The cost of keeping the lights on in Naperville homes and businesses will go up at least 2 percent again on May 1, as it did last year and is scheduled to do once more in 2015. But the extra revenue brought in by the three planned rate hikes won’t keep the city-owned electric utility from going more deeply into the red.
Rates could soon be headed up considerably more sharply than that, thanks to a yawning gap in the electric department’s budget for fiscal 2014.
The expected $14 million shortfall in this year’s budget can be traced to an array of causes, officials say, and they emphasize that none of them is related to the shift to a smart grid for distribution of electricity. They’ll be looking at an array of potential remedies to shrink the shortfall when they meet in a work session Monday evening.
The sluggish economic recovery and a volatile energy market were among the variables responsible for the substantial difference between the sum the city expected to pay as the largest shareholder in the Illinois Municipal Electric Agency and what the utility has wound up paying to the state cooperative for the electricity it sells to Naperville customers.
There also has been an unusual pattern of weather in the past couple of years, including a cool summer last year that meant less air conditioner use and lower income for the utility. Officials say inefficient use of energy by electric customers shares the blame as well.
The city’s 2011 rate study anticipated an expense of $99.1 million for the energy the city would buy from IMEA in the 2013 budget year. The eventual cost for the energy topped $112 million.
City Manager Doug Krieger noted that IMEA’s energy portfolio includes a variety of sources, among them coal, natural gas and nuclear, but nearly one-quarter of its power is purchased on the open market.
“The last three years have been extremely volatile, and kind of blew the rate study out of the water,” Krieger said.
Fit of peak
Sporadic usage patterns also contributed to the higher energy bills. The producers of the electricity bought and distributed by IMEA determine their pricing on the basis of peak usage.
“Daytime usage is always higher than night time, because that’s how people use electricity,” Krieger said.
The peak tends to occur at 6 p.m. on a hot summer day, he said, when utility customers crank up the air conditioner, turn on the plasma TV and toss in a load of laundry.
When the rate study was done, consultants predicted average usage at about half the peak.
“What we actually experienced was about a 44 percent load factor,” Krieger said.
The city was obligated to pay on the basis of top usage nonetheless.
The 2007 commitment to the IMEA, which took effect in 2011 and extends until 2035, was meant to protect the city’s interests over a long time frame.
“We got into it because we’ve had the utility for over 100 years and we hope to have it for another 100,” Krieger said.
Not everyone sees the arrangement as entirely protective.
“The biggest factor is that we hitched our wagon to IMEA for 30 years. And whatever the (price is), we have to go along with it,” Councilman Bob Fieseler said. “The idea was that at least we’d be hedged, in terms of understanding what the business model is for IMEA, and having those apply to us so we wouldn’t be completely at the mercy of the market.”
Construction costs at the Prairie State Energy Campus, which ran 25 percent over budget, didn’t help much. IMEA bought a 15.17 percent share of the new-age 1,600-megawatt coal plant near downstate Lively Grove, Ill., shortly after Naperville joined the electric cooperative, when the under-construction facility was expected to cost $4 billion. The IMEA was on the hook for $150 million of the $1 billion that eventually was added to the campus’ price tag through construction overruns. As more than one-third of the IMEA’s mass, Naperville will end up covering more than $50 million of the inflated bill over a period of several years, Fieseler said.
“Maybe they went along with some cost overruns that could have been avoided,” he said. “All I know is we have not been as vigilant in influencing IMEA decisions as we could have been.”
That’s changing, Krieger said. Electric Department Director Mark Curran is on the executive board and board of directors for Prairie State, but his voice for the city has gained volume recently as the city assumes a stronger role in controlling the cost increases at the plant.
“They’re on a very short leash,” Krieger said.
The project’s increased cost led to higher expenses for debt service and delayed the benefit from the utility partnership for the city. Krieger said “working the bugs out of it” lasted into the start of this year; throughout 2013, the plant was generating at 63 percent its total capacity.
“Eighty to 85 would be the norm,” Curran said.
In the past couple of months, generation has been in the low 80 percent range.
“The message has been sent down there, and it’s a strong one, that they need to get their act together or things are going to have to change,” said Krieger, who noted the higher generating numbers are encouraging. “Doesn’t mean the problem’s solved, but at least it appears we’re on the right track.”
In the meantime, City Council members will be weighing their options for closing the budget gap.
Deputy City Manager Marcie Schatz said steps already taken to reduce the utility’s expenses have included cutting capital and operating costs, including overtime and planned capital projects. Staff positions have been eliminated as well, Schatz said. The department has shaved its annual spending by $7.6 million, but the shortfall remains.
“There’s really no place else to go,” Krieger said.”The last place where we could (save) was through rates.”
Replacing the 2 percent increase with a 6 percent hike would enable the deficit to shrink to $4 million in the next two years. While he emphasized it’s “a long-term problem,” Krieger said the increase would reverse the current trend.
“It rights the ship and starts bringing us back to normal,” he said.
If council members opt to increase the rate by 7 percent, the cash shortfall would be eliminated over two years. Under that scenario, a household that consumes the city average of 923 kilowatt hours per month would see its May 2015 bill, now projected at $96.11, increase to $104.62.
The workshop is set for 5 p.m. Monday in the council chambers of the Municipal Center, 400 S. Eagle St.