This last weekend I was able to participate in a utility discussion with Mayor Pengra, Ashly Crook Lower, and others. The hope was this meeting would provide some of the extra information that is just too hard to get out in short form while having some strong opinions so we are sure to get both sides. After 3 hours I felt like we got a lot of information from Mayor Pengra, but Ashly Im still wondering if you want to add more. Mayor Pengra asked that we share the information we learned so that is what Ill try to do here. Ive been thinking for 3 days to try and decide how to condense it, here goes, sorry its still really long. There are 3 reasons to consider the sale of the utilities. #1 Risk factor of EMC run vs Big Box (RMP and Questar) run. #2 Ability for growth within our City. #3 The Utility Audit that was conducted under Mayor Jackson. Ill start with the short. #3- The energy audit discovered that we had some big issues within our City. The utilities market is one of the most volatile out there and for the last 7 years our City didnt change their rates. It was a set and forget (and hope and pray were covered) system. With Gas we came out on top, to the tune of $6 million dollars, with Electricity we came in below and the rates were quickly changed for both. Those rates still need some adjusting as we work to provide the best and most cost effective system. It was also discovered that accounting for utility use within the City was not happening appropriately. Ie City Hall wasnt “billed” for their usage the City just made a blanket payment. Did those costs come from City Hall, public works, the water pumps, etc, we never know and thus cant correctly set rates. (Mayor Pengra hopes to change that ASAP.) Bottom line, we need a serious overhaul of our Utility System, we can do it ourselves, or let someone else do most of it for us, by selling. #2- Eagle Mtn is a bedroom community. Our 2 biggest assets are cheap land and good people. We can continue to grow, little by little, with more homes, some small Mom and Pop stores, eventually some mid size and hopefully 20 years from now, something big. Bedroom communities have a hard time supporting a City and all the bonuses wed like because homes only pay property tax where business pays property and Sales tax. The biggest hold up to growth is our utility system. Because we are small (which a lot of us love) our utilities have a hard time making a big jump in requirements. Any company that needs a big plot of land will need a large amount of utilities. They look here for the cheap land, but then leave because we cant service them. We have a unique opportunity to skip the growth pains of small businesses and jump to big business and local careers, IF we can provide the necessities; constant and sustainable electricity and gas. #1- We spent most of our time discussing what the energy market is and what makes it so hard, this is what I heard. There are 2 risks in running a Utility business. The cost of your product and the amount your customers use. The nature of the business is both can be very volatile based on regulation, availability, seasonal patterns, etc. Eagle Mtn City owns 2% of their electrical needs, the rest must be purchased at market rates. We can predict how much will be used at a MINIMUM and purchase a “long term” (2-5 years) contract for 80% of that amount (it must be lower because we may have a fluke cold summer). If we over purchase we lose it, there is no saving for later. The rest of our usage must be purchased at the “daily market rate.” My opinion is that gets pretty expensive, and hard to predict, because when demand goes up, supply raises their rates. EMC is also a small group. We cant purchase “in bulk” because we dont use bulk amounts. We also have an approximate 6% growth rate. So while our 80% of minimum is good for now, in a year well be short, in 3 years wed be way under. We also cant prepare in advance because we never know when the economy will tank or growth will stop. RMP and Questar own the majority (I think it was at least 80%) of their product. They dont have to buy at market rate, they set the market rate. Because they own they also know their fixed costs and can accurately predict those into the future. Both companies also service huge areas. Because of their big service group their high and low usages smooth to hills rather the steep mountains. One area may go up, but there is a good probability another is going down. They have the ability to “weather” the changes easier that we do. The larger service group also make the growth curve more manageable. Our 6% growth rate causes some pains for us, but to them were just a blip. We become part of the growth of the state of Utah and the smaller growth curve is easier to predict and manage. To me, this says RMP and Questar have the much smaller risk making it easier to run their own utilities. I love the Mom and Pop stores, I try to “buy local” but sometimes you just need to have the expertise of a professional. As a City we could hire an analyst, a new energy “CEO,” and all the support staff, and try to buy our own stuff and get the best deal, but all of our City management from Mayor to Administrator to Council, etc will still have to spend a good deal of time on the Utilities. Or we can sell the Utilities to the Big Box and let them do what they do best, run a company, and we can get our City Administration back to working on our parks, roads, water, and other civic improvements that are important to us as citizens. We did spend a little time talking numbers but I wont. The short of it was Questar Gas has been between $40 and $250 cheaper per year in their rates every year since 2004 except this last year when we dropped our rates because wed been over billing (we came in at $49.64 cheaper for the last 6 months). Our current low rate wont last for very long. Mayor Pengra also had a spreadsheet that showed loss and increases expected for the City with the sale. The General Fund will have a $24,000 difference we need to make up, but the Enterprise (Utility) Fund should have an increase within just a year that more than covers it. Mayor, can you share that sheet with everyone? Thanks for reading, hope it was helpful.
Posted on: Tue, 07 Oct 2014 20:49:07 +0000
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