May 14, 2009

City Seeks to Stabilize Utility Bills With Power Cost Adjustment to Electric Rates

In an effort to eliminate the volatility of monthly energy surcharges, the Memphis City Council on May 7th agreed to change the base rate the city charges for electricity.

The current rate was set in 2001. The city has a price control tool in place, charging a surcharge to offset the difference between the city’s rate and the actual cost of power paid by the city each month to its power suppliers.

Last year that surcharge fluctuated from two cents to nearly seven cents, creating difficulties for customers attempting to budget for energy costs. The council voted to cap the surcharge at four cents late in 2008, and has maintained the cap while the council reviews the electric rates.

The current rate structure establishes a base electricity rate of $0.0877 per kWh for residential customers. Of that rate, $0.0437 is allocated for power purchase and $0.044 is budgeted for overhead and service costs.

However in 2008, the city average cost of power was $0.0703, which was well below the built in cost factor in the city’s electric rates.

To address the issue, the council agreed to increase the power cost portion of the electric rates to $0.0703, or an increase of $0.0266 cents per kWh.

The new rate for residential customers will be $0.1143 per kWh if the proposed ordinance is approved at the June council meeting.

Alderman Chris Feeney stressed that this simply denotes a rate increase, and not a true price hike. He noted customers were already paying this “new” rate through a combination of the old price and the surcharge. This move is expected to curtail the surcharge. While it offers customers no cost relief, it should eliminate the roller coaster ride customers saw in their monthly bills as the cycle attempted to recoup power costs over the city’s varying billing cycles.

“In essence what the customers will be paying is exactly what they paid last year,” Feeney said. “We didn’t raise the price. We just fixed the old rate, which hadn’t been adjusted since 2001. This should decrease the surcharge, which was the root of the dramatic cost fluctuations customers witnessed in 2008. We will still be at the mercy of the market costs of power to a degree, but we hope this move will eliminate a lot of the billing confusion for customers.

The council indicated the move will not eliminate the surcharge. It was retained as a tool to insure the fluidity of the city’s power purchases. If power costs are higher than 2008 levels, the surcharge will go up. However if the power costs are lower in 2009 and beyond, the surcharge works in reverse, computing as a negative number, lowering the consumer’s price.

The council agreed to implement the $0.0266 base rate increase across the board for residential, commercial, electric heat and industrial customers.

The city is continuing to pursue cost saving measures within the electric service, hosting a series of workshops to address rates and revenues.

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