October 5, 2006

Tri-County Cooperative Offering City Options On Electricity Front

Faced with increasing electricity costs the Memphis City Council met with representatives of Tri-County Electric Cooperative on September 27th in Memphis to discuss possible options for residential customers in the city.

Tri-Countys general manager David Ramsey along with the president of the cooperatives governing board, John Eggleston of Memphis, met with the council in a special meeting designed for both parties to learn more about each other.

While the city currently is under contract with the Missouri Public Energy Pool (MoPEP), an agreement that requires a five-year notification to leave, the council discussed the possibility of purchasing power from Tri-County.

Ramsey stated the cooperatives across the state are no longer offering wholesale power contracts like the one his company used to have with Memphis to provide the city with its electricity.

The only way Tri-County could provide power to residents in the city limits is if they were customers of the cooperative. For that to happen, Ramsey stated the city would have to sell its entire electrical system to the company, transferring ownership of the city-owned utility to the cooperative. That would in essence eliminate the city light department and would make each resident an individual residential customer of the coop.

The discussion was spurred by recent price increases that have driven wholesale electricity rates for the city up 71 percent since 2001 when the city entered its purchase agreement with MoPEP.

That cost increase has meant a growing surcharge on each city residents electric bill.

Without the surcharge, electric rates are very similar for Memphis customers and Tri-County customers.

For the average customer that uses 1000 kWh a month, the Tri-County bill is $90.80. That same usage would cost a Memphis resident $90.93 under the base rate schedule. Unfortunately the August 2006 surcharge of .0465 per kWh drove that same price up $46.50 to $137.43, or more than 33 percent higher than the Tri-County customer was paying.

Ramsey noted that his company is also seeing the volatility of the electricity market that has been blamed for the MoPEP price hikes.

Were feeling the upsurge in costs just like MoPEP, he told the council.

But Eggleston pointed out that the upsurge was expected to mean only a six or seven percent price increase for Tri-County customers in 2007.

Ramsey noted that long-term, he was projecting price increases of 30 to 40 percent by the year 20122015 when the Missouri cooperatives new power plant at Norborn is expected to come online.

When the new plant comes online, we are going to be faced with the costs of the plant as well as costs of new environmental regulations that will mean higher electric rates, Ramsey said.

He speculated that wholesale power prices likely would increase from the current four cents per kWh the cooperative is receiving to 5.5 to 6 cents per kWh, which represents a 50-percent price hike.

MoPEP is currently paying roughly 6.5 cents per kWh to purchase wholesale power for members of the consortium. MoPEP CEO Duncan Kincheloe told the council at a September 13 meeting that he hoped these rates would begin falling by 2010 when several new power plants partially owned by MoPEP would be coming online.

However, it was Kincheloes prediction that costs would continue to go up in the next few years that led to the council meeting with Tri-County.

Ramsey noted it would be difficult for his company to offer immediate relief for the city.

The initial hurdle is the citys contract with MoPEP.

The council agreed to have the citys attorney review the agreement with the aid of the cooperatives attorney to determine if there were any possible outs for the city.

If it is determined that the city could legally leave the agreement with MoPEP, the next step would be for Tri-County to review the citys system and have engineers determine if the company would be interested in purchasing the system from the city.

Ramsey stated that cities generally include a franchise fee in such agreements. He stated this typically is a five-percent tax that is assessed by the utility company on the electric bill and then passed on to the city to offset the loss of revenue that it was receiving from electricity sales.

That move would mean the end of the citys light department, including the mothballing of the citys 10 diesel generators at the light plant. Ramsey stated his company can not generate power and thus would have no use for the generators. Currently Tri-County has 30 employees to maintain 6,400 meters and 1,750 miles of power lines. Ramsey said the company would have to study the possibility of absorbing city employees that would otherwise be laid off by the city if the system were sold to the cooperative.

Of course that decision likely would go before a vote of the people to decide a sale of the system to Tri-County.

I think a decision of that magnitude would best be made by the voters, said Alderman Chris Feeney. Of course that is a long way down the road. We first have to review the current contract. If and when we get results on that front, then we can start considering the next step.

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