Fuel costs may hold electricity rates down

Published 9:15 am Wednesday, January 13, 2010

FRANKLIN—Even after a proposed rate increase is implemented, Franklin Power & Light customers will likely still see lower monthly bills than they did a year ago, thanks to reduced fuel costs, according to the consulting firm that developed the proposed rate schedule.

“The bills to the customers went down a couple of times in the past 12 months,” said Steve Shurbutt, executive vice president of GDS Associates, the Georgia-based company that conducted a study of the city’s electric rates and developed a new proposed rate schedule. “When (the Virginia Municipal Electric Association) lowers our wholesale bill because of fuel, we lower the retail bills.”

The city’s Electric Department has been operating at a deficit in recent years, losing $426,735 last fiscal year. A 3.5 percent revenue increase is needed for the department to break even, according to Shurbutt. The city is also facing a possible hike in wholesale rates, beginning next January.

“We were sort of facing an eroding financial position, and at the same time staring straight ahead at what will probably be a significant wholesale rate increase,” he said during a Monday night work session with the City Council.

To build up reserve funding and stop the department’s financial hemorrhaging, Power & Light Director Michael Stoneham recommended increasing the department’s total revenue by 6 percent, through revised rate schedules.

“That will address these deficiencies that we have in the revenues and better position us to be able to address the wholesale power cost increase that we’re going to be facing this time next year,” Shurbutt said.

Under the revised rate schedules, a residential customer using 1,000 kilowatt hours of electricity can expect to see their monthly bill rise about $5.56, or 6.4 percent, in the summer and $5.29, or 6.45 percent in the winter.

The revised residential rates would still be about 22 percent lower than Dominion Virginia Power’s residential rates.

The revised rate schedule also includes a special church and synagogue service rate that doesn’t require a kilowatt demand charge, similar to what Dominion Virginia Power already does.

Other rate classes, including business and municipal customers, could expect to see monthly bill increases, ranging from around 4 percent to nearly 11 percent.

“We’re still generally competitive,” Shurbutt said.

If approved, the new rates will go into effect in March, however the Electric Department will still likely end up in the red for this fiscal year, which ends on June 30.

“With the proposed rates, we’re still going to lose money this year,” Stoneham said. However, he said the department would be “moving in the right direction” and should be profitable in the 2011 fiscal year, which begins July 1.

Councilman Benny Burgess expressed concern about the amount of money that is transferred from the electric fund to the city’s general fund annually. Last year, about $1.56 million was transferred from the electric fund to the general fund.

“I know (electricity bills are) still going to be below what they were paying a couple of years ago with the fuel adjustment, but I’ve always felt that the amount of money the electric department is paying over to the city for just the general fund has been rather strong,” he said.

However, Mayor Jim Councill said the council should hold off on adjusting the amount transferred to the general fund.

“I’m just concerned about the overall picture. I don’t disagree with considering that,” he said. “I think we’re going to have some other serious financial issues before this next budget gets done.”

Final revised retail rates will be presented to the City Council during its Jan. 25 meeting. A new rate schedule will be implemented on March 1.