Power rates would increase 10 percent across the board beginning July 1, and would continue to rise each of the following four years under a proposed rate hike tentatively approved this week by the City Council.
Although customers' power bills were expected to increase soon as rising costs were passed along, the proposal represents a reversal of Mayor Joe Jenkins' previously stated intent to hold the line on rates next year.However, the city Energy Department faces a projected $1.2 million operating deficit in fiscal 1988-89, which begins July 1. An immediate rate hike would eliminate that potential deficit.
"I believe we have to run the utility as a business," Jenkins said. "That means not holding off on doing what we need to do, regardless of any political concerns."
The five-year plan presented to the council by Ron Rydman, acting Energy Department Director and former city budget officer, would hike rates across the board by 9.8 percent beginning with the July 1 billing month.
Rates would rise approximately 9.7 percent the following year, 9.6 percent in fiscal year 1990-91, 7 percent in 1991-92 and 5.3 percent in 1992-93.
The rate increases would fund operation of the utility, build cash reserves that have been drawn down to fund operations in recent years, and will help the city complete its purchase of a geothermal power plant in Beaver County.
The rate hikes following the initial July 1 increase are approximate. The city would retain an engineering consultant to determine the precise cost of providing power service to, and to establish equitable rates for, each class of residential and commercial customers.
The mayor's proposed 1988-89 city budget of $53 million did not include an electricity rate hike. But the administration and the council have admitted that power bills would have gone up regardless because the city's costs of providing power to residents and businesses are rising.
The rising costs are blamed on rapid commercial expansion that added a large number of customers to the system, a reduction in the amount of relatively inexpensive hydropower available to the city from federal government dams and the purchase of new power generation facilities.
In addition, the department is facing a cash crunch because it has assumed a number of citywide costs - such as the $1 million needed to light city streets - from other departments, and because one-time revenue has been used to fund operations.
At the same time, the previous City Council have been reluctant to raise rates even when the hikes were deemed prudent by outside consultants.
"The city has had a propensity to look one year ahead," Rydman said. "If the department could be operated the next year without raising rates, we did that even if it meant dipping into our reserves. Now we need to take a long-range view."
Rydman's projections showed that without any rate increases the department is facing a $1.2 million operating deficit next fiscal year, and the deficit would grow each year to $3.7 million by fiscal 1992-93.
If the council approves the proposal, the projected deficits will be avoided and the department will have sufficient reserve funds to issue bonds that will fund the geothermal plant purchase.
The city would also be able to resume spending in 1990 on selected Energy Department capital improvement projects.
The rate proposal is scheduled to come before the council for final action June 24.