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Electric rate hike would even costs
Increase should cover wholesale costs, official says

Thursday, March 27, 2014

By MICKEY POWELL - Bulletin Staff Writer

The electric rate increase imposed by Martinsville City Council on Tuesday should generate enough extra revenue to cover the city’s wholesale power costs through at least June 2015, according to a city official.

But there is no guarantee that it will be enough to prevent the need for another hike in the future, said city Utilities Director Dennis Bowles.

Wholesale power costs are projected to rise, based on information provided to the city by GDS Associates Inc., a utility services consulting firm.

Whether another rate hike eventually becomes necessary will depend on what wholesale power costs actually turn out to be, Bowles said.

Martinsville Electric Department customers will see a rate hike equaling a little more than a half-cent per kilowatt of electricity used. The increase is effective with bills printed by the city on May 1 and thereafter.

Customers using 1,000 kilowatt hours of electricity in a month — basically about what the average household uses, officials have said — will see their bills go up by $5.35, from $105.60 to $110.95, a document shows.

The rate increase will enable the city to generate about $1,025,000 extra through June 2015 to help pay an extremely high wholesale electricity bill it received in January, as well as help pay the city’s costs toward a terminated power plant project and offset anticipated future power costs, Bowles said.

The city’s bill for wholesale power purchased in January was $2,248,197 — about $1 million more than officials had expected.

Due to bitterly cold weather that month, customers used more electricity than usual to heat their homes. The city had to buy the extra electricity on the wholesale market instead of from its regular source, American Municipal Power (AMP), at inflated prices due to heavy demand by other localities and utilities that were in the same situation as Martinsville, officials have said.

Much of the increased cost for January stemmed from higher fees the city saw to get the electricity sent to Martinsville over the regional electric grid, which got clogged due to the high demand, according to officials.

Bowles described January’s wholesale power costs as “unprecedented.”

The city had budgeted to spend an average of $76.86 per kilowatt hour on wholesale power a month through June. After that expense rose to $113.21 for January, the average monthly cost through June now has been projected by GDS to be $77.21, a document shows.

Through June 2015, the end of the new fiscal year that will start in July, the overall average monthly cost is projected to be $78.27, the document shows.

“These increased costs have got to be recovered somehow,” Bowles told the council. “Otherwise, we’re going to be in the red” eventually.

Councilwoman Sharon Brooks Hodge said she did not have confidence in GDS’ projections, but she recognizes the city must pay its power bill.

“Of course, they’re going to be wrong” because they are projections, Vice Mayor Gene Teague said.

A fund that the council created in 2012 to stabilize expected future hikes in wholesale power costs and repay the city’s “stranded costs” toward the AMP Generating Station was depleted due to January’s high bill, Bowles said.

As of January, he said, the city owed $951,000 toward work done on the coal-fired power plant project in Ohio, which was ceased in late 2009 after contractors’ cost estimates suddenly shot up.

That amount could rise or fall, officials have said, based on the outcome of ongoing litigation pertaining to the project.

The electric rate increase will generate $200,000 to put toward the power plant’s stranded costs, Bowles said.

In April, the council will have to take action to officially end the stabilization fund, he said.

Bowles said Martinsville buys about 46 percent of its power on the market. Most of the remaining 54 percent is bought through AMP, although the city produces small amounts of electricity at its hydrodam and former landfill.

A generator at the former landfill produces electricity from methane emitted by eroding garbage.

Councilman Danny Turner consistently has maintained that Martinsville could be paying less if it had decided to buy power solely on the wholesale market. He repeated that idea during Tuesday’s council meeting.

Teague disagreed. He said the market is “the most risky way” to buy power due to fluctuations in prices.

“The real issue,” he said, “is the rates our citizens are paying” for electricity, which, despite the increase imposed Tuesday, remain below those paid by Appalachian Power (APCo) customers in Henry County.

Teague said that if the city had decided to buy its power from APCo, as it considered doing in the past, its contract with the company would not have allowed the city to generate any electricity on its own.

By generating some of its own power and not having to buy it on the market, the city is saving about $400,000 a year, Teague said.

“If you put all your eggs in one basket,” so to speak, Bowles said, ultimately “you’re going to see increased costs” for electricity.

Councilman Mark Stroud suggested that the city seek grants to install solar power generation equipment at the former landfill off Clearview Drive.

As far as controlling wholesale power costs, Bowles said, for now, “we’re doing about all we can do without adding additional generation” equipment.

 

 
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