September 13, 2001

Electric Rates In Memphis To Increase By 15 Percent

After two consecutive years of declining balances the Memphis City Council approved a 15 percent price increase in city electric rates expected to take effect this winter.

The council voted 3-0 to approve the 15-percent price increase at the September 6 meeting. The ordinance will be read at the October city council meeting for final approval and is expected to be enacted November 1st.

Earlier this summer the city engineering firm had recommended a 30 percent price increase in the rates to offset declining revenue.

The council reviewed the issue in a number of special meetings in July and August prior to making the final decision at the September council meeting.

"We are going in the hole each month," said Alderman Patty Simerl. "We have to do something. We can't keep going backwards. With the rising price of fuel we don't have much choice but to raise the rates."

Despite being in agreement that the rates must be raised for the first time in nearly 20 years, the council also felt it was important to keep the increase as low as possible.

"We are trying to hold it down as much as possible for all of the people," said Mayor Ron Alexander. "But we all know that power rates have to be higher after 20 years."

The price increase will raise the estimated electric plant revenues for 2001-2002 to $1,541,800. In the last three years the revenue has hovered around $1,180,000. Over that time span, the light plant's fund balance has declined dramatically from $377,000 in 1999, to $183,000 in 2000 to an estimated $9,876 at the end of the 2001 fiscal year.

The light system has deficit spent the past two years in large part due to price increases for purchased power as well as for rising fuel prices used to run the city electrical generators.

Power purchase costs rose from $474,455 in 1999 to $639,321 in two years. Over that same time span, fuel expenditures more than doubled, going from $54,682 in 1999 to $117,693 in 2001.

The proposed price increase will create a positive balance of $63,000 for the 2001-2002 fiscal year. The positive balance will allow the light department to make transfers to the electric reserve budgeted at roughly $25,000 for the year.

Despite the transfers, the reserve fund will remain at just $190,000, well below the recommended level. The engineering firm states that municipal power providers should insure their power lines and electric sources in case of emergency repair needs or natural disasters such as wind storms, fires or tornadoes. The recommended level of self-insurance for similar sized power systems is $1 million.

Because the city is more than $800,000 below the recommended reserve level, the engineering firm recommended a 30 percent price increase.

However the council refused to make such a large move at this time.

"It's not fair to the people since we got behind," said Alderman Ron Gardner. "It's not their fault, it's our fault so I don't think it is fair to approve such a large increase all at once."

Mayor Alexander indicated he felt that cost saving measures put in place by the city should allow it to make due with a smaller price increase.

"We're saving dollars every place that we can," Alexander stated. "There was a retirement at the light plant and that position will not be filled at this time. With the cost saving moves I feel we can make it with a 15% increase."

Currently the residential electricity rate for Memphis is 15.4 cents per kilowatt for the first 30 kw; 12.6 cents for the second 20 kw; and 8.12 cents for each kw after that. These rates will increase 15 percent. The new price rates will be presented by the engineering firm for consideration at the October council meeting.

The 15-precent increase will include a fluctuating fuel surcharge to offset increases and decreases in fuel prices. The surcharge will be calculated based on the fuel prices in the previous three months.

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