Thursday, August 11, 2004

City delays decision on utility rate hikes

Staff Writer

Mayor Andre’ DeBerry and the board of alderman put off decisions on utility rate increases requested by Holly Springs Utility Department (HSUD) until departments have made their budget requests known.

Water rates are in most urgent need of increases, according to electric department director Tom Boone.

He and accounts manager D. Miller recommended a rate structure for water for the next 10 years that would be raised in three increments at the August 2 meeting. The most immediate increase is a 25.69 percent rate hike for water. Another 15.77 percent increase would be added five years from now based on today’s rates.

DeBerry said the most critical need at HSUD now is for water revenues to increase. Electricity rates will be set by TVA.

Specific gas rate increases were not discussed in open meeting.

Don Hollingsworth, with HSUD, said the process for increasing natural gas rates is being changed at the Public Service Commission. In years past, before rapidly escalating energy costs, rate changes involved a lengthy process between distributors and the PSC.

The PSC now has a process in place where a “flow through” of increased energy costs to utilities will be done month-to-month due to the volatility in the energy market, he said. He said HSUD could handle gas rates that way by raising the cost of gas to customers monthly when there are increases.

“They will come back down if the price goes down,” he said.

Hollingsworth said labor and construction costs are stable and known but energy costs are variable.

Mayor DeBerry said he did not want to ask for motions on utility rates until the city has had time to determine whether the requested rate increases will cover costs.

Hollingsworth said the “flow through” model could calculated monthly and over a 12-month period of activity easily by putting gas rates in the budget as a line item.

The new rate requests were based on “weighted averages,” he said.

“A ‘rolling average’ is the way to go,” he said.

Public Service Commissioner Bo Robinson, in an interview last week, said natural gas was deregulated in the early 1990s and gas utilities purchase their gas at the well head and collect a fee to pay the transmission costs.

He said utilities charge exactly what the gas costs, adds its other costs to transport the gas and then adds a margin to cover operating expenses.

“The PBS does not rate gas for Holly Springs and has no authority over their rates,” he said.

But the city has to consult with the Public Service Commission about raising rates to customers one mile or more beyond the city limits where a city’s jurisdiction ends, he said.

Virden Jones, with the Commission, explained that gas rates did not fluctuate up or down much until recent years.

He said municipal utilities can set their rates within their jurisdictions as they please.

Several methods are available for setting rates, Jones said. The gas utility can estimate the costs over a period of time and true it up later.

“If they have overcorrected, they have to reduce the following period or pay it back,” he said. He said Hollingsworth’s “flow through” method was the same as the PSA’s Purchase Gas Adjustment.

Jones said a rate case would be involved if the utility were planning construction of new lines in PSA’s jurisdiction or planning to make a big increase in rates.

Jones said state law regulates the rates outside municipal jurisdictions further than one mile because customers living in those areas cannot elect their board of aldermen.

Since customers living within the city limits do elect their board, the board of aldermen have to consider voter’s concerns about rates, he said.

Jones said the 25.69 percent increase the utility is asking for this year would be considered a big increase and the city (HSUD) would have to come before the PBS with a rate request for customers on the system who live outside the one mile radius. A rate case like that could take up to two months to be processed, he said.

He said utilities need to keep an eye on costs and expenses during this time because natural gas prices have been fluctuating upward lately.

He said he has seen companies nearly go bankrupt because they did not update their rates and keep up with their costs.

Jones said recent figures he looked at project the price of natural gas to go up to $8 or $9 per cubic foot during winter.

DeBerry reiterated that the utility rate increases have been under consideration for several months and the utility department cannot set its budget without knowing what the utility rates (income) will be.

With respect to sewer rates, the mayor said the city has “some serious situations to solve in several pending litigations.”

TVA is set to present their own rate increases at the August 16 meeting.

Alderman Tim Liddy asked Boone if water rates for big customers, such as the schools, need to be adjusted. Big customers also have to set their budgets based on utility costs, he said.

Hollingsworth said the prison is another big water user. He suggested the board talk to big industry inside the HSUD service area at a meeting scheduled at the Industrial Development Authority.

“This city needs to have a tentative agreement of what we will do so we can see how it affects our budget,” said DeBerry. “So, a general idea of how it will affect industry is also needed so they can build the costs into their operating budgets.

“I think the city has kept down rates but we are at a critical juncture to keep service. No question it is a tough deal (decision).”

Miller added that reserves in the sewer department are at a minimal levels sufficient to meet requirements for Rural Development grants and loans.

“Something has to be done (about sewer rates) if we want to have any kind of construction in the city,” she said.

The first meeting of the board of aldermen with the departments was held Thursday.

In other business, the board:

  • approved a request for a permit to construct a cell phone tower off Clay Products Road after Shawn Massey, with an advisory group assured the board the cell phone company would install a fence around the tower base and install a visual barrier below the tower with suitable size trees.
  • passed a motion to allow a one-year use variance for Redeemed Fellowship Ministries to hold services in a temporarily leased structure located in the downtown business district.
  • authorized HSUD to purchase two large transformers for the Slayden substation at $115,000. The board also authorized $10,000 for the transportation costs to move the transformers from south Mississippi to Slayden.

George Humphreys, with the electric department, said the upgrade will provide better service for customers in the Benton County (Ashland/Highway 4 East) area as well as improve transmission to Mt. Pleasant.

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