Electric Dept. can no longer help fund other city functions
By GALE PIFER, Contributing Writer
(Editor's note: This is the fourth in a series on city government, today focusing on the Madison Electric Department.)|
There once was a goose that laid golden eggs, but now all of the eggs are gone. That's how Madison Utilities Commissioner Dick Ericsson summed up the current status of the city Electric Department.
"Contrary to what many people believe, the city electric fund isn't flush with extra cash," said Ericsson. "We have enough reserves to cover a minimum of two months' operating costs."
In years past, the Madison Electric Department was responsible for providing substantial amounts of money to operate city governmental functions. Money beyond what it cost to operate the Electric Department was transferred to other areas to meet expenses.
"There simply is no more money," said Ericsson.
The Electric Department is by far the biggest of all the enterprise funds supported by user fees, at $9.2 million, or 48 percent of all city expenses. Of that amount, $5.37 million will go to purchase wholesale electricity from the Western Area Power Administration (WAPA) and Heartland Consumers Power District. Madison will spend $1.7 million on WAPA power, $3.3 million for supplemental power from Heartland, and $370,000 to East River Electric to transport that power to Madison.
"When I first came back to Madison after school some 40 years ago, we got 95 percent of our wholesale electricity from WAPA. Today it is 50 percent or less," Ericsson said.
Both wholesale power suppliers have hiked rates in recent years. In 2000, the city paid $707,161 for WAPA power, but forked over $1,761,849 last year. Heartland provided the biggest increase in the last dozen years, more than double. Madison paid 38.70 mills per kilowatt to Heartland in 2000, but had to pay 78.90 mills a year ago.
This year, it is expected that wholesale power will cost the city $5,368,500 with transmission expenses to account for another $467,600. Madison is Heartland's biggest customer.
"We really have very little control over what we are forced to pay for wholesale electricity," said Ericsson.
Asked why Madison didn't seek another source for wholesale power, Ericsson said that Madison has exclusive contractual commitments with Heartland and WAPA.
"East River does deliver the city its power, but has no bearing on where we get our power," said Ericsson. "I think the exclusive contract with WAPA and Heartland was for some 40 years," he said.
Ericsson said WAPA power is a fixed allocation set many years ago. But as electrical usage went up, all power requirements above that allotment now come from Heartland. The original agreement with WAPA was based on costs associated with the construction and maintenance of the dams. Heartland's cost are more recent and continue to increase, said Ericsson.
As wholesale electric rates rose since 2000, so have the rates paid by consumers of municipal electricity. The average residential customer saw a 5.3 percent hike in the monthly electric bills this year. Ericsson said the monthly electric bill for 1,000 kilowatt-hours went up from $106.12 a month to $111.43.
Interestingly enough, industrial customers of the city actually purchase more electricity than do all of the residential consumers, 38.4 percent of all the electricity billed by the city.
Homeowners account for 37.1 percent, while commercial adds another 12.1 percent. The city itself consumes 4.4 percent, schools 0.7 percent and Dakota State University 7.3 percent.
The 2013 appropriations for the Electric Department list personnel at $903,300. The department's non-operating expenses are expected to total about $1.1 million.
Madison currently has $3.58 million left from a $4 million taxable bond issue made in 2004. That bond issue financed construction of the Madison Generation Plant, a standby diesel-generation electric plant.
A recent decision by the Obama administration to force fossil fueled electric generation plans to further eliminate carbon emissions could mean Madison will be handed an extra $380,000 pricetag to put in place emission control equipment at the standby peaking plant.
The city hopes to pay $350,000 toward the principal on the loan. Another $350,000 will go toward interest. The repayment schedule on the original bond issue extends to 2025.
The city recently refinanced those bonds to take advantage of lower interest rates and was able to realize more than $500,000 in savings.
Construction of the generation facility was completed in the spring of 2004 and is leased to Basin Electric Power Cooperative of North Dakota. The cooperative uses the generation plant during times when its typical generation facilities cannot meet demands during peak power periods. The Madison Electric Department tests the diesel generators each month as part of an ongoing maintenance program.
The city currently is undergoing a multi-year improvement project which is expected to include a half-million dollars in improvements, mainly putting electric distribution lines underground. Money for those improvements comes from the electric fund or through electric rates.
The city began the five-year program three years ago. Electric lines were initially put underground in the northwest section of town. This year, the work has shifted mainly to the southwest quarter. Most of the electric lines in the northeast segment, where there has been lots of new construction, are already underground.
Ericsson said the city reconstructed the downtown alleys on both sides of Egan Avenue a few years ago, so much of downtown also has underground electric distribution lines.
An engineering firm is conducting a rate study this summer concerning operations of Madison's electric utility. Suggested by the city's electric advisory committee, the study is expected to cost $23,500 and will provide the city more information about operating a program for the municipal, industrial and commercial customers.
Randy Hoffman of East River Electric Power Cooperative, an advisory board member, said the study will reveal such things as when Madison experiences actual peak periods of demand.
Ericsson said plans for the proposed new hospital and the addition of Global Polymer to the industrial park will also have an impact on the city Electric Department. Commissioners have already pledged about $250,000 in electric and other in-kind work for the new hospital.
At the present time, Madison has a load management program for residential customers. The volunteer program works to reduce peak use of electricity by temporarily shutting down water heaters, air-conditioners and electric heaters in order to keep the cost of wholesale power as low as possible.
During 2011, the city realized $398,000 in cost savings from the program. Utility customers taking part in the program received $101,000, bringing the net savings to $297,000.
The last time the city conducted a rate study was in 1985.
A cash and reserve analysis of the city Electric Department shows the city has $386,885 in a depreciation reserve account and nothing in emergency reserve funds. The city does have operating cash of $1.7 million, slightly over the policy maximum.
"But those figures will change," said Ericsson, "because while we have operating revenues of $8.5 million, we have $7,755,345.27 in operating expenses. That makes it awful tough, if not impossible, to replenish reserve funds that have been used to meet operating costs. Our net income in the electric fund is only $322,000. I wish it was true that we had a goose that laid golden eggs in the form of our municipal Eelectric Department, but frankly all of the eggs got spent.
``We can't foresee what the future might bring, beyond the building of a new hospital and completion of a building for Global Polymer," Ericsson said, "but you can be sure that we as commissioners are doing our level best to provide the best electric service possible at the lowest possible cost."