City Utilities got the go ahead on a set of electric rates increases and approval of its 2024 operating budget from the Springfield City Council at its Sept. 18 meeting.
The operating budget would continue CU on its path to carbon neutrality and renewable energy, and the electric rate increases will provide the revenues necessary to fund needed infrastructure investments across the utility’s service area.
Both the budget and the rate increases received unanimous approval without discussion amongst council members on Sept. 18, but were presented and discussed at length at the Sept. 5 City Council meeting.
In total, the rate increases will amount to a $14.74 monthly increase for average CU residential customers, to be rolled out through a 4.8-percent increase in 2024, a 4-percent increase in 2025 and a 3.9-percent increase in 2026. The rate increases will take effect in April of each year.
Nancy Williams, the chair of the Board of Public Utilities, introduced CU’s 2024 operating budget at the Sept. 5 meeting, highlighting continued investment in infrastructure, renewable energy and reliability.
“I’m always impressed with CU staff’s continual focus and conversations on the balance between reliability and serving the needs of all community members with the most affordable rates possible,” Williams said.
Council member praises CU’s push toward renewables, despite ‘headwinds‘
At the Sept. 5 meeting, Gary Gibson, the president and chief executive officer of CU, acknowledged some of the challenges facing the utility sector, spurred by recent storms, extreme heat, inflation and continued supply chain shortages.
While he said that the electrification of the country and the move toward renewables was a “great thing,” CU is experiencing the stress of that transition. For example, long-term dispatchable thermal generation is being retired before it can be replaced by renewable energy.
“Because of our location on the edge of the Southwest Power Pool footprint, we’re often seeing congestion on the transmission system,” Gibson said. “That really illustrates the importance of investment in transmission, but also, that we maintain local generation in Springfield so that we can keep costs low for our customers but that we also have the transmission capacity to continue our leadership role in bringing renewable energy into Springfield.”
City Councilmember Craig Hosmer said that some people “don’t really understand or appreciate” CU’s transition toward renewables, which it aims to make up 70 percent of its portfolio by 2035, in addition to the goal of being carbon neutral by 2050.
“It’s really been a win-win,” Hosmer told Gibson. “It’s good for the environment, but it’s also good for ratepayers because it diversifies your portfolio of where you get your energy and you can buy where the market’s more favorable to your customers.”
Hosmer further praised CU after Gibson noted their expanded use of wind energy and solar, as well as their plans to replace existing power generation with more renewables. In its 2024 budget, 41-percent of CU’s energy sources will be made up of renewables, with 36.6 percent of that from wind energy, 4.1 percent from hydropower and 0.3 percent from solar.
“My only criticism of City Utilities has ever been is that you don’t toot your horn loud enough,” Hosmer said. “Because I think what you do in the city, and the rates we have and the environmental responsibility, environmental stewardship that you’ve shown I think is a great corporate representative for the city.”
Expenditures to remain the same while revenues anticipated to dip
City Utilities anticipates total receipts in 2024 to be down compared to 2023 — decreasing from $646 million to $633 million — primarily due to the end of collections of natural gas costs from Winter Storm Uri in 2021, according to CU chief financial and supply chain officer Amy Derdall. Specifically, electric and natural gas revenues are expected to decrease in 2024.
Miscellaneous receipts include the $10 million CU received from the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration in April 2023, which it plans to spend over the next three years.
Ultimately, $45.2 million, or 8.4-percent, of CU’s operating revenues will be returned to the City of Springfield in 2024, with the majority of that in the form of payment in lieu of taxes and public transit.
Total expenditures in the 2024 budget are expected to remain the same as 2023 at $645 million, with increased expenses on capital improvements offset by decreased fuel costs. Investment in aging infrastructure, such as water and natural gas main renewals and replacement of poles and transformers, is a recurring cost for CU.
Low utility rates come at cost to ‘unique expenditure category‘
At the Sept. 5 meeting, Councilmember Brandon Jenson, while commending CU for their efforts to keep utility rates lower than state and national averages, inquired as to whether that came as a cost to the city’s transit service, The Bus, which is operated by City Utilities. CU is the only utility company in the state to subsidize a city’s transit service, according to Derdall, as required by the Springfield City Charter.
“We have this unique expenditure category that other utility companies don’t carry and also have some of the lowest rates of any comparison utility companies in the state and so I guess I wonder if there’s a connection between those two and potentially a disservice to our transit system in this city with our efforts on keeping rates low,” Jenson said.
Of the $45.2 million to be returned to the city in CU’s 2024 budget, $8.8 million is allocated for public transit services, which equates to a subsidization of about $100 per customer, according to Derdall. In addition to the $8.8 million subsidy, the transit system is funded by bus fares, advertising revenues and grants.
“I firmly believe that our transit system is an essential service for a lot of our community,” Gibson said. “That is a balancing act, to keep rates low and make sure our transit system is accessible for everyone.”
CU is currently wrapping up a study that will provide recommendations on how to improve the transit system. However, Gibson said that many of them will be unfunded.
“We’ll have to decide which ones of those, as a community, we can afford to fund or would want to fund and knowing that if we fund those they will have some sort of rate impact on the other utilities,” Gibson said.
Electric rate increases to fund infrastructure improvements, maintenance
Some future capital improvements are being funded, in part, by the electric rate increases, which will roll out over the next three years. Its approval marks the first set of eclectic base rate increases approved by the City Council since 2013. Since the last rate increase took effect in 2016, inflation has exceeded 20 percent.
While the need for increases became clear to CU in 2020, it was ultimately delayed due to the economic uncertainty created by the COVID-19 pandemic and Winter Storm Uri.
In total, the rate increases will amount to a $14.74 monthly increase for average CU residential customers, to be rolled out through a 4.8-percent increase in 2024, a 4-percent increase in 2025 and a 3.9-percent increase in 2026. The rate increases will take effect in April of each year. The impact to non-residential customers, which include industrial and commercial users, will vary based on a number of factors, including rate class.
CU anticipates the increase for residential customers to still keep costs lower than all but one on a list of 14 benchmark cities by 2026, based on inflation assumptions.
The increases will add an additional $39 million to annual revenues by 2027, and while it will be used for some infrastructure and maintenance costs — for electric poles, transformers and switchgears, among other projects — it will not fund contingency projects, which include potential environmental compliance changes, future power generation needs and turbine/generator repairs.
