Not exactly a surge… by David Lias The Vermillion City Council � faced with a 17.6 percent increase in the cost of electricity it purchases from the Western Area Power Administration (WAPA) � agreed Monday to increase rates charged by Vermillion Light and Power by 4.8 percent.
It is estimated that the electric bill for an average Vermillion consumer will go up by $2.16 per month � from the current $46.94 per month to the new monthly rate of $49.10.
The rate change will appear on local consumers' February bills that are payable in March.
Electric rates for small commercial consumers will increase 6.4 percent. Large commercial electric users will pay 3.2 percent more each month.
These are the first electric rate increases in the city in a decade.
Besides passing a resolution revising electrical rates, the city council also approved on first reading an ordinance that amends a 1975 ordinance.
Changes in the ordinance include deletion of residential dual fuel service effective July 1, and deletion of the commercial power primary service rate.
The ordinance was also amended to more clearly define both small and large commercial power secondary service rates.
The rate for city owned facilities shall be the applicable residential, small or large commercial rate, and the off-peak service rate was deleted from the ordinance.
The commercial power secondary fuel service rate will be deleted July 1.
According to an electric rate study report presented by Tim Miller, a senior rate analyst from Missouri River Energy Services of Sioux Falls, Vermillion receives approximately 72
Continued on page 8A
percent of its electricity from WAPA. Missouri River Energy Services provides the remainder of the city's electrical needs.
Wholesale billing demand and energy has increased by an average of approximately 3.4 percent annually. Energy demand declined slightly in 2003, but is expected to grow by nearly 2 percent per year from 2005 through 2008.
Besides the 17.6 percent WAPA increase this year, the power administration may also increase rates by 3 percent annually in 2006, 2007 and 2008.
Miller said purchased power expenses will increase by an average of 7.2 percent each year due to load growth and WAPA increases.
He presented data showing that the city electrical system's net income held steady in 1999 and 2000, dropped by $240,000 in 2001, and then held steady at approximately $200,000 in 2002 and 2003.
It is expected, Miller said, that without a rate increase, the income would drop to $78,000 this year, and then go into the red and start consuming an electrical reserve fund the city uses to fund capital improvements to the Vermillion's power system infrastructure.
If no action was taken by aldermen, the city would eventually be approximately $250,000 in the red by 2008.
That would leave only about $125,000 in the electrical system's cash reserves.
City Manager Jim Patrick said aldermen discussed raising electric rates in 2001, but took no action. Rates were talked about locally again in 2002, and aldermen projected that a 5 percent increase would be needed last year.
Again, however, the city council decided to absorb costs instead of passing them to local consumers.
"We have continued to operate without a rate increase," Patrick said. "Western Area Power needs to raise rates � the dams' (reservoirs) are low, they don't have the water going through the dams, so they have to buy supplemental power at a higher cost than the water-generated power costs."
Patrick said WAPA has had to borrow money to purchase that extra electricity.
"They are at a point now where they have to pass that rate on to their customers, which are the cities," he said.
Miller told aldermen that the proposed level for minimum cash reserves for the electric utility is $2 million, or 48 percent of 2008 operating revenues.
Missouri River Energy Service member average level of cash as a percentage of operating revenues is 76 percent. The median level is 57 percent.
Reserves are needed, Miller said, to provide a cushion for higher than projected wholesale power costs or capital expenditures.
He noted that utilities that don't always issue debt to fund equipment replacements or growth of the municipal electric system count on reserves to help spread uneven spending amounts over several years, which stabilizes rates and reserves.
For example, Vermillion's capital expenditures on its electrical system are projected to be $368,000 this year, but will jump to about $780,000 in 2005.
Miller's report estimated that interest income of the cash reserves will be at 3 percent through 2005, and 4 percent from 2006 through 2008.
Cash transfers into the reserve fund, he said, are estimated to be $709,000 from 2003 through 2008. Discounted service to street lights and other city facilities is currently at $139,000 per year.
Approximately $5.1 million, or 23 percent of the electrical system's operating revenues, are provided to other city funds.
"This is a great benefit that the citizens provide (to the city) through their electric bill," Miller said.
Capital expenditures to the city's electric system will total $3.1 million over the next five years. "These are all types of things � equipment purchases, substation improvements, line improvements, a whole gamut of things."
Miller said his study also includes the possible loan of $1.1 million in 2004 for a new city hall.
"Obviously that's very tentative, and the thing I want to emphasize is that has little effect on our proposal as far as the rate increase," he said.
If citizens agree on an option to refurbish, build or purchase a new city hall building, interest on the loan would accrue at 2 percent. The principal would be paid back over seven years beginning in 2005.
Miller said that short pay back time means such a loan, if issued, would have little impact on rate proposals.
City Finance Officer Mike Carlson said a $1 million bond issue that financed electric underground improvements and switching will be paid off by 2008.
"One of our capital projects next year will be the rebuilding of a substation," Patrick said, "because it is at about capacity. That's one of the things we've identified in our electrical feasibility study, and that will cost about $1 million."
The only member of the council who didn't support the rate change was Alderman Dan Christopherson.
"I think it's too quick to rush into something like this tonight," he said "This is the first that anybody in the public has really heard about this, and we have to do some public information to get people to accept this as a need.
"Rushing into this is a wrong thing to do, because if it ends up on a referendum vote, the chances of that passing are pretty remote," Christopherson said. "I think if we rush into it too quick, that's more likely to happen than if we try to do a public education program on why and how this is needed."
Alderman Jack Powell said electric rate increases have been discussed in the city for several years.
"As the report points out, we've held the rates for a number of years and absorbed the increased costs," he said. "I don't perceive that this is something that we are springing on the public. This is something we've been looking at for several years."
"I'm amazed our rates haven't gone up since 1994," Alderman Ray Hofman said. "That's incredible."