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City of Fredericktown holds two meetings regarding electric utility

By Robert Vanderbrugen/Democrat News

Wednesday, September 24, 2008

The City of Fredericktown held two informational meetings Monday evening regarding the  Missouri Public Energy Pool (MoPEP) and the Fredericktown electric utility.

Both meetings had Douglas L. Healy, General Counsel and Director of Member Relations from MoPEP and John Grotzinger, Director of Engineering and Operations speaking about the role MoPEP plays in the distribution of electricity to Fredericktown. The first meeting was called as a special meeting.

Ward III Alderman Mark Tripp stated at the beginning of the special meeting he wanted to go on the record as being against the special meeting. Tripp said the meeting scheduled at 6 PM at the high school should have been enough. 

The mayor and four aldermen were in attendance. The second meeting  was held at 6 PM at the high School cafeteria. The mayor and all the aldermen were present at the high school except for Ward III Alderman Karen Wright due to a medical procedure she was having according to the aldermen.

During the first meeting, Healy said he wanted to discuss three points..

1-Having an independent auditor come in and analyze Fredericktown’s electric system. Healy suggested using Home Town Connection as the auditor.

http://www.hometownconnections.com/

(Hometown Connections is a utility services subsidiary of the American Public Power Association (APPA). APPA is the service organization for the nation's more than 2,000 community - and state-owned electric utilities that serve more than 45 million Americans.)

Healy said he has seen the company work in other cities. The company is knowledgeable in the field and can offer some good utility management ideas for “streamlining” and saving money.

Tripp said the City has been in discussions with Electrical Engineer Ray Blakely regarding an audit of the City’s electric utility infrastructure. However, Interim City Administrator Jim Dismuke said no contract has been signed yet.

2-The City should take a look at their rate structure Healy said. Take a look at the cost of service to all customers to see if the cost structure is distributed fairly. A review of the rate structure may prove helpful according to the MoPEP representatives.

Ward I Alderman Brandon Hale and Ward III Alderman Mark Tripp agreed the rate structure needs redoing. Equalization could benefit some and cost others more, Hale said, and he wants to be fair to all parties involved

3- Grotzinger said the City is in a unique situation in which a gas fired generator could be placed near the Business Park. (Most generators are coal fired according to Grotzinger). The generator would be used during peak power demands and possibly provide some return on electricity when a certain megawatt load is surpassed. (The size of the generator was to be determined later). The generator would be used as a back up generator and have the capability to get power back up in  as little as 30 minutes after a storm according to Grotzinger. He said the power would be returned to the system within possibly 30 minutes or, at least, to critical functions. The functions could also be controlled remotely as long as someone is on-site to be sure nothing is endangering the re-start; such as a fuel leak. The City  has a natural gas line near the Business Park, which is an unusual situation according to Grotzinger. He said if the gas line is high pressure and the generator is connected, it would be a “plus” when companies are considering moving to the Business Park.

The cost of generator could be funded either by the City taking on additional debt or by asking the pool (by motion and vote) to have ownership in the generator. There would still be associated costs the City would have to pay such as connection costs, training and maintenance according to the aldermen. Grotzinger said the generator could possibly lower transmission costs, after initial expenses, by providing a ‘hedge’ for the MoPEP pool.

During the work session a few weeks ago, Blakley also pointed out the need for a back-up system for Fredericktown.

At the public meeting at the high school cafeteria;

City Attorney Kim Moore opened the meeting.

Healy and Grotzinger then took the floor and described what the Missouri Joint Utility Commission is. Details can be found at their website.

http://www.mpua.org/About/MJMEUC.asp

Healy and Grotzinger addressed the functions of the pool and how the pool maintains lower prices for their members. In one cost saving measure, the pool buys stores of coal has group purchase power when it comes to electric prices.

