulletin Staff Writer

An initiative approved by Martinsville City Council on Tuesday is intended to let the city pay its share of development costs for an abandoned power plant project but keep its wholesale power costs steady for nearly three years.

Councilman Danny Turner was the dissenter in the 4-1 vote. He indicated he does not trust American Municipal Power (AMP).

The initiative will not raise or lower electric rates for Martinsville residents and businesses.

Instead, it lets the city set aside funds in the current and next two fiscal years to keep its wholesale power costs level and pay “stranded costs” for the AMP Generating Station over a 42-month period ending Dec. 31, 2015, according to a report.

Through AMP, which is owned by its member cities, Martinsville buys power which it then distributes to homes and businesses.

The coal-fired generating station project in Ohio was discontinued in 2009 after contractors’ cost estimates suddenly rose sharply. Martinsville was to buy power produced at the station via its involvement in AMP, which spent about $200 million toward developing the facility.

Martinsville’s share of costs to develop the plant project before it was halted — called stranded costs — has risen to $858,950, according to city Utilities Director Dennis Bowles.

That is up from $826,104 as of two weeks ago. Bowles said the increase reflects AMP’s ongoing costs of litigation against a contractor.

He said the figure could increase further but if the litigation is successful, the stranded costs could drop significantly.

A report shows the initiative will keep the city’s wholesale power costs at an average of $69.97 per megawatt hour through fiscal 2015 — two fiscal years from now — although power market costs are projected to be lower overall in the current and next fiscal years.

The city paid an average of $69.97 per megawatt hour for wholesale power in the past fiscal year. A megawatt equals one million watts.

The difference between the city’s wholesale power payment and what the power actually costs will go into a trust fund. The money is to pay off the city’s share of the ceased plant’s stranded costs as well as keep the city’s wholesale power rate steady as actual rates fluctuate, the report states.

Bowles said that by paying more than it has to for wholesale power, the city will accumulate about $1.8 million that will let it keep its wholesale power costs level, plus pay off the power plant’s stranded costs in December 2015.

A chart in the report shows wholesale power costs are expected to increase above $69.97 in fiscal 2015, but money placed in the trust fund is to enable the city to continue paying that amount during that fiscal year.

According to Bowles, because the city’s wholesale power rates would level off, there should be no need for rates charged to city customers to go up in next several years.

He cannot guarantee that, however, because the council — not the city electric department — sets the electric rates.

Martinsville residents currently pay $105.60 per kilowatt hour for electricity. A kilowatt equals 1,000 watts. A megawatt equals 1,000 kilowatts.

Profit the city makes on electric rates is used to offset various operating costs of the city, according to officials.

Council members began discussing the initiative on Sept. 25 but postponed considering it for approval until they could receive from AMP information on administrative and management fees.

According to the report, there will be two fees. One is a yearly $500 fee for U.S. Bank to administer the trust fund. The other is a one-time fee of $2,000 that AMP will charge to recover its legal and administrative expenses.

Turner asked if the city could set up an in-house system similar to the trust fund. City Finance Director Linda Conover replied that the city does not have enough staff to administer such a fund.

The costs cited in the report are “pretty minimal,” said Councilman Gene Teague. Bowles agreed.

“It’s a good plan,” Teague said. He noted it is similar to plans that utility providers set up for their customers to pay level amounts in most months.

He also noted that GDS Associates Inc., a Georgia-based firm with which the city consults on electricity matters, recommended that the city take part in the initiative.

A list of answers to questions that council members — particularly Turner — wanted on AMP-related matters will be posted today on the city’s website, www.martinsville-va.gov.

Many of the questions are extremely technical and so are the answers, according to officials.

 

 
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