New IPL rate study sees no immediate need for rate increase

A new rate study for Independence Power & Light recommends major changes in the utility rates structure, projects no immediate increase in base rates for two years and recommends other steps to make the municipal utility more competitive particularly for large commercial and industrial users.

The study anticipates no increases in bases rates until October 2017 with approximately $7.9 million saving in base rates in the year starting Oct. 1, 2015. The savings, by customer group, would be: residential ($4.3 million), commercial ($3.2 million) and industrial ($.4 million).

The rate recommendations require City Council approval.

The 200-page report notes the city "is facing the challenges of pursuing and implementing renewable energy options, transitioning to new base load resources that are more energy efficient but higher cost, and maintaining and improving an aging infrastructure, while providing low-cost, reliable electrical service."

The study was completed by Sawvel and Associates - long-time rate consultants used by IPL and updates an earlier 2008 report.

Basic recommendations include fewer rate categories, expecting groups to pay their actual cost of service and using available cash to fund capital needs.

It also would add an annual adjustment  to recover regulatory and environmental compliance costs which would include items like coal ash ponds and retirement of Missouri City power plant which is set to close early in 2016.

The study also recommends a monthly adjustments for the costs of actual power supply costs not already covered in the base rate.

These would be on top of the newly recommended base rates.

The rate study also recommends developing "off peak" lower rates for winter when electrical demand is lower.

In general, the report believes the recommendations will make IPL more competitive with other utilities including the investor-owned Kansas City Power & Light and the municipally-owned Board of Public Utilities in Kansas City, Ks.

The study recommends customers wanting solar energy be charged an additional tariff to cover the potential higher costs of providing the renewable energy. IPL is currently considering constructing a large community solar farm on city owned land.

The study recommends adopting an "Unrestricted Cash Fund Balance Policy" which annually would determine what IPL needs to meet expected obligations - fuel, operating costs and contingencies.

The IPL amount, based on the methodology, would be between $23 and $25 million. The report shows IPL had $43.2 million operating fund balance as of June 30, 2014. The amount has grown significantly from $8.8 million as of June 30, 2011.

The study's financial projections do show potential annual 3.3% base rate increase in fiscal years 2018, 2019 and 2020 but says these should be deferred until other major expense factors are determined.

The City Manager, in a separate memo, said staff were in general agreement with the recommendations noting "this report represents only part of what should be a continuing community dialogue and that balancing a variety of competing needs in a challenging regulatory climate will not be easy."