Using a Powerpoint presentation, Healy pointed out power demands are increasing and the cost of buying power is subject to market volatility. When coal, oil and gas prices spike, it affects electricity costs as well he said. Grotzinger said, currently the pool has purchased sufficient coal reserves for the next 30 to 40 years in order to avoid the spikes in costs of coal. Healy’s presentation pointed out the costs for purchasing power through the open market (at any given point in time). In one example, the costs of electricity from the open market was $59.40 and the self-generating costs were $31.00. These prices will rise, but once a coal fired plant in North Dakota comes on line in 2009, prices are expected to stabilize to some degree Healy said. Grotzinger said market fluctuations can still play a significant role in changing the prices for electricity, even with cost controls already in place such as the coal purchase. He pointed out the price of a barrel of oil spiked up by $25 in just one day.

Healy pointed out that MoPEP does not run the plants that produce the electricity, they only own a percentage of  the electricity in them. In other words, the pool owns 12 percent of the power produced by one generating plant which would be about 50 megawatts of power according to the presentation. The total overall power in all the percentages the pool owns is close to 200 megawatts according to the MoPEP reps.’ This power is distributed among all the cities in the pool, not just Fredericktown.

On average, the City of Fredericktown is paying about $68.50 per megawatt. According to information gathered by Phil Page, the costs of that power are higher by nearly $10. Healy said after true-ups are included, the costs may be higher for a shorter period of time (2-3 months), but the over all costs are an average. Some months will show an even lower costs that the $68.50.

True-ups are the costs the City has to pay which were not readily available or calculated during any  given month. In other words, the final cost of the price of coal might not have been fully calculated until several weeks later. The price between what was charged for in that particular month for the coal purchase, and what the actual cost ended up being is called the true-up.

MoPEP said they are planning on other plants coming on line in the next few years which would then help control costs as well.  Although rates are expected to go up, rates may not go up as high as some cities that purchase their power from the open market on their own.

Residents were then provided an opportunity to ask questions about MoPEP. Tripp asked when the next meeting of the MoPEP pool was being called. Oct 3 he was told. The City is still pursuing their efforts to exit the MoPEP pool and sell the electric utility to Black River Electric according to Hale. He and Ward II Alderman Sie Merriman Sr. said they will continue to pursue the efforts to sell to BREC as long as the residents want them to.

Although MoPEP has an exit plan in their contracts with the cities, the plan calls for a five year notice and still holds cities responsible for long term contracts in which obligations they’ve agreed to must still be paid. According to the aldermen, that is why Fredericktown has decided to exit MoPEP by having another city take on the obligations of Fredericktown-if they can find one. St. James had not made a decision as of this meeting and time is running out. The Council asked if MoPEP will allow Fredericktown to continue in their efforts to exit the pool, even after time runs out for St. James to  accept or reject Fredericktown’s exit plan.  Healy said he believes the member cities of MoPEP have “gone out of their way” to help Fredericktown in their exit plan. If the final decisions were to be in favor of Fredericktown exiting the pool by having St. James take over Fredericktown’s obligations, the issue would still have to go before the Public Service Commission according to the aldermen.

Phil Page challenged the Council and Mayor Danny Kemp with questions about their opinions on the management of the electric utility. He asked if they agree that the system has had years and years of mismanagement and if this council thinks they can do better. Hale said, “Yes, we are doing a much better job managing the utility. From this point forward, yes, it could be properly managed.”

Tripp pointed out that although the MoPEP contract is often referred to as a forever contract because of the difficulty leaving the pool, selling to Black River Electric is also a “forever contract” because once the utility is sold, they can’t go back. He said in his opinion, “the system has been seriously mismanaged.” He said the issue has now become one of infrastructure, rather than rates. Tripp said he is in full support of the sale to BREC. He sees millions of dollars of debt facing the City for electric utility infrastructure repair. We will need more staff, more engineers, and lines,  etc., and quite frankly the City can’t afford it.

Merriman said he wants to see an evaluation of the system, as far as he knows, it has never been done.

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