SPRINGVILLE — City leaders have trimmed about $600,000 from this coming year's budget, but residents are still likely to see an increase in electricity rates Tuesday night to make up a power department deficit.
Because of major increases in the cost of electricity on the open market the city lost about $900,000 in the months of May and June. The city likely lost a few hundred thousand dollars more in July and will lose more in August if city officials don't act to increase rates or reduce costs.
"We can't continue to go the way we're going," Mayor Hal Wing said. "We're looking at anywhere we can in the city to save."
Right now, the rate the city is charging residents is less than the power costs. Because of deregulation in the power industry, electricity costs on the open market this summer are more than four times what they were last summer. Springville depends on the open market for about 25 percent of its power supply during the heavy-use summer months.
At Tuesday night's City Council meeting, officials will decide whether to implement a fixed rate increase or adopt an adjustable electricity rate that goes up and down depending on the city's cost of power. At a meeting last week with the city Utility Board, most favored an adjustable rate because it would go down if power costs decrease. A fixed rate would remain unchanged if power costs decrease.
"We need a mechanism to handle this volatility (in power costs) or you're going to have to do it with a higher rate," board member Alan Reed, who favors an adjustable rate, told council members.
Some council members said residents have a fear that an adjustable rate could result in spiraling electricity rates. For that reason, if the council opts for an adjustable electricity rate it might put a maximum to which rates could increase.
"(Residents) are looking for some assurance that there is an end to this," Councilwoman Keri Gordon said.
A fixed rate increase would cost most residential users about $10 more per month. An adjustable rate would likely result in a similar increase, at least for the next few months.
However, an adjustable rate would not provide as much revenue for reserves, which the city needs to offset unanticipated future deficits and to fund future power investments. Some board members suggested that the city depend less on the power department to supplement the general fund. Reducing electricity department transfers completely, however, might require city leaders to someday raise property taxes to make up the difference. City officials say they have already reduced the amount of transfers from the electricity fund.
The city also bonded recently for about $2 million to upgrade and expand the Whitehead Power Plant in west Springville. The plant currently has three natural gas engines producing power. Once the expansion is complete by late next summer or fall, seven generators will be producing power, and the city will not have to buy power on the open market. The city is also negotiating to buy into more fixed-resource power supplies.
"We're trying to address the future so we don't have this problem again," City Manager Cameron Gunter said.
One of the Whitehead generators broke down early this summer and cost about $300,000 to repair. City leaders say an insurance policy will likely pay the repair costs and reimburse the city for about $400,000 the city lost in power generation while the generator was down.