Plan delays increase
Published 4:58 pm Saturday, December 20, 2008
in city’s power rates
Under staff’s proposal, hike would take effectin July, not in February
By MIKE VOSS
Washington has a plan to move an expected increase in electric rates from February to July of next year.
The plan was developed by City Manager James C. Smith, Washington Electric Utilities Director Keith Hardt and Anita Radcliffe, the city’s acting finance director, according to memorandum from Smith to the mayor and City Council.
The plan has three components: delaying capital spending, reducing dividends to the general fund from in-city power customers and consumption of the programmed capacity in the current fiscal year’s electric-fund budget.
The council may want to further explore cost-savings measures within the electric fund, he said. The plan’s proposal to defer capital expenditures included in the current fiscal year’s budget until future fiscal years makes sense, Jennings said.
Jennings believes the city should find ways to absorb the rate increase in its power costs and delay passing on that increase to its power customers as long as possible, especially during an economy that is in a recession.
Earlier this year, the city learned the wholesale rate it pays for its power will increase by 4 percent Feb. 1, 2009. The N.C. Eastern Municipal Power Agency’s Board of Commissioners approved the increase at its meeting last month. On top of the increase is what the city pays for power, the city’s electric fund faces a $1.2 million shortfall this fiscal year. The city buys its power from NCEMPA.
On Aug. 1, the city’s retail power rates increased by 1.189 cents per kilowatt hour. That increase was implemented to recover the wholesale increase from NCEMPA.
During the council’s Dec. 8 meeting, city officials talked about several options related to passing on the rate increase to its power customers. One option discussed is to raise the retail electric rate by 8.2 percent during the last five months of the current fiscal year. Another option is to increase the retail electric rate by 5 percent for a 17-month period, the last five months of the current fiscal year and the 12 months of the 2009-2010 fiscal year.
Also, the city is looking for ways to reduce or eliminate the expected $1.2 million shortfall in the electric fund.
Smith said the part of the plan that calls for reducing dividends transferred to the general fund from the electric fund was reviewed in detail. Those funds are used to help pay for services such as recreation, library, transportation and public safety that serve the entire region.
Smith’s memorandum notes the loss of $420,000 will have an adverse effect on the general fund.
The gross fund balance in the general fund at the end of the 2007-2008 fiscal year (June 30 of this calendar year) was $8,569,052. The reserved portion of that fund balance came to $2,581,840, with $1 million of that gross fund balance reserved for public-safety facilities, leaving a net of $4,987,212.
After subtracting $2.5 million to provide the recommended 60-day operating reserve and reserving $1,750,000 for cash flow leaves an $737,212 unrestricted and unreserved fund balance, according to Smith’s memorandum.
The memorandum informs the mayor and council that implementation of a previously planned 5 percent rate increase effective at the beginning of the next fiscal year (July 2009) and collection of that increase for 12 months will be adequate to cover the NCEMPA-implemented wholesale power cost adjustment that takes effect in February (approximately $1,200,000).
The memorandum explains that using most of the $500,000 designated as contingency funds in the overall electric fund to help cover a $1,141,000 end-of-year shortfall in the current electric fund, “leaving a very, very small margin for error.” That approach appears feasible if the city carefully manages expenses and revenue projections meet expectations through the end of the fiscal year, Smith noted in his memorandum.