Fredericktown Aldermen Continue on with Electric Utility Sale
By Robert Vanderbrugen/Democrat News
Monday, August 25, 2008
http://www.mpua.org/Services/mopep.asp
The local meeting was called to order by Mayor Danny Kemp. The Council called the special meeting with such short notice because of time constraints. The public must have an opportunity to vote on the sale issue, which means it must be on the November, 2008 ballot; which means the question must be placed with the Madison County Clerk by August 26 to be on the ballot. The City is asking the City of St. James, Missouri to consider joining MoPEP by accepting the assignments of Fredericktown, which would then provide an opportunity for Fredericktown to leave the MoPEP pool. St. James is planning on joining MoPEP in any case according to the aldermen.
All the aldermen were present at the start of the meeting, however Ward I Alderman Brandon Hale did leave, citing a previously scheduled engagement, after he posed several questions to the committee.
Ad-Hoc committee member Ken Pierce, CPA gave a slide show presentation on rates between the City Vs Black River Electric Co-op (BREC). The slide presentation showed why he recommends the sale of the city’s electric utility department to Black River Electric Co-op. Pierce showed comparison graphs of the electric rates the City of Fredericktown charges compared to the rates BREC charges. In all but the most basic rate chart, the city’s rates were higher. The presentation showed commercial rates are staggering and are expected to continue to rise.
In a general synopsis, the alderman are facing the challenge of exiting the MoPEP pool and then selling the Fredericktown Electric utility to Black River Electric, or staying in the pool and seeing the electric rates climb beyond what some commercial businesses consider reasonable expectations. Cap America and Versa Tech stated they pay several thousand dollars a month now.
In any case, electric rates will have to increase according to recommendations of the committee.
Aldermen are also keeping in mind the impact these electric rates have on the poor and the senior citizens in Fredericktown.
One calculation estimated the City is losing about $50,000 a month since the per kilowatt usage rate the City pays to obtain power had a significant increase in April, 2008. The historical costs for purchasing power were 6.6 cents per kilowatt hour (kwh) in September of 2007. The rate in April of 2008 hit 7.772 cents per kwh according to the committee. That translates to at least a 13.04 percent increase in electric rates at this point in time, or the city will continue on the financial downward spiral according to the Fredericktown Ad-Hoc committee.
If the City chooses to stay in the pool (or fails to exit the MoPEP pool successfully), the rates will rise. The commercial rates appear to have the greatest potential for huge increases according to committee projections. One reason the rates are so expensive is the debt service the City of Fredericktown entered into with MoPEP to build a power plant. The City would share costs in the building and operating costs of the plant (with no cap on expenses seen at this point according to the committee). The projected cost is about $600,000,000. The City of Fredericktown would have about a two percent cost share in the project which is about $12,000,000 currently. A presentation by Madison Inn Lodge owner Abu Chowdhury showed a huge cost in electrical rates over the long haul which included the City’s cost of the project. He calculated amortization rates: at 6% over 50 years, 7% over 50 years and more. Although no interest rate was included in the actual figures for the power plant costs, Chowdhury included some potential interest rates. The costs to the City for the power plant operations over time were estimated to be in the millions. The costs are included in the purchase power agreements the City has already accepted as a member of the pool. If St. James accepts membership in MoPEP as an assignee, they would then take on that debt service as well according to the committee.
If the negotiations fail at any given point, then Fredericktown would have to stay in the pool.
Pierce talked to the audience and the aldermen about several factors including the risk the City takes staying in MoPEP;
The volatility of the electric market.
The reliability of Fredericktown’s electric system.
Liability of injuries.
Increases in regulatory issues and related costs.
What happens to the system in the event of a disaster.
The suppression of economic development.
Pierce said the sale of the utility would allow more favorable rates, especially to commercial entities.
The elimination of risks of ownership of the electric utility.
More favorable financial impact to Fredericktown.
