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Electric rate fund may need tweaking
Friday, January 31, 2014
By MICKEY POWELL - Bulletin Staff Writer
A city official expects Martinsville will have to make changes to its electric rate stabilization program to help pay its debt toward a discontinued power plant project in Ohio.
Utilities Director Dennis Bowles told Martinsville City Council on Wednesday that he will offer suggestions when the council is deliberating the fiscal 2015 budget proposal, to be presented in April.
Bowles said Thursday it is too early to determine if city electric department customers will pay higher rates in the new fiscal year that will start July 1. He said he first has to analyze projected costs for wholesale power that the city expects to buy.
“The longer we wait” to analyze the costs before the fiscal year starts, he said, “the more accurate they (projections) will be.”
The stabilization fund is not performing as well as expected, largely due to businesses closing in the city in recent months, resulting in less demand for power and less revenue from electricity sales, Bowles said.
In 2012, the fund was set up for two reasons, according to officials.
One was to steady city customers’ rates as the city stabilized its costs for wholesale power over a 42-month period ending in December 2015.
The other reason was to repay the city’s share of “stranded costs” toward the American Municipal Power (AMP) Generating Station (AMPGS) at the end of the period.
Through AMP, an organization owned by its member cities, Martinsville buys electricity that it then distributes to electric department customers.
AMPGS was a coal-fired plant for which construction was terminated in late 2009 after contractors’ cost estimates suddenly rose sharply.
The city would have bought power produced at the plant via its involvement in AMP, which spent about $200 million on developing the facility.
Bowles has estimated the city’s share of the stranded costs at $826,104. He said Thursday that amount could change.
“We won’t know what actually is owed until after litigation is settled,” he said.
Under the rate stabilization program, the city is paying AMP $69.97 per megawatt hour for electricity.
A megawatt hour equals 1 million watts of electricity produced continuously for an hour, which is roughly the amount needed by 330 homes, according to online sources.
Excess money that the city pays to AMP through a stabilized rate goes into a trust fund. That fund is designed to pay off Martinsville’s share of the power plant’s stranded costs as well as keep the city’s wholesale power rate steady as actual rates fluctuate from month to month above and below the stabilized rate, officials have said.
In the past six months, Bowles said, market rates for electricity were above $69.97 in August, September and December and money was taken from the fund to pay what the city owed AMP for power beyond that price. Rates were lower in the other three months, he said, and the difference between $69.97 and the city’s actual costs for power went into the fund.
“The fund is working exactly the way it was intended,” Bowles said. “We’re just not accumulating as much” money as expected.
Currently, the balance for the stabilization fund is $551,832. It is less than projected due to “lower than expected load,” Bowles told the council.
Since the fund was set up, he said, the city has lost some major businesses, including the Ryan’s restaurant on Commonwealth Boulevard and the Sears store and other retailers at Liberty Fair Mall.
The business closings lessened demand for electricity and, in turn, revenue from electricity sales, Bowles said.
He said he expects the fund balance at the end of December 2015 will not be enough to fully pay the AMPGS costs.
If it is not, the city will have to find a way to pay the rest, he said.
Mayor Kim Adkins said Thursday she thinks it would be “kind of premature” to speculate on how the city would come up with the money.
She said she would rather wait until she hears Bowles’ recommendations before commenting.
“I still have confidence that it (the stabilization fund) will perform better” in the coming months, Adkins said. Due to the extremely cold weather, people recently have been using more electricity to heat their homes, she said.
A report shows that from July through December, the city bought 85,739 megawatt hours of electricity. Its hydroelectric plant along the Smith River produced 1,319 megawatt hours, and equipment at the former city landfill that generates power from gas emitted by eroding trash produced 2,859 megawatt hours. That equates to 89,917 megawatt hours of electricity needed by city electric customers.
The city had anticipated a need for 94,604 megawatt hours. The difference was 4,687 megawatt hours, the report shows.
Together, the hydroelectric plant and landfill generator produced 4,718 megawatt hours of electricity. Multiply that by $69.97, and the result is a savings of $292,334.66 that the city saw by generating some of its own power instead of buying it on the wholesale market, a report shows.
The city’s total cost to operate the dam and the generator during those six months was $184,727.25. Subtract that from the $292,334.66 savings and the city’s net savings on power costs was $107,607.41, the report reveals.
During the council meeting, Councilman Danny Turner said he would like for part of the river behind the dam to be dredged so it can hold more water, which would enable more electricity to be produced there.
Bowles said the city will examine that idea if it can find a grant to fund the project.
“We can’t afford to do it with our budget constraints” right now, he said.