BERLIN — Both commercial and residential ratepayers could see rates further stabilize and in some cases decrease as well after the recent power purchase agreement goes into affect.
According to an announcement by the Town, they were able to take advantage of a temporary drop in the market and sign an additional two-year electricity supply contract with NextEra Energy Power Marketing, LLC, (NextEra Energy).
This move, they said, would help stabilize bills for the town’s electric customers starting in June 2013 and continuing through May 2015.
Although the agreement was reached last week, the Mayor and Council passed it, as required, at a public meeting this week.
The new contract is an extension of the one-year contract in which the Town engaged last year and which was credited with bringing residential rates down.
When the most recent contract with NextEra Energy becomes effective in June 2013, purchased energy for the town will drop significantly below the contracted rate in place at that time. The savings will be reflected in each customer’s bills through the Power Cost Adjustment (PCA) portion of monthly electric bills.
The full impact of adjusted supply cost will be phased into rates through the PCA over the summer and fall of 2013.
“PCA charges represent just over one-third of the cost per kilowatt hour for residential customers, so the new two-year contract will have a measurable impact in keeping Berlin’s electric rates stable while the electric energy market continues to rise unpredictably,” said Mayor Gee Williams in a statement.
Berlin officials were guided and advised through the last three electric supply contracts by the electrical engineering consulting firm of Booth and Associates, Inc. of Raleigh, N.C. who was first hired by the town in August 2008.
With the residential rates in the most solid condition in years, the Town, with the help of the consultant company, has set its sights on bringing commercial rates into line.
Dwight Davis, the Booth and Associates, Inc. representative with whom the Town works regularly, presented his findings to the Mayor and Council at Monday’s meeting.
According to Davis, the Town’s case for reducing the rates with the blessing of the Public Service Commission (PSC) remains strong and Berlin is “very close to being able to lower the non-residential rates,” he said.
The primary difficulty with lowering the power rates is that the PSC needs an immense amount of proof that the Berlin Electric Company can afford the revenue loss. It is important that the Town can demonstrate that they will not have to return to the PSC to ask for a rate hike, or worse, spread losses across the board and raise residential rates at the cost of commercial reductions.
While much of the legwork on this project is complete, Davis said there is still an amount of work that has to be done in order to make sure that the case goes through on the first try.
Davis gave examples of the kinds of things that would interest the PSC and explained the town’s position.
For example, in the long range, the BEC will have to continue to make capital investments.
In fact, Davis said about $700,000 worth of work needs to be done in the next three or so years.
The PSC will want assurances that the company is running in such a way as to be able to fund 10 years worth of capital improvements without the benefit of a rate hike.
The company’s reserves are healthy and continue to grow. The decrease would slow the accumulation of reserve funding but not too significantly, especially giving the start to which the town is off.
Davis said he was confident Berlin could demonstrate that they can fund the necessary work without rate hikes.
The hearing will likely take place sometime this summer. Davis said that the Town’s commercial users would be able to recognize a significant cost drop-off as soon as the new rates go into place.
What the town will recommend will reduce rates for most commercial users — 300 of the Town’s businesses, by about 10 percent. Those who use a greater amount of energy — restaurants, for example — may realize as much as a 15 percent reduction.
The largest customers will receive about a 2-3 percent reduction. More importantly, these reductions will go into affect as the rates drop with the new power agreement.
“You’ve got the income, and you’ve certainly got the cash to do this,” Davis said.
He cautioned that the most intensive part of the process — reviewing the BEC bonds — will take some time but was optimistic that the new rates could go into effect July 1. Operationally the town is taking steps to cut costs within reason by realigning when the plant is open. By reducing operating costs, the BEC will continue to improve its financial position even as its revenue fall off with the proposed reductions.
Davis credited staff for their efficiency in dealing with the operational changes.
“Personally I am not ashamed that we were able to attain stability in this market,” Williams said.