AlliedNews.com - Grove City, Pennsylvania

Local News

April 18, 2014

Winter's chilling cost

Council eyes $200K shortfall, rising costs

GROVE CITY — Grove City Borough Council will be considering options to pass along a $200,000 electric bill to residents – maybe.

Council’s Infrastructure Committee met with members of American Municipal Power Inc. of Columbus, and Utility Engineers PC, of Drums, Pa. to discuss the options on March 25.

Michael Migliore, assistant vice president of Power Supply Planning & Transmission with AMP, gave a lengthy presentation about ways the borough can cover utility expenses over the next six years – and how it can weather the unforeseen $200,000 in electric costs that came from January and February’s record-breaking, sub-zero temperatures.

The borough services residents with electricity it buys from the open market, which is a complicated process.

“AMP’s more like a financial planner and we get together every so often to adjust your portfolio to make sure you’re on the right track,” Migliore said.

He gave recommendations to the committee about how the borough can pay for future power – which is going up in cost – as well as cover the $200,000 budget shortfall that kept Grove City residents warm during the freakish winter.

In this region, PJM (Pennsylvania, New Jersey, Maryland) Interconnection of Audubon, Pa., operates the high voltage grid, dispatches all the generation and is the buyer and seller in the power market, Migliore said.

PJM Is also responsible for the installed capacity market, finding ways to make sure there’s enough power generation to meet peak needs, plus a 15 percent reserve, he added. Every year, PJM runs an auction to buy power from the market from power generators.

Grove City pays PJM for installed capacity – and power transmission costs PJM collects for FirstEnergy.

This year, the cost of installed capacity is going up $4 per MWh, because older generators are retiring, Migliore said. That creates a deficit in power that increases costs at auction time, he explained.

FirstEnergy has retired a lot of its units as well, decreasing its ability to provide transmission, which will drive costs of power in 2015 to $10 per MWh, he added.

The borough’s least expensive energy resource comes from New York Power Authority, which is a federal hydropower project that provides about 3.5 percent of Grove City’s needs, Migliore said. Until 2027, the borough has a license to receive NYPA’s power, which is billed through Allegheny Co-Op, he noted.

AMP does the billing for the rest of the borough’s power. It bargains with brokers – mainly banks – which sells power from the market at a fixed rate, Migliore said.

“AMP has to keep an eye on who we’re buying from to make sure their credit is good, because they are really backing (power) up with money not generation,” he said.

AMP has locked in prices until 2017 from power brokered through Barclays, a bank; those figures don’t include installed capacity charges and transmission, which are paid to PJM.

After the meeting, Migliore explained that some electric plants operate seasonally, because there isn’t a need for electric in winter months like there is in summer months. People mostly heat their homes with natural gas, he said. The extremely cold winter in January and February caused individuals to use more electric heating sources to supplement their natural gas heat.

Power plants are also using natural gas to operate. The ones that opened up early to accommodate the unusual electric needs in January and February drove up the cost of natural gas; therefore, driving up the cost of electric, added Vance Oakes, borough manager, in a separate interview.

Simply put, this caused congestion overload and raised the costs of power phenomenally, Migliore said to council.

This resulted in about $150,000 extra in power costs in January; and about $50,000 in February, he added. The extra congestion has happened to boroughs all over the region, not just Grove City.

Residents are generally happy with the borough’s inexpensive electric costs; it tries to pass any savings it receives in buying directly from the power market.

Oakes said the borough has paid the $200,000. At the committee meeting, he asked engineer Jim Havrilla, with Utility Engineers, to weigh in on whether the borough should pass that amount onto its residents or not.

“Some borough’s eat it and don’t pass it along,” Havrilla said. “Others pass a special rate to recover it between two-to-six months.”

He recommended the latter. “It minimizes the impact on the customers, but also keeps the borough financially sound,” Havrilla said. Councilman Joel Bigley, committee chair, agreed. “We have to recover these costs,” he said.

If council did decide to pass the costs along, council President George Pokrant believed a longer pay-back period would be “the most palatable version” than a one-time payback, which FirstEnergy apparently slapped on its customers.

“A one-time charge sounds really brutal,” he said. FirstEnergy “chose to kick them in the teeth.”

“We’ll present several options for the borough to consider,” Havrilla said, of how much and how long residents would contribute to pay off the extra $200,000 power bill from AMP.

Council may also choose to eliminate other expenses in the budget to cover the $200,000, Oakes said in the separate interview – like not filling a vacant position that may arise or not providing certain services like leaf collection, composting and street paving.

For future costs that are going up in the power market, Migliore also recommended that the borough get a rate levelization loan from AMP for $900,000 to pay the excess – which can be repaid when those costs go back down in 2018.

He also made recommendations to lock in power rates, including hedge protection for any future power congestion.

Havrilla said this year’s congestion was uncommon – and not likely to happen again soon.

Published April 2, 2014, in Allied News. Pick up a copy at 201 A Erie St., Grove City.

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