Naperville electric rates may be going up

<p>File Photo</p>

File Photo

City Council members this week concluded the least painful way to get Naperville’s electric utility out of the $14 million hole it’s in is to raise residents’ rates 6 percent on May 1, and 7 percent a year later.

They’ll finalize the strategy in a vote expected March 18.

Officials spent most of a three-hour budget workshop Monday evening talking about the unforeseen deficit. According to city staff, the shortfall is the culmination of several factors with causes both natural and human-initiated.

The city-run electric utility had $5 million on hand at the end of fiscal 2013 last April, City Manager Doug Krieger told council members at the work session, which drew several dozen audience members.

Payments made by the utility to the Illinois Municipal Electric Agency — of which the city is the largest member and from which it purchases its power — have exceeded projections by as much as 16 percent over the past several years, a result of deep dives in the price of natural gas; a string of unusual weather developments; pronounced volatility in the open energy market; and disappointing performance by a new coal-fired Downstate power plant in which IMEA is a 15 percent partner.

Initially expected to cost $4 billion, the Prairie State Energy Campus developed construction cost overruns that added another $1 billion to the project cost. The plant, one of the “clean-coal” generation facilities, also ran below two-thirds its full capacity through 2013, although city officials said in recent months it has operated closer to the optimal 80- to 85-percent level.

Staff also didn’t foresee the impact of city residents’ peak usage rates, which occur on the hottest summer days and set the fee structure for electric customers. The rate study assumed peak use levels at about 50 percent of full capacity, and the eventual load factor was 44 percent, Krieger said.

In addition, the city’s 2011 electric rate study wound up significantly off in its projections for determining current rates. Based on the data generated by the study, a plan was devised to increase rates annually by 2 percent, effective on May 1 in the years 2013-15.

“The vast majority of the presumptions used in the rate study were accurate,” Krieger said.

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One presumption that “did not pan out,” Krieger said, was the city’s projected cost for purchased power.

“If we had started out with a couple of threes, then maybe we would be looking at twos now,” Krieger said, alluding to the proposal put before the council to increase rates by at least three times that much. “You miss it by 1 percent, you’ve got a million-dollar problem.”

Along with the escalating rate hike, the plan that drew support in a council straw poll at the workshop calls for retiring the fee collected by the city from commercial customers through its variable Infrastructure Availability Charge, a move supported by the business community. Added to rates that already are higher than those charged to residents, the commercial surcharge is formulated on the basis of a fixed per-kilowatt hour cost and varies, driven by the customer’s energy use. Income from that fund historically has averaged at least $1.2 million in annual revenue. Staff suggested phasing out the fee, which is exclusive to Naperville, over three years, but officials were apprehensive of that timing, saying it could discourage new economic development.

“If I’m going to do a major development and know that I can wait two years and it’s going to save me 300 grand, guess what? I’m going to wait. … It needs to go away now,” City Council member Grant Wehrli said.

Staff members also plan to coordinate changes with the businesses that comprise the 20 largest consumers in the utility’s customer base, accounting for one-quarter of the electricity distributed by the department. They acknowledge that some of those users may not have options, citing Edward Hospital as one example, but will press for the consumers to concentrate their electricity use during off-peak hours if they are able to do so, to bring peak rates down.

Council members grilled staff about missteps made by IMEA that they blame for a portion of the utility’s fiscal gap.

“What puzzles me is, since IMEA is in the business of selling electricity, what hedges do they have?” said Councilman Bob Fieseler, who also questioned why the city, as the purchaser of more than one-third of the energy distributed by the state cooperative, doesn’t have more influence on decisions made by its board.

Krieger stood by the board.

“These guys are savvy. They know the market, and the community,” he said.

‘Didn’t show up’

Fieseler was especially critical of Kevin Gaden, IMEA’s president and CEO, noting he has met with the council just once in the two years since he assumed the cooperative’s top job — that was after the city had been paying more than the rate study’s projections for several years.

“Woody Allen said 70 percent of success in life is showing up, and this guy didn’t show up,” said Fieseler, who also took Krieger to task for his continued support for Gaden. “I’m hugely disappointed, as you can tell, that we’ve been basically sucking our thumbs for seven years.”

The rate increase chosen by the board members, who had several strategies from which to choose, will bring the budget shortfall to $5.2 million by the end of fiscal 2016, Deputy City Manager Marcie Schatz said.

Staff members have confidence the projection will be more accurate than those that came out of the rate study.

“I think we have a handle on our power costs now,” Schatz said.

She reported to the board some of the measures the utility took to pare its expenses, including reducing its controllable costs by 18 percent over the coming two budget years, for a savings of about $7.6 million.

“This is not business as usual … due to our cash flow position with the utility,” Schatz said.

Krieger stressed that the rate hike, projected to add $5 to the average monthly bill in the first year and $6 in the second, was viewed as a last resort.

“Increasing rates is the last place we turn to in order to balance the electric utility’s budget,” he said.