Naperville weighing two electric rate increase options
The decision of how much to increase electric rates in Naperville may hinge on the financial outlook of another city department: the water utility.
City council members examined an electric rate study for three hours Monday night and narrowed down rate increase options to two of eight alternatives suggested in a rate study - or a hybrid developed from them.
Under either option, rates stand to increase at least 6 percent beginning next year. For a customer with an average electric bill of $103.75, that would mean a $6.23 monthly increase or $74.76 a year.
City officials say rate increases are necessary to help the utility build up reserves to at least $13 million or $14 million to cover 30 days of operating expenses. So far the electric utility has no reserves. It's in the hole after losing about $3.3 million during the past fiscal year because of inaccurate expense projections and cost overruns at one of its power suppliers.
The decision about how much to increase rates could come down to the water utility and how much money it needs for maintenance and capital improvements during the next three years. That's because electric took a loan from water in 2014, borrowing $13.2 million.
Now, City Manager Doug Krieger said, the water utility needs at least $3 million of that money back in 2016 to afford to make $8.8 million of improvements and maintain its cash reserves.
One electric rate option would take on outside debt to pay back the water loan more quickly - starting in 2016 rather than 2017. That option would call for a 6.3 percent rate increase in 2016 followed by 3 percent increases in 2017 and 2018 to support a loan that would be paid back over 10 years.
Council members, Judith Brodhead, Becky Anderson and John Krummen said they would support that plan.
"We really do have to get some of this under control as we move forward," Anderson said about utility finances.
But others, including council members Patty Gustin and Kevin Coyne and Mayor Steve Chirico, said they want to avoid incurring extra debt.
"I'm not following why we would issue debt to pay off a loan that we owe to ourselves," Coyne said. "Why owe an outside creditor when it's money that's owed internally?"
Gustin said she'd support the option that doesn't include new debt. That plan would call for a 6 percent rate increase in 2016 followed by 3 percent increases in 2017 and 2018. But it wouldn't allow the city to begin paying back the water loan until 2017.
Chirico and Coyne said they'd like to see a hybrid of this option that would involve immediately paying back the $3 million the water utility needs in 2016.
Council member Kevin Gallaher said he doesn't want to decide about how much to raise electric rates until the panel hears a full budget presentation from the water utility, which is scheduled to take place during a meeting Tuesday, Nov. 17.
It looks like he'll get his way, as nothing about electric rates was decided Monday night. Discussions are scheduled to continue Nov. 17 after the water presentation.
Both electric rate options the council is weighing would come with some additional changes beyond rate increase.
Both would create an automatic rate adjustment, which would change the consumer price every month based on a six-month rolling average of whether the city's cost of providing electricity was above or below a base rate.
Finance Director Rachel Mayer said this would protect the utility from major swings in cash flow and make sure customers are paying the accurate amount to cover costs - not too little or too much.
Both plans also would charge some of the rate increase in the form of a higher base fee on the monthly bill, increasing it by $1.50, from $11.10 to $12.60.
Aside from paying back the loan from the water utility, electric rate increases also are designed to allow the department to increase its spending on capital improvements. Spending has been cut the past two years from the usual $12 million to $5 million.
Both rate increase scenarios would increase capital spending to $8.3 million a year in 2016 and 2017 and $10 million in 2018.