Naperville’s electric utility has been powering local homes and businesses for 125 years. Its finances have developed a yawning gap in the last several of those years, but officials say they see light at the end of the tunnel, and it will have to be powered by more income.
City staff is engaged in discussions with business and residential groups, explaining the options for addressing the delta of about $27 million between the utility’s current financial circumstances and its optimal cash position. The City Council is set to take up the problem in a workshop on Nov. 9.
After developing a $13.2 million deficit at the close of fiscal 2014, the user-funded electric department took out a loan from the water utility, also owned by the city. Payments on that debt are scheduled to begin in 2017. According to staff, best practice calls for keeping a cash reserve of $13 million to $14 million.
The variables responsible for the shortfall, staff and officials say, include volatility in the energy market, unexpectedly high expenses related to the primary source of energy used by the city, inefficient local usage patterns and abnormally mild weather.
City ratepayers have seen their electric charges go up in seven of the past nine years, rising 13 percent since April of last year. But with a newly completed rate study predicting the utility’s per-megawatt hour expense will rise 5.5 percent over the next three years, the red ink will continue to flow unless steps are taken to bring costs and income closer together, officials point out.
City Manager Doug Krieger emphasized that inaction is not an option.
“If we do nothing, electric loses $30 million,” he said in a press briefing called by staff this week to go over the scenarios under consideration.
Six other alternatives have been laid out to address the dire cash troubles, five of them calling for rate increases. None of them has been put out as the most promising remedy, Krieger said, but the one drawing the most attention and discussion combines annual rate increases up to 5.5 percent through 2018, new borrowing of about $8.3 million next year to address maintenance concerns that have been put off as the utility has struggled financially, and a new mechanism designed to help prevent the sort of swings in rates caused by factors beyond the utility’s control, especially market volatility.
Known as a purchased power agreement, the approach is used by three out of four public utilities in the U.S. It operates by adjusting customers’ bills each month to keep them consistent with the energy expenses.
If enacted by the City Council, the PPA would cause customers’ bills to change slightly from one month to the next.
“When the cost of wholesale power rises above the base rate, the difference is passed on to the consumer,” utility Director Mark Curran said in a recent memo outlining the proposal. “Conversely, when the cost of wholesale power is below the base rate, the difference is reflected on the consumer’s electric bill as a credit.”
System stewardship is among the utility’s more pressing needs. Capital projects focused primarily on maintenance, which usually call for about $12 million in annual spending, received only about $5 million this year. The city’s presentation calls for $8.3 million in capital spending next year, most of it for “critical maintenance projects,” such as residential cable replacement or injection in city subdivisions. The process, Curran said, extends the life of the network.
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City projections show the need over the next five years for an estimated $48.7 million in spending for electric utility capital projects, some of which have been put off because of the cash shortages.
“We’ll still be able to stay competitive on our rates, but we’ll be able to take care of some of these,” Curran told members of the Public Utilities Advisory Board when they heard about the rate hike discussions Thursday. “So we feel pretty good about that.”
Wednesday: How the gap opened up.
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