The Council is also facing some unknown costs if it is successful withdrawing from the pool. These costs would not be known until the City has agreed to exit contracts, at which point the costs would then be calculated. The unknown costs could be minimal or they could be expensive according to attorney Moore. There is no way to tell until the commitment has been made.
With regard to the sale of the Fredericktown Electric Utility to BREC, Alderman Brandon Hale said he wanted to have a system study done of Fredericktown’s electric utility system to have actual figures he can consider before making such decisions. The estimated worth of the city’s system was shown as $3,680,857 without the infrastructure. The sale would generate two 20 year contracts through BREC (with one auto renewal at the end of the first 20 years, plus the franchise fees) He pointed out the figures the committee is using are based more on speculation and not the actual value and condition of the equipment. Electric Department Manager Don Wasson said he had a very good idea what condition the system was in and said it does need a lot of work.
Alderman Mark Tripp asked School Superintendent Dr. Burlison about his electric costs for the school district. Burlison said the district paid about $245,000 for power last year paid.
John Mooreman, President of Versa-Tech said he has had billing problems with the City’s electric utility and that he can not continue to have huge increases in utility costs. One resident said she received a $6,655 billing and it took three weeks to get it straightened out.
Industrial Development Authority (IDA) member Abu Chowdhury said these are big concerns for new businesses and existing businesses are carrying the brunt of this now.
In summation;
The City of Fredericktown will incur costs by attempting to exit MoPEP. MoPEP and Missouri Joint Municipal Electric Utility Commission have a vote on approving the exit of Fredericktown from the pool. The City of St. James may take on the agreements Fredericktown has signed, but no formal agreement has been made as yet. (This is a key component that must be agreed to, in order for Fredericktown to exit the pool). Contracts and resettlement charges with organizations like *MISO could create additional costs when exiting MoPEP. The City of St. James will have to have a new contract for power as of January 1, 2009. Letters regarding the City’s Bond rating will need to be gathered at additional costs. Billing software would have to change. Once the MoPEP exit is successfully completed, a franchise agreement with BREC is still pending.
The Fredericktown registered voters will have a right to vote on the sale to BREC on the November ballot if the City continues with contract negotiations with BREC. Moore said there will still be some carry-over costs and settlement charges the City will have incurred, even after the exit is complete. All these actions must be done in a timely manner, or the efforts to exit MoPEP will fail. Those ramifications (like removing the question from the November ballot would have to be done by September 30, along with reinstating contracts to provide power to Fredericktown).
*“The Midwest Independent System Operator (also known as MISO) monitors 920,000 miles of the high voltage transmission system throughout the Midwest. MISO operates one of the largest real time energy markets in the world.
The main function of MISO is its reliability function. System operators known as Reliability Coordinators and Reliability Analyst monitor the system 24/7. The RC uses a model of the system and calculates power flows across the country.
The use of the power flow model gives the ability to calculate parallel flows caused by line outages and predict overloads before they occur.
The Midwest Independent Transmission System Operator is an essential link in the safe, cost-effective delivery of electric power across much of North America. The Midwest ISO is committed to reliability, the nondiscriminatory operation of the bulk power transmission system, and to working with all stakeholders to create cost-effective and innovative solutions for our changing industry.
As a fully integrated regional transmission organization, the non-profit Midwest ISO assures industry consumers of unbiased regional grid management and open access to the transmission facilities under Midwest ISO's functional supervision.
Midwest ISO optimizes the efficiency of the interconnected system, provides regional solutions to regional planning needs and continually minimizes any risk to reliability.”
http://encyclopedia.thefreedictionary.com/Midwest+Independent+Transmission+System+Operator
A motion was made by Ward III Alderman Mark Tripp to go ahead with the efforts to exit the MoPEP pool and sell the Fredericktown Electric Utility to Black River Electric. Ward I Alderman Paul Fritch seconded the motion and the other aldermen passed the vote (Hale absent). Council moved into closed session. The open meeting ended with a round of applause from the audience. Next Council meeting is August 25, 2008 at 6:30 P.M. at City Hall.
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