Unwelcome shock: Cost of electricity becoming an issue in Batavia
BATAVIA – In the face of Batavia aldermen looking at having to raise electric rates at least 10 percent, resident and former Batavia aldermanic candidate Ron Rechenmacher is questioning the decision making that led to the city deciding to purchase power from the Prairie State Energy power plant and coal mine in downstate Illinois.
“It seems that the recommendation wasn’t very prudent,” Rechenmacher said, in addressing Batavia Public Works Director Gary Holm at Monday’s Joint Committee of the Whole meeting. “What plans are we going to put in place to make sure this doesn’t happen again?”
The city Monday held an open house to explain to residents and others about the need to increase electric rates.
Batavia, like Geneva and St. Charles, runs its own electric utility.
In 2005, the Northern Illinois Municipal Power Agency, of which Batavia is a member, agreed to a long-term power contract to purchase electricity from Prairie State.
Geneva and Rochelle are other members.
Through its power sales agreement with NIMPA, Batavia is obligated to purchase 45.8 percent, or approximately 55 megawatts of the power generated by Prairie State. Geneva is obligated to purchase 29.2 percent (35 megawatts) and Rochelle is obligated to purchase 25 percent (30 megawatts).
Batavia needs to increase electric rates because of a number of factors, including higher-than-anticipated construction costs related to the Prairie State project, the economic downtown and an associated unprecedented drop in the price of natural gas, to which wholesale electric prices closely follow.
As an owner, those costs are passed on to NIMPA and then to the city of Batavia, Holm said. He said the city continues to look at ways to sell more of the excess power it has.
Last year, the city sold 51,492 megawatts of energy back to the market at a $1.2 million loss.
But Holm said he is confident electric prices will bounce back.
“We do believe, at some point, the market prices will increase and be above that of Prairie State, making Prairie State much more cost compatible,” he said.
The Prairie State project was estimated to cost $3.9 billion at the time of construction, but ended up costing $4.9 billion.
Batavia’s contractual debt service obligation for the project is about $15 million annually through the year 2040.
Residents would see a 10 percent rate increase in their electric bills if aldermen approve an additional half-percent home rule sales tax that could be allocated each year towards rate relief.
Aldermen are expected to make a decision in March, and the rate increase would go into effect in May.
The one-half penny of each $1 in sales could provide up to $1.5 million in additional funds, officials said.
If aldermen decide against implementing the additional tax, then a 16 percent electric tax increase would be needed, city staff said.
In addition, staff recommended an increase to the base rates for all customer classes.
The planned increase for residential customers is $4 a month. Holm said Geneva is in a better financial situation than Batavia because it owns and operates a natural gas generation plant.
“It is a revenue source for them, one that we don’t have,” Holm said.
Geneva officials said the higher-than-anticipated construction costs for Prairie State have not impacted the operation of the city’s electric utility and that the city is not looking to increase electric rates in the next year.
In the case of St. Charles, the city has a 30-year contract with the Springfield-based Illinois Municipal Electric Agency, one of 32 municipalities that contracts with IMEA for energy.
The city is in the seventh year of the 30-year contract.
“It’s the entire city need,” said Tom Bruhl, the city’s electric services manager. “IMEA is responsible for providing 100 percent of the energy that the city’s residents and businesses need.”
IMEA gets its power from many sources, Bruhl said, including part-ownership in the Lee DeKalb Wind Farm.
“We feel the diversification is a better risk management strategy and reduces our overall risk,” he said. “If one plant has some really bad performance or has a really expensive repair, that’s only one piece.”
“Through IMEA, we have some insulation from the wild market swings that are going in today’s market,” Bruhl said. “We have a long-term contract with them, and they have done some long-term contracting, so we have stability. We’re not playing the market on days that power is at a premium. IMEA is covering that.”
Despite Batavia’s situation, Bruhl said there are economic advantages to municipalities owning their own electric utilities.
“We don’t make a profit,” he said. “We’re here to balance the budget. We don’t pay shareholders. We’re able to sell and distribute for what it costs us. We don’t have to give a cut to a shareholder, like Exelon does.”
Information about Batavia’s proposal to increase electric rates is available at www.cityofbatavia.net.