Residents expecting power rates to increase another 9 percent this year are in for a pleasant surprise, Provo Mayor Joe Jenkins says. A preliminary cost-of-service study shows that there is no need for an increase.
The city had planned to raise power rates 9.7 percent this year as part of a five-year plan to hike rates and decrease a $1.2 million Energy Department deficit, but study findings don't justify a rate change, Jenkins said.The cost-of-service study is used to determine if energy customers - ranging from residents to large businesses - are paying their fair share for what it costs to provide them with electricity.
The study is preliminary, but Jenkins said all customers are in line with what they should be paying.
Ron Rydman, Energy Department acting director, said the preliminary findings won't change much and the conclusions are close to what they will be once the study is complete.
The study shows that residential customers are actually getting a better rate, paying 2.3 percent less than the actual cost-of-service. Brigham Young University is paying 3.5 percent less, and small businesses are paying 8 percent less while large business customers are paying one percent more.
Power supplied to area churches is almost 19 percent less than the cost-of-service, but those groups have reduced rates because they generally do not use energy during peak hours, Rydman said.
Jenkins said the few percentage point discrepancy is insignificant. "We can't justify a rate change for that little of an amount."
Instead of making any adjustments, the city will monitor the situation for six to eight months and then re-evaluate the numbers. This time next year Rydman said they will probably recommend some changes.
The city has been able to sidestep a rate increase through efficient operations, he said. The Energy Department has cut down its overtime costs and is getting by with what is available.
"We are very cost conscious. We don't take expense lightly. All expense accounts are being watched closely. Most people realize they work for the ratepayers in Provo."
Revenue from growth has also added to the department coffers, as has a coal royalty refund and a decrease in transmission charges from Utah Power and Light.
Last year's 9.8 percent rate increase has also brought in funds needed to build up the Energy Department's reserve account, Jenkins said.
"We need to build a reserve so we will have funds if there is an emergency," he said. "If we can build up a million a year in the next four or five years we will have enough to feel comfortable. We have to operate this like a business and cover costs, not use our reserves."
Jenkins said $11.5 million in Energy Department reserves has been eaten up in the past eight years because past city officials were not willing to make a rate adjustment as recommended by analysts.
In August 1980, consultants recommended a 10 percent increase, but that did not come until July 1982. Consultants recommended a 31 percent increase in August 1983 and the city responded with a 10 percent increase in July 1984 and an 8 percent increase in December 1985.
Again in July 1986, consultants recommended a 24 percent increase. A 25 percent increase came a year later in March 1987. July 1987, consultants suggested another 23 percent increase and the council responded with the 9.8 percent increase as part of a five-year proposal to build back the department deficit.
For the past five months the department has operated in the black, Rydman said. And even though the city will avoid a rate increase this year, it will most likely be inevitable in fiscal year 1990-91.
Power rates were expected to rise 9.7 percent this year, and are expected to rise 9.6 percent in fiscal year 1990-91, 7 percent in 1991-92 and 5.3 percent in 1992-93. Without the increases, Rydman said the deficit would grow to $3.7 million by fiscal 1992-93.