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City electric rates may rise
Wednesday, March 12, 2014
By MICKEY POWELL - Bulletin Staff Writer
Martinsville Electric Department customers could see a rate increase soon.
The bill for wholesale electricity that the city purchased in January — power that ultimately was distributed to city electric department customers — was $2,248,197. That was about $1 million more than city officials anticipated, City Manager Leon Towarnicki told Martinsville City Council on Tuesday.
Due to unusually cold weather in January, and many people heating their homes with electricity, officials expected the city’s wholesale power bill to increase, but not that much, Towarnicki said.
The city budgeted about $13.6 million this fiscal year for wholesale power purchases. Towarnicki said enough money is budgeted to cover the January bill if future monthly bills are not higher than expected.
Indications are, though, that “over the long haul, (wholesale) power rates are expected to go up,” he said.
Towarnicki said that during the March 25 council meeting, he plans to present options for handling the city’s wholesale power situation. He is communicating with electricity consultants to devise those options.
But “I don’t think” there ultimately is any other option, he said, but to raise electric department customers’ rates to compensate for the combined effect of future wholesale power cost hikes and the city’s inflated January bill.
In the long run, the city cannot pay more for wholesale electricity than it collects in revenue from its customers, he said.
It will be up to the council to impose any rate increase on city customers, Towarnicki said. The council could enact an increase right away or wait until the new fiscal year starts July 1, he said.
Yet “waiting longer reduces the amount of revenue” that the city can collect, Towarnicki said.
Other Virginia localities that found themselves in the same predicament, including Danville and Bedford, already raised customers’ rates, he noted.
However, he promised that any rate hike would be structured to keep city customers’ rates lower than those charged by Appalachian Power to homes and businesses in Henry County.
Speaking from the floor, city resident Ural Harris told the council he thinks Martinsville electric customers will not support a rate hike.
The city buys most of its wholesale electricity through American Municipal Power. Under a rate stabilization program, it pays that organization $69.97 per megawatt hour of power purchased. A megawatt hour equals 1 million watts of electricity produced continuously for an hour.
Towarnicki said the city projected buying 16,900 megawatt hours of power in January but actually bought 19,859 due to customers’ increased demand. It had to buy the extra 2,959 hours on the wholesale electricity market at a cost of about $151 per megawatt hour, he said.
Also, Martinsville had to pay higher costs to get wholesale power sent to it over the region’s electric grid, Towarnicki said.
That was because as the city and other localities and utility companies had to acquire more electricity to meet their customers’ demands, the grid “got clogged and it took more effort to get power to us,” he said.
The Federal Energy Regulatory Commission (FERC) is investigating January’s high demand for electricity virtually nationwide to make sure no price gouging or other improprieties occurred, Towarnicki said.
But the probe will take months to complete and in the meantime, the city still must pay its January wholesale power bill, he said.
Mayor Kim Adkins asked whether the council should wait and see if the probe uncovers any wrongdoing before considering raising electric rates.
PJM Interconnection, which oversees the region’s electric transmission grid, is “a very reputable company” so it is unlikely any wrongdoing will be found, Towarnicki said.
Even if some type of settlement has to be reached, he said, “it could be months and months in the making.”
Martinsville has no option but to rely on PJM, he added.
“It’s pretty much a monopoly?” asked Councilwoman Sharon Brooks Hodge. Towarnicki concurred.
Bedford already has sent a letter to FERC in support of its investigation, as well as another letter to Gov. Terry McAuliffe, basically asking him to exert influence on the probe.
The council voted unanimously to send a similar letter to federal officials, but Hodge said she did not see the merit in that.
“It’s like writing a letter to Santa Claus,” she said.
More council coverage will be printed in the Thursday Bulletin.