IPL audit recommends utility rate increases

A wide-ranging audit of Independence Power and Light (IPL) identifies significant financial and operational issues for the city-owned utility.

The audit was publicly presented to the City Council Finance and Audit Committee on July 12 and was also recently presented to the Public Utilities Advisory Board.

The audit executive summary says the city utility is "at a crossroads" because its current 193 megawatts (MW) of generating capacity is within "five years of end of life."

The report outlines 28 different recommendations - some which have already been implemented - to improve IPL's financial performance and overall operations.

The major recommendation was a 15% rate increase over the next four years - 7% in 2018, followed by 3% in 2019 and 2020 with a 2% increase in 2021.

The seven-member City Council has to approve rates. The City Council in 2015 considered a rate increase, but tabled the matter indefinitely following opposition from various groups to a proposed increase in the monthly fixed customer charges.

One of the items is to show the city utility tax separately on customer bills rather than including it in the base rate. The utility tax is 9.08%. Showing the utility tax separately, the consultants say, would show IPL rates are more competitive compared to neighboring utilities.

The audit was done by Management Partners and Michael Bell Management Consulting. This was the first audit of IPL in over 17 years.

The audit presentation provided this background information:

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  • Only 3% of power sold to customers is generated by IPL
  • IPL needs to replace 160 MW of "aging uncompetitive generating capacity" - a significant portion of IPL's total system capacity of 360 MW.
  • IPL has experienced negative cash flows and a deteriorating financial condition which can affect bond rating and borrowing costs.
  • Potential new major projects could significantly increase costs and long term financial obligations

The audit recommends completing a master energy study and subsequently do a cost of service study to determine new rates and rate design.

The audit also revealed significant employee issues.

Only 33% of IPL employees felt morale was "good" and there was various issues with IPL senior leadership:

  • low level of respect for department leadership
  • fear of retaliation for reporting policy violations
  • concerns that accusations of harassment or discrimination are handled timely and fairly.

In general, IPL staff are among the highest paid city employees.