City talks plant closure

ESCANABA – The Escanaba City Council discussed the possibility of a referendum to close the Escanaba power plant during a budget hearing meeting Monday.

The city’s electric fund, which supports day-to-day electrical operations, has a $13,127,416 budget for the 2013-14 fiscal year. This is a 3.5 percent decrease from last year’s budget. Under the proposed budget, there will be no changes to the rates paid by electrical customers.

While the city electric fund net assets exceed $23 million – with a current cash balance of approximately $10 million – concerns were raised the operating income could be insufficient if the sale of the Escanaba power plant to Escanaba Green Energy fails and Midwest Independent Transmission System Operator, Inc. (MISO) decides not to renew a contract with the city.

Under the MISO Y1 contract, the city is paid to keep the power plant on standby and provide power to the grid when needed.

“We’re working on two assumptions, either the plant sells or we get a new Y1. If either of those were to fall through, then the next step would be to bring a referendum to the people to shut the plant down in November,” said City Controller Michael Dewar.

If the city brings the issue of closing the power plant to a vote, the question would need to be submitted by Aug. 13 and wording would need to be approved by Aug. 27 to appear on the November ballot.

The current MISO Y1 agreement will expire in June. While contact has been made with MISO, negotiations have not yet begun for a 2013-14 contract.

“Worst-case scenario, if we’re faced with that decision (to have a referendum), we’re probably looking at November. If we didn’t get the MISO (contract) and the plant didn’t sell in that period of time we could sustain some really serious costs,” said Walter Baker, council member.

Under Michigan’s Uniform Budgeting and Accounting Act, enterprise funds like the electric fund are not required to have a budget, adopt a budget, or amend a budget if there is over expenditure.

“At the end of the day, this budget is about setting the rates, and you certainly don’t want to increase the rates working under the assumption that … the least favorable of three alternatives takes place,” said Dewar.

While no rate increases are planned, if the city were to take a financial hit due to the failed power plant sale and loss of the MISO contract, the city would either use existing funds to absorb the cost or would pass the cost on to customers through a rate increase.

Under Escanaba’s rate ordinance, the city would need to increase the rate by June – something which could prove difficult if the plant sale or MISO agreement are delayed.

“Our hope is that EGE will come in earlier … than what they’re indicating,” said City Manager Jim O’Toole.