This post was contributed by a community member. The views expressed here are the author's own.

Politics & Government

Prairie State Update: Will Electric Rates Have to Go Up in Batavia?

"We are anticipating the need for additional revenues and will be discussing this in more detail during the budget process," Public Works Director Gary Holm says.

Written between the lines of Public Works Director Gary Holm's electric utility report to the Batavia City Council is the possibility that rates might have to go up in order to pay for the additional cost of the city's investment in Prairie State Energy.

In a memo to the council dated Sept. 12, Holm never says rates might be affected. What he does say is that power costs have gone up about $7 million, or 30 percent, in the time period of 2010 to 2013.

"Based on our projections for purchase power costs in 2014, we are anticipating the need for additional revenues and will be discussing this in more detail during the budget process," Holm says in the memo.

Prairie State is a 1,600-megawatt base loadcoal-fired, electrical power station and coal mine near Marissa, Illinois southeast of St. Louis, MO. It promised clean-coal technology, and it is jointly owned by eight public electric utilities with Peabody retaining 5 percent ownership.

The city tried to find a buyer for its entitlement share of Prairie State earlier this year but could not find a purchaser. The city tried legislative remedies at the state level but "received a request from our fellow NIMPA members and the IMEA to suspend those efforts," Holm said in the memo.

Here's what else was discussed in the memo:

1. Electric Consumption


Batavia’s overall electric load increased steadily from 2009 to 2012. With last year’s extreme summer heat we set new records for both peak and overall consumption. Unfortunately, we still ended up selling a significant percentage of the energy we purchased from Prairie State back into the market. Batavia's year-to-date consumption in 2013 is down considerably and is tracking closer to what the city experienced in 2010.

"We are projecting that by year-end we will have sold approximately 17 percent of our Prairie State entitlement share back into the market at a financial loss," Holm says.

2. Purchase Power Costs


Even though Batavia's total consumption is down, its overall cost for purchase power is up. In 2010 purchased power cost was approximately $25 million. At that time, Batavia's portfolio consisted of hedge contracts and market purchases. Despite an increase in consumption, Batavia's cost in 2011 decreased to $24 million.

In 2012, Batavia's Prairie State financing and other contractual obligations began to commence and the cost for purchase power increased to approximately $29 million. Holm is projecting total cost for 2013 to be about $32.4 million and a similar value for 2014. For the period from 2010 to 2013, Batavia's purchase power costs have increased a total of $7 million or about 30 percent.

3. Utility Finances


Since the economic downturn in 2008, the utility has worked hard to reduce internal expenditures other than purchase power. Examples of expenditures include personnel, equipment, capital projects and maintenance projects. The utility has cut back staff via attrition, and new equipment purchases have been delayed. The number and scope of maintenance and capital projects has been revised to focus on higher priority items.

4. Increased Revenue


Over the past few years, the utility has taken steps to increase revenue. A rate and fixed fee increase was implemented in January of 2012. The purchase power adjustment factor (PPAF) was held relatively constant throughout 2012.

The City Council had authorized staff to use up to $2 million in reserve funds to stabilize the PPAF. The PPAF has increased in 2013 and it is anticipated that the reserve funds will be depleted by the end of the year.

"Based on our projections for purchase power costs in 2014, we are anticipating the need for additional revenues and will be discussing this in more detail during the budget process," Holm says in the memo.

5. Competitive Analysis


It is difficult to get a true apples-to-apples comparison of the cost of other utilities because everyone’s rate structure is slightly different and the timing of each utility’s increases vary, Holm says.

Batavia is on a calendar fiscal year so our increases tend to come prior to those of neighboring municipal utilities who start their fiscal years in April or May. Attached is a graph showing monthly customer bills based on current rates and how those rates compare to the other local utilities.

"As you can see from the graphs we are generally competitive," Holm says.

6. Customer Concerns


One of the final items that staff stressed to the Management Committee was a concern about the potential impacts Prairie State could have on residential and business customers.

"We gave specific examples of how some of our larger industrial customers are facing stiff competition in the marketplace and stressed the importance of our ability to continue to provide reliable, competitively priced electrical service," Holm says. "As stated above, staff is in the process of preparing the 2014 Electric Utility budget and will likely be requesting additional revenues to account for increased purchase power costs and the depletion of our rate stabilization reserves. We will also continue to reach out to our fellow Prairie State Owners and work together towards common solutions."
We’ve removed the ability to reply as we work to make improvements. Learn more here

The views expressed in this post are the author's own. Want to post on Patch?