Monday, April 21, 2008

City Utility's "profits," "surpluses," "civic contributions," and "subsidies"

I toyed with whether I wanted to go here over the weekend. I decided it's worthwhile to comment on the Saturday News-Leader article. In particular, this excerpt from Wes Johnson's article:

"CU plans to spend $2.5 million on tree trimming this year.

Board member Lisa Officer asked whether spending an additional $1 million a year for several years would require a rate increase for electric customers.

CU general manager John Twitty said it wouldn't necessarily trigger a rate increase, but the cost eventually would be passed on to CU customers.

He noted that CU hasn't increased its base electric rate since 2003, to pay for new pollution controls.

A rate hike for tree trimming would be particularly sensitive now because CU already is asking the City Council to approve a 4.1 percent natural gas rate hike.

Electric customers have been subsidizing gas system losses in recent years.

If the gas rate hike goes through, CU board member Tom Finnie suggested using the electric system subsidy to help pay tree trimming costs."*

Now, I understand that when money is taken from the electric system's "profits" to pay for needs of the gas system at C.U. the electric system is "subsidizing" the gas system, but when the electric system's "surplus" is used for maintenance of the electric system, is the electric system "subsidizing" itself or is it paying it's own way?

Twitty has communicated that each of the utilities should be paying it's own way.

There was a base electric rate increase in 2003 (the last base electric increase according to Twitty) to pay for new pollution controls, yet the electric system is still making more than is necessary, enough to subsidize the gas system, subsidize public transportation and make civic group contributions.

A citizen questioned City Utilities at the last Council meeting that if the natural gas rate increase was approved by City Council would electric rates be reduced since the electric system's "subsidy" would no longer be needed to maintain a separate system, but it didn't appear that C.U. was considering lowering electric rates. Further, C.U.'s contributions to civic groups was called into question by State Auditor Susan Montee who later expressed satisfaction with the utility's explanation as to why their contributions benefit the utility but still leaving questions in our community, see "Spending practices examined" from April 4, 2008.

Suggestion: City Utility's John Twitty likes to refer to hedging natural gas as "insurance," giving us a prime example of his ability to describe one thing as something more palatable by identifying it to the media, the State Auditor and its customers as something not quite what it is. So, it seems to me, if the utility wants to benefit its community (customers who are paying electric rates to the tune of giving C.U. a "surplus" to "subsidize" other systems within the utility's purview) why don't they call the "subsidizing" of the gas system by the profits generated by the electric system a "civic contribution," rather than a "subsidy?" In my opinion, this would benefit their customers more than some of the other civic group contributions C.U. is making with money that goes beyond what is necessary to pay for the electric system, and please don't pretend that the electric rates paid above and beyond what is necessary to pay for electricity to its customers would be "subsidizing" tree trimming maintenance necessary to stabilize C.U.'s delivery of electric to its electric customers.

C.U. wants to raise the base gas rates to pay for maintenance of gas system delivery so that the gas system can "pay its own way," and then a board member wonders whether it will be necessary to raise our electric rates rather than use the electric system's "subsidy" currently spent, in part, on civic group contributions, for tree trimming, electricity delivery maintenance.

Can anyone else see the irony here, or is it just me? If they have enough money in the electric system to subsidize the gas system for 8 or 9 years, subsidize public transport and make civic group contributions, then they have enough in the electric system to pay for tree trimming maintenance without "eventually" passing the cost "on to CU customers." It seems to me C.U. customers have been "subsidizing" tree trimming maintenance for a long time, C.U. just hasn't chosen to utilize that "subsidy" for tree trimming maintenance.

Of course, there is also the option of using some of that "subsidy" money to upgrade their current system by developing a plan and phasing in underground electric delivery to their customers.

*emphasis mine


Anonymous said...

One thing that might be said is that CU looks to be "run better" than the "public hand out system" that our Mayor enjoys as he serves the poor...

The Mayor does not even have a picnic

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chestnut expressway

Anonymous said...

Perhaps mr. Twitty can tell us when we get to deduct the civic contributions from our income tax.