Naperville City Council members made their decision Tuesday evening about fixing the $14 million hole in the Electric Department’s budget. Rates will go up 6 percent next month, and 7 percent more a year after that, after a 5-4 council vote.
Mark Curran, director of the city-run utility, said for the average user the increase will bring the monthly charges of $92.79 up to $97.69, effective May 1.
“Under the current proposal of 6 percent/7 percent, the utility is projected to lose an estimated $2.5 million in [fiscal year] 15, but recoup $11 million in FY16,” Curran wrote in a council memo. “At the end of FY16, the utility is projected to have a negative cash balance of $5.2 million.”
Before the increase was approved, electric customers had been scheduled to pay 2 percent more on May 1, on the basis of a 2011 rate study that formulated cost projections that proved inaccurate when the utility wound up paying nearly 15 percent more than expected for the power it purchases through the Illinois Municipal Electric Agency. Naperville, which makes up 35 percent of the energy consortium’s purchasing, is the agency’s largest shareholder.
Some council members wanted to capitalize on that status, saying IMEA needs to be called upon to refund some of what Naperville has overpaid, to soften the blow of the higher electric rates and the impact they have had on the utility’s fiscal outlook. The department’s shortfall has been attributed to several factors, among them a volatile energy market; several seasons of unusual weather; construction delays, cost overruns and underperformance at the downstate Prairie State Energy Plant in which IMEA has invested; and inefficient usage patterns by the city’s electricity users.
Several speakers addressed the council about the pending rate hikes, including the chairman of the Public Utilities Advisory Board. That group recommended a more aggressive increase to erase the shortfall sooner.
Chairman John Krummen, who was a council candidate in the April 2013 municipal elections, implored the council members to heed the advisory board’s input and increase rates by 7.86 percent on May 1, with the proposed 7 percent hike a year later.
The advisory board formulated its recommendation on March 11, maintaining that a more gradual reduction in the deficit, and the proposed elimination of the Infrastructure Availability Charge, amount to bad policy. The IAC was implemented in 1987 as a way to have developers help offset the expense of adding new utility customers to the system. Doing away with the fee would call for cutbacks in capital projects designed to improve the utilities.
“A key concern for the PUAB is that the Electric Utility reconciles the negative cash flow as soon as possible, and also recovers lost revenue from the IAC should it be eliminated,” the board wrote in a memo reiterating its opposition to the plan. “The PUAB also believes that it is poor business practice for the Electric Utility or the Water Utility to operate with an operating deficit and a negative cash flow.”
Krummen said the advisory panel has asked the project manager for the Prairie State plant to visit Naperville and explain how the undertaking wound up costing $5 billion, which represents a 25 percent increase over the projected price tag. The plant’s unforeseen glitches, PUAB members assert, were the only controllable factor contributing to the utility’s yawning budget gap.
“You’ve got to define the problem and then analyze it,” Krummen said. “We’ve defined the problem. We have not analyzed that.”
The less aggressive proposal that eventually drew support from five council members will cause the city in the short term to continue selling electricity at a loss, Krummen said. Currently the city pays about $78 per kilowatt hour but charges customers just $66.
“You’re losing money on every kilowatt that you sell,” he said.
Jeff Davis, Phoenix Closures’ vice president for sales and marketing, pointed out that rates for Naperville businesses remain considerably higher than those charged to residential customers and suggested the policy does not fuel economic growth. Although he understands the reasoning behind having businesses share in the cost of keeping residents’ rates down, Davis, who also ran for the council a year ago, welcomed coming changes that will mean lower time-of-use rates during periods of lower consumption for the largest commercial users.
“We run 24/7. Basically what we do is we hit up plastic with electricity,” he said.
Voting for the proposed increase were council members Judith Brodhead, Steve Chirico, Joe McElroy and Grant Wehrli, and Mayor A. George Pradel. Council members Bob Fieseler, Paul Hinterlong, Doug Krause and David Wentz opposed the proposal.
The council also approved an interdepartmental loan of up to $19 million for the electric utility from the water department or the vehicle replacement fund, to close the budget gap and reinstate the $11.2 million one-month operating reserve called for by city policy. The funds will be repaid with interest over the next three years.
Fieseler joined Hinterlong in opposing the loan, calling its reliance on normal water demand risky and arguing that the city should instead practice its due diligence and make better use of its status as IMEA’s largest player.
“I think that just sets an unfortunate pattern of IMEA just assuming that we’ll capitulate to them,” Fieseler said.
Krummen noted that the city’s contractual relationship with IMEA lasts until 2035.
“There’s time,” he said. “We want it made right.”