April 28, 2013

PUBLIC FORUM: 95 percent an inflated estimate


— Who is going to protect us from higher electric rates in the future? The service board spent $50,000 for an electric system master plan by the Lutz engineering firm which recommended that we switch from burning coal to natural gas. Last November the city threw away that master plan and began spending money on the mayor’s many consultants for a “waste-to-energy” proposal.

The springboard for rejection of the Lutz plan was a rate analysis by John Skomp, an associate of Hartman. Skomp said that all four Lutz proposals would raise rates by 95 percent or more. We have been mislead.

The touchstone of rate analysis is that adjustments or rate increases are founded and justified only upon “fixed, known, and measurable” details; or “fixed, known, and certain” details. Rate studies only permit adjustments to the test year if that certainty is documented. Speculation or “what if” is not acceptable. The utility seeks authority to collect a certain rate, based upon identifiable expenses, not for what might happen.

The Lutz study recommended a rate increase to finance a $14.25 million upgrade of the transmission system. Skomp’s huge rate increase is based, in part, on his use of a construction cost of $35.25 million, instead of the documented $14.25 million number. He had no “fixed, known, and certain” basis; it was just the mayor’s consultants guessing the cost to tear down the old generation plant. This huge speculated construction cost contributes to Skomp’s scary “95 percent” rate increase.

A second speculative number is Skomp’s estimate of the cost of purchased power at $55,216,392. He picked that number from the estimated cost to purchase power in 2019. There is no professional reason to pick that speculative number so many years away when the baseline purchase power expense in the present (for 71 percent from Duke) is known to be, in fact, $23.5 million. As much as it would cost to purchase the additional 29 percent of power at this time is around $9.4 million; so the best statement of the cost at this time is around $33,000,000, which is a universe away from Skomp’s $55 million-plus.

The reference to a 95 percent rate increase has been repeatedly used to promote the “waste-to-energy” proposal. Just as there is reason to reexamine the hasty start, there is reason to question this unusual power plant.

Jim Brugh