Pharos-Tribune

March 27, 2013

Board takes another look at rate study

by Mitchell Kirk
Pharos-Tribune

LOGANSPORT — Logansport city officials are taking a second look at the rate study that pushed them toward finding a new power source, questioning whether the costs were represented fairly or forecasted accurately.

City Utility Service Board members addressed the author of a financial study done last November to assess Logansport Municipal Utilities’ energy needs at its meeting Tuesday.

LMU and city officials say the motivation behind their pursuit of a waste-to-energy power plant comes from the impending multi-million-dollar upgrades that would be necessary in order to continue buying electricity from its current supplier, Duke Energy, or buying electricity wholesale, as well as future fees that will be imposed on coal-powered plants by the Environmental Protection Agency.

Last November, financial consulting firm Crowe Horwath LLP assessed the alternatives LMU was considering to fill its energy needs based on a report prepared by engineering consulting firm Lutz, Daily & Brain, LLC. The alternatives include redevelopments to LMU’s system like installing new combustion turbines and re-powering existing boilers to handle natural gas. The Crowe Horwath report concludes that each alternative would result in up to a 95 percent increase in utility rates.

Because of the large increase in rates, city officials opted to pursue a developer to invest in building a power plant powered by refuse-derived fuel. City Council voted in favor of entering into negotiations with energy consulting firm Pyrolyzer LLC to develop the plant at its March 4 meeting.

The Crowe Horwath study has been contested recently with the concern that it may have front-loaded many of the costs that should have been spread out over time, leading to the large utility rate increases.

For instance, for an alternative pertaining to performing the necessary upgrades to LMU’s system to keep buying energy from Duke, the engineering report prepared by Lutz, Daily & Brain states the upgrade would cost about $14.25 million, while the financial report prepared by Crowe Horwath adds costs to come up with a total of about $38.7 million, leading to up to a 95 percent increase in rates.

When this point was brought up at Tuesday’s Utility Service Board meeting, John Skomp, a consultant with Crowe Horwath, said the motive was to compare alternatives at “full build-out.”

“We wanted to see when the full alternative was completed, what rates would be,” Skomp said, adding that he could have assessed it year-by-year, but felt it more important to assess a broader idea of what rates would be required to support the alternative.

Utility Service Board Chairman John Davis referred to the alternative in the reports pertaining to switching LMU’s system over to natural gas, which showed an increase in the price for natural gas over time.

“When it jumps up in those future years, one of the assertions that’s been thrown out there several times is that the cost that’s being estimated for purchasing natural gas has been inflated,” Davis said.

Skomp agreed this was a concern of his as well while conducting the Crowe Horwath study, but reminded Utility Service Board members that the figures pertaining to natural gas inflation came from the Lutz, Daily & Brain report, which the board accepted. He added having Lutz, Daily & Brain go into further detail on these figures would have required an additional cost and said he had no reason to think they were inaccurate.

Davis also said at the meeting that he is planning on inviting representatives from the Midwest Independent Transmission System Operator, Inc., the Indiana Municipal Power Agency, the Wabash Valley Power Association and Duke Energy to meet with Utility Service Board members to explore further alternatives for LMU if Pyrolyzer’s proposal doesn’t come to fruition.

Mitchell Kirk is a staff reporter at the Pharos-Tribune. He can be reached at 574-732-5130 or mitchell.kirk@pharostribune.com.