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May 30, 2013

New LMU rate study suggests increases

Utility Service Board asks for further investigation

LOGANSPORT — Logansport Utility Service Board members have asked for another look at a study that suggested Logansport Municipal Utility rates would rise to keep up with operation, maintenance and capital expenses.

The study was prepared by financial consulting firm Crowe Horwath LLP and is based on an analysis of operating and financial reports, budgets and other LMU data through August of 2012. The study estimates LMU’s cash flow and financial capacity to meet its ongoing revenue requirements for operation and maintenance expenses and to make capital improvements to its system.

A separate rate was study released last November by Crowe Horwath based on an engineering report by Lutz, Daily & Brain LLC, which estimated how rates would increase in accordance with four redevelopment options for LMU’s current generating facility.

The new report suggests an overall 2.9 percent increase in revenues in order for LMU to maintain future expenses.

“Not everyone gets the same percentage increase,” said John Skomp of Crowe Horwath to Utility Service Board members at the board’s monthly meeting Tuesday. “Some classes need more to pay their fair and adequate share and some need less.”

Residential service, for instance, would see about a 4.28 percent increase whereas commercial and large industrial would see up to a 1.2 percent increase, the report states.

Board members expressed a desire to have a more revenue-neutral report that would explore ways to address required revenues in the future.

“We’re attacking ‘here’s how much money we need and here’s how much money we got, so we got to make up the difference’ rather than the possibility of cutting out some of that money that we need,” said John Davis, the board’s chairman.

Davis also alluded to the fact that LMU has seen about a $700,000 profit so far this year, further questioning the need for rate increases.

LMU Superintendent and Utility Service Board member Paul Hartman said a large part of the reason for this profit is likely because LMU has yet to perform any major maintenance on its generating facility. For instance, terminal overhauls are usually conducted at the generating facility that cost $1.5 million to $2 million every two to three years, Hartman said, with LMU’s last overhaul being in 2009.

The weight of the city’s current negotiations with Pyrolyzer LLC to develop a waste-to-energy generation plant also played a role in the discussion.

“If that does not come to fruition, I think we’ll have a lot of things we’ll have to do, which would make [the rate study’s suggestions] kind of an interim between point A and point B because life is going to change here at LMU drastically if those negotiations do not come to fruition,” said Dan Slusser, a Utility Service Board member.

Board member Todd Miller said LMU’s bonding authority could assist with future needs.

“To get us over this hump, we still have another option if we would need the cash... until we determine how the cookie crumbles, we could bond in order to do it and service that debt out.”

Skomp said he would adjust his report to address the board members’ concerns, explaining he would allocate current revenue requirements by focusing less on LMU’s capital improvement budget but maintained that bonding could still result in base rate increases.

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