Posted: Sunday, January 22, 2006 6:00 pm
More than 20 of Lincoln's largest companies are opposed to the LES plan to implement a flexible surcharge for electricity. Why are they against this plan and what's it all about? A brief explanation:
By ALGIS J. LAUKAITIS | Lincoln Journal Star
What does PCA stand for?
a) Portland Cement Association
b) Porsche Club of America
c) Power Cost Adjustment
d) Presbyterian Church in America
If you answered C, you’re correct.
PCA stands for power cost adjustment — and it’s something the Lincoln Electric System has been pushing for months.
The problem: More than 20 of Lincoln’s largest companies — and biggest electricity users — are pushing back.
They formed the Lincoln Employers Coalition to fight the proposed adjustment, and they’re urging the City Council and mayor to kill it.
They say the move is going to boost their electric bills by 10 percent to 15 percent, something the utility disputes, and may hurt jobs and economic development. They also say the power cost adjustment erodes some of the City Council’s authority to set electric rates.
LES officials say the adjustment is the best option for recovering about $13 million in unexpected power costs mostly because of skyrocketing natural gas prices over the past year and hurricane damage to natural gas production along the Gulf Coast.
LES gets about 18 percent of its energy from natural gas sources.
The utility says the adjustment gives it flexibility to cover wild swings in natural gas prices and wholesale power costs. LES says it’s good for customers, too, because there could be months the utility won’t need to use the adjustment.
To help reduce the impact of the PCA and a proposed 4.5 percent rate hike, LES is using $11 million of the $12 million in its rate stabilization fund.
The City Council will hold a public hearing on the issue Monday.
What is a power cost adjustment?
Utilities, especially gas companies, use them to generate revenue to cover fluctuating changes in energy costs.
LES officials say the adjustment would be adjusted monthly, up or down, to reflect actual energy costs. In some months, ratepayers could end up paying zero.
If approved, it would take effect Feb. 1 and be used this year. LES officials have said there are no plans to use it in 2007.
Why does LES need it?
Blame hurricanes Katrina and Rita for damaging natural gas production facilities along the Gulf Coast.
Blame a wild and volatile market last year for record natural gas prices.
Blame Burlington Northern Santa Fe for doubling coal-shipping rates and adding a fuel surcharge.
Blame Laramie River Station and Gerald Gentleman Station — two coal-fired plants that provide electricity to LES. They will go out of service for four to six weeks this spring for maintenance.
These are the major reasons cited by LES for the adjustment and a 4.5 percent rate increase. The city-owned utility says it needs the adjustment to pay $13 million in unexpected power costs this year and maintain its financial bond ratings. Those ratings are important when it comes to borrowing money for construction projects like power plants.
“We have to recover our costs. We don’t have a way to absorb and not pass on those costs,” LES administrator and CEO Terry Bundy has said.
What does it mean to you?
It could add $5 to a residential customer’s monthly bill, the utility says. It would be shown as a separate item on your billing statement.
What will LES do if the City Council doesn’t approve it?
Said spokesman Russ Reno: “If it didn’t pass, we would have to find a way to make up for increased power costs, and some type of rate mechanism is the only way to do that.”
Reno said one alternative is a higher fixed rate increase.
Why are some of Lincoln’s biggest industrial and manufacturing companies opposed?
The Lincoln Employers Coalition calls it inappropriate and unfair.
They say they just had a 12 percent rate increase in August, and the proposed adjustment would cost hundreds of thousands more — and that could hurt jobs and economic development.
Linweld, for instance, said the adjustment will amount to a 16.7 percent increase, or $333,200, for just one year.
Pfizer says it will cost an additional $188,600 in 2006.
Most companies in the coalition say their rates would go up 10 percent to 15 percent, but LES says the increases would be in the 7 percent to 10 percent range.
Do other electric utilities in Nebraska use power cost adjustments?
Yes: Grand Island Utilities Department; Hastings Utilities; Norris Public Power District; North Platte; and Wayne Municipal Utilities.
The Omaha Public Power District may consider a “fuel cost adjustment” in 2009, utility spokesman Mike Jones said.
Nebraska Public Power District, the state’s largest electric utility, does not have a power cost adjustment but could implement one if needed, spokeswoman Jeanne Schieffer said.