Electricity rate increase may be necessary to recoup biomass costs

With the recent Jasper increase in electric rates set to go into effect in August, future rate increases may come sooner than expected.

With over a million dollars in expenses between maintenance, capital improvements, and the biomass litigation, the City of Jasper will contact the Indiana State Board of Accounts for guidance on how to replenish the reserves funds that have been depleted.

Ken Sendelweck, Electric Committee Chair, told the Jasper Utility Service Board the utility reserves are in good shape because of the conservative philosophy the utility has embraced for many years. “With the power plant situation still out and the cost on the balance sheet regarding the litigation cost and engineering cost over the last four years … those reserves will have to be recovered at some point,” he said.

The balance sheets show the million plus dollars spent on the power plant. “Basically, we have been accruing the engineering, legal fees and other professional services with the Jasper Clean Energy project from day one,” Sendelweck explained. “They [fees] have not hit our income statement.  They are sitting in a reserve account on a balance sheet. They have not flowed through as an expense yet.”

The city decided to pay for those expenses as they occurred with the intention to determine how those funds would be replenished once the project was completed. The project is now drawing to a close but the city will seek more input from interested parties to determine if there are any other viable projects for the power plant.

The utility service board approved a request for expression of interest to be forwarded to the Jasper Common Council for approval before it is submitted to a list of potential interested parties.

They will also explore demolishing the power plant including an environmental study of the property to determine how the city would have to proceed with re-purposing the entire property.

“As soon as that project is over we are going to have to decide how the appropriate accounting will handle those costs,” Sendelweck explained. “We are trying to clarifying how to do that through the state board of accounts.”

The utility is required to maintain various reserves for expenses that occur through the operation of the utility. Money is earmarked from the payments that rate payers make for the utility. The reserves are set up for items like maintenance, expansion, and bond security.

“Basically, there will be a plus or minus million dollar hit to the income statement,” Sendelweck said.

The city will have to determine if it can pay for those fees related to Jasper Clean Energy through the reserves it has available. “That is what we are trying to have the state clarify,” Sendelweck said. “We could argue that there are reserves that could be used to pay those expenses and then we may not have to have a rate increase to recoup those costs.”

Depending on the state, the city may be have to have another rate increase or be able to replenish the funds over a period of time through the regular payments.

“Ideally, we would like to not have a rate increase. We just had one for the first time in six years — which was less than the cost of inflation if you annualized that increase — so we don’t want to come right back and have another one,” Sendelweck said. “But, we consciously stated when we approved it that it didn’t include any of these costs [associated with the biomass] and we will have to rely on the state on how to proceed.”