Electric Rates Likely to Rise
By Owen Covington, Messenger-Inquirer, Owensboro, Ky.
May 10–The combination of an increase in coal prices and a major outage scheduled for this fall will likely mean increased power costs soon for Owensboro Municipal Utilities customers.
During a budget review session Friday, members of the City Utility Commission heard that the public utility anticipates expenses at the Elmer Smith Power Generating Station to increase more than 30 percent next year and the electric system to have an operating loss of $3.4 million next fiscal year.
“That’s really showing a need for a review of our base rates and seeing where these are going,” OMU General Manager Stan Conn told the board Friday at the customer service center. “We’re at a point where we’re really going to have to address rates.”
The first change could come next week as the OMU staff proposes an “energy cost adjustment” to the rates electricity customers are paying.
This adjustment allows the utility to pass along increased fuel, maintenance and backup-power costs directly to consumers without approval by the Owensboro City Commission.
Several coal contracts that have kept fuel costs for the coal-fired plant low during the past five years expired last year, which has led to a drastic increase in coal costs for the plant.
Through 2006, OMU was paying less than $1 per million BTU for coal, but that cost has since risen above $1.60, with a recent purchase of coal at $1.77 per million BTU.
Overall fuel costs at the plant are expected to rise from an estimated $32.5 million for the current fiscal year to $45.3 million over the 2008-09 fiscal year.
“There’s a lot of uncertainty in the coal market, especially in the high-sulfur coal market today,” Conn said.
The specifics of how large the energy cost adjustment will be and the anticipated impact on customers’ bills won’t be available until next week, Conn said.
The second of two major maintenance outages this year for the plant’s two generating units will take place this fall, driving maintenance costs up to $32.9 million compared to $11.7 million in the 2006-07 fiscal year.
“We won’t see those costs again for the next six or seven years,” Conn said about the outages.
Along with the energy cost adjustment through which the utility passes along those costs to customers, the public utility will be looking at the possibility of a base rate increase this summer, the first in at least 13 years.
The utility hasn’t had a base rate increase, which must be approved by the City Commission, since 1995, and since then has seen significant increases in operating costs that can’t be offset by energy cost adjustments.
One driver for a base rate increase would be benefits and pension costs, which have increased from $908,000 in the 2004-05 fiscal year to an anticipated $1.3 million next year, Conn said.
“Those costs haven’t gone away,” Conn said.
The utility has relied more heavily on outside services in recent years, in part because of the legal services needed for its lawsuit against Kentucky Utilities.
The lawsuit, filed in 2004, initially centered on ownership of OMU’s nitrous oxide allowances. Since then, the litigation has expanded to include OMU’s decision in 2006 to end an agreement from KU to purchase excess power from OMU.
OMU electrical system expenses for outside services, a larger portion of which are for legal and litigation expenses, will rise from an anticipated $1.5 million in the current fiscal year to $2 million next year.
Conn said he expects the lawsuit to go to trial in October. If the utility is successful, OMU would be able to sell its excess power on the open market rather than be locked into a contract with KU, Conn said.
Conn expects that move will result in increased revenue for OMU, which could mean savings for its customers.
“This litigation is an investment,” Conn said.
The City Utility Commission is scheduled to vote on the budget proposal and the energy cost adjustment at its regularly scheduled meeting on Thursday.
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Copyright (c) 2008, Messenger-Inquirer, Owensboro, Ky.
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