August 10, 2006

Rising Electric Bills Are Shocking Memphis Residents

“Why are our rates so much higher than everyone else around us?” That was the question restaurant owner Kelly Nelson poised to the Memphis City Council on August 3rd regarding growing electric bills. And she wasn’t the only one asking the question. Nelson presented a petition, demanding the city address the high rates, complete with 267 signatures.

“And we just started the night before last,” Nelson said regarding the popularity of the cause. “So you know there are plenty more people interested in this issue.”

Customers in the City of Memphis have witnessed electric rates increase from the base rate of $0.0877 per kilowatt hour (kWh) established back in 2001 to the most recent adjusted cost of $.1321 per kWh in June 2006. That represents an increase of roughly 33 percent.

The City Council attempted to explain to the public at the meeting, that this increase is 100-percent related to the cost of energy.

“The increase you have seen in your bill is caused by a surcharge that the city is collecting so it can meet its expense to buy the electricity,” stated Alderman Chris Feeney. “The surcharge simply allows the city to collect nearly as much as what it is turning around and paying to the electricity provider. We cannot sell the electricity to the customer for less than it costs the city.”

Therein lies the problem. Since 2001 when the current rate level was established, the price of electricity for the City was $0.0482 per kWh in October. In November and December that rate fell below the established base rate, meaning citizens saw a negative surcharge, or in essence, received a rebate because of the low rates.

Since then the rates have been on the rise. By July of 2004, citizens were paying a $0.0097 per kWh surcharge as the cost of buying power had risen by nearly a penny per unit. Recently the cost crunch has become extreme, creating the latest surcharge of more than four cents per kWh.

Local customers are not alone in the dilemma. Fellow MoPEP member, Palmyra has implemented two price increases, totaling more than 33-percent in the past 12 months, including a 25-percent price hike approved in May.

In June 2001, the last time power rates were adjusted in Memphis, the city set the rate at $0.0877 per kWh after the minimum charge of $7.71 for the first 50 kWh. Of that base rate, $0.0437 was established as base power cost factor, meaning roughly half the customer’s electric bill would pay for the actual electricity. The other half of the revenue was earmarked for overhead, including salaries and equipment for the light plant and line crew. This is a basic industry standard, with most power providers maintaining a 50/50 split between their cost of electricity and overhead to provide the necessary services.

The rate also established a surcharge to be added to a customer’s bill monthly. That surcharge is the difference between the base rate established for the cost of electricity back in 2001 ($0.0437) and the average of the previous three month’s actual energy cost.

In April 2006, the City of Memphis paid an average of $0.0823 per kWh for its wholesale power. In May that rate was $0.0909 and in June it dropped back to $0.0817 per kWh.

The costs from the three months are averaged, dividing the total price paid for the power by the total number of kWh used in the city (minus the electricity consumed by the city itself to power the light and water plants, the cemetery, the swimming pool, city hall, the police department and fire station, street lights and various other public holdings). That produces the base energy cost, which in June was $0.0881.

So in July 2006 customers not only were paying the normal $0.0877 per kWh, they had the added surcharge of $0.0444 per kWh. The city paid an average of $0.0881 per kWh for power sold to customers, creating the surcharge ($0.0881 – base rate $0.0437 = $0.0444 per kWh surcharge).

It is a confusing process that prompted one citizen in attendance at the meeting to tell the council it has done a very poor job of communicating the problem with its customers.

Discussion on the bill increases stalled when prospective solutions were discussed, as most were in agreement there is no quick fix to the issue.

One resident questioned why the city does not generate its own power.

Light Plant Superintendent Mike Ahland explained that the plant’s generators are not nearly as efficient as those more modern facilities at larger plants. He said, while the city has the capacity to produce electricity in emergency situations or during high peak demands, it is not cost efficient to generate on a regular basis. He estimated it would double the current cost of electricity if the city used its diesel-fueled generators to meet the entire demand.

However Ahland noted that by simply maintaining the capacity to generate, the city receives a demand credit of more than $10,000 a month from the electricity provider.

Since 1996 that provider has been the Missouri Public Energy Pool (MoPEP), a cooperative consisting of 26 Missouri cities joined together under the Missouri Joint Municipal Electric Utility Commission (MJMEUC), a state-wide Joint Action Agency specifically authorized by state law to operate as an electric utility for the benefit of the combined requirements of the members.

Established by six charter members, the MJMEUC has grown to a membership of 56 consumer-owned systems ranging in size from 700 to 87,000 meters. These municipal and cooperative electric systems serve 347,000 retail customers, and have a combined peak load of over 2100 MW.

MJMEUC may construct, operate and maintain jointly owned generation and transmission facilities for the benefit of members. The Commission has the authority to enter into contracts for power supply, transmission service, and other services necessary for the operation of an electric utility.

MoPEP, which is run by the MJMEUC, consists of the cities of Albany, Bethany, Butler, Chillicothe, El Dorado Springs, Farmington, Fayette, Fredericktown, Gallatin, Harrisonville, Hermann, Lamar, LaPlata, Macon, Monroe City, Odessa, Owensville, Palmyra, Rock Port, Rolla, Shelbina, Stanberry, Trenton, Unionville and Vandalia.

In 1991, when Memphis joined MoPEP, the city council authorized the contract with the new entity based on electric rates well below the wholesale power contracts being offered by area electric cooperatives.

One director of an area cooperative indicated that the city took what was an excellent deal at that time, saving customers on their electric rates.

Now, since rates through MoPEP have risen, the city is faced with some difficult obstacles in finding a solution. The most difficult mountain to climb is the MoPEP contract itself, which requires a member to give five years notice before leaving the power-buying group.

Even if the city did escape its MoPEP contract, there are fewer options available than back in 1996. Most of the electric cooperatives no longer offer wholesale power contracts, meaning the city has limited options to replace MoPEP, even if it legally could.

“Based on the current situation, the city has some limited options to offer relief to our electric customers,” stated Alderman Feeney. “We can cut our costs, which means likely cutting some services or other expenses. We could also possibly lower rates by using the city’s reserve funds earmarked for system improvements and repairs. Or, we can attempt to change suppliers, but our contract and the existing options will make that extremely difficult. None of these are perfect solutions.”

Mayor Roger Gosney asked the citizens to consider making efforts to conserve electricity to help lower their expenses while the city strives to resolve the problem.

“Trust me, we are working on this issue, but it doesn’t appear as there is a quick fix,” he stated. “We cannot promise you anything, except that we are going to try to help. Remember we are all customers too.”

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