Owensboro Municipal Utilities plans to move forward on a rate stabilization plan that should translate to lower electricity costs for customers in Owensboro, officials with the public utility said Thursday.
As first reported by the Messenger-Inquirer in November, OMU has concluded a five-year financial forecast that factors in the upcoming closure of Elmer Smith Station by 2020 and the utility's replacement strategy, which includes two purchase power agreements with Big Rivers Electric Corp. and a Texas-based solar conglomerate building a new array in western Kentucky. Those factors are expected to lower energy and environmental control costs for the utility.
Lower utility costs mean increasingly smaller electricity bills over the next five fiscal years, says General Manager Kevin Frizzell.
"Big Rivers was a deal that worked out very well for both entities," he said. "We were able to lower our cost of supply, and lower our costs of supplying power translates directly to the customers’ bottom line. That's really what we're able to do moving forward. We don't like having to close the power plant; we have a lot of very good employees out there, and we appreciate all the hard work they’ve done. But, at the end of the day, our mission is to provide our services at the lowest economical costs, and, really, this was the mechanism for us to get there."
Frizzell is expected to present a plan to the City Utility Commission later this month that would couple refinancing two outstanding bonds with slight base rate increases in order to maintain an acceptable debt service coverage ratio. The energy and environmental control cost decreases, however, will more than offset base rate adjustments, Frizzell said, resulting in electricity bills roughly 5.8 percent smaller by June 2020.
It's a remarkable feat for a utility to be able to accomplish, officials are noting this week, especially as natural gas prices and the popularity of renewable energy options continue to disrupt a once coal-dominated Southern energy marketplace. And, in fact, it was partly in order to stem losses on the wholesale market that OMU decided to shutter the coal-fired Elmer Smith Station and secure a fixed contract with Big Rivers Electric in the first place. According to 2017 projections, OMU could have faced a 15-cent-per-kilowatt-hour increase in 2020 and another 15.7-cent-per-kilowatt-hour in 2021 were both Elmer Smith units to remain running.
Rather, the plant will close, and soon. Now, OMU is realizing the cost savings it will be able to pass on to its customers, both large and small, over the next five fiscal years. It may seem counterintuitive, to some, to increase portions of an average electricity bill while decreasing others, but OMU's financial structure is not built in such a way that all the money ends up in one, single account. By policy, individual rates must be applied to individual costs, so the utility has to increase its base rates to continue paying off its debts.
It's complicated, Frizzell admitted on Thursday, and he said he is concerned that the plan to lower bills over the next two years will get lost in the talk of increases expected to go before the Owensboro City Commission next month.
"It's hard to present all the components of our rates, so you can see that, even though the base rate has to go up to cover those financial metrics and make sure we’re in compliance with, like our bond covenants and our policies, the other components of our rates are moving down more than the base rates go up," he said. "The bottom line is, our rates are going down, and our customers’ bills are going down."
Here's what that looks like for monthly bills: The average single-phase residential customer (they make up the predominance of OMU's individual accounts) consumes roughly 870-kilowatt hours of electricity each month. Under the current rate structure, that customer pays $129.52 a month for electricity, taking into account fixed costs and variable energy charges under the base rate and cost adjustments for energy and environmental controls. If OMU's proposed rate ordinance were to go into effect, that same customer would pay $126.66 a month by June 2019 and $122.25 by June 2020, for a total savings of $7.27.
A massive, industrial customer in Owensboro consumes about 643,934-kilowatt hours of electricity at a cost of $71,747.57 per month now, but would pay $64,114.76 by June of 2020, for a total savings of $7,632.81.
It's a savings of more than 10 percent for large customers and about half that for residential customers. OMU made a candid effort to balance those savings as much as they could, however, considering a trend downward for residential demand, sparked by energy-smart savings.
At a presentation on Thursday, commission member Tom Maddox expressed concern over lower-income customers who may, in fact, be disadvantaged by fixed cost increases because their demand for variable energy is so low.
But according to Ted Kelly, a senior project manager of regulatory services at Burns & McDonnell, OMU's rate analysis contractor, it can be a mistake to associate low use with low income.
"People tend to think low income is low use," he said, "but that's not always the case. Often, low-income customers use a lot of electricity, because they can't afford energy-saving technologies. We took care here to come up with a rate option that would result in equal reductions for almost everyone."
The City Utility Commission is expected to consider the draft rate ordinance, complete with base rate increases and energy and environmental control decreases, later this month, and the city commission will likely hear first reading of the ordinance in April.
Austin Ramsey, 270-691-7302, firstname.lastname@example.org, Twitter: @austinrramsey