Rantoul utility rates to increase

Utility rates, including water rates, are expected to increase next year in Rantoul.

RANTOUL — Over the next five years, the average Rantoul residential utility bill (for those with natural gas service) could rise to $209 per month, based on information presented to the village board at a special meeting.

The total includes charges for water, wastewater, natural gas and electric. Only 25 percent of the utility users in Rantoul — primarily those residents living on the former Chanute Air Force Base — use village-supplied natural gas. The remainder get theirs from other providers.

Village Administrator Scott Eisenhauer on Monday said the numbers are not set in stone.

“We are going to relook at some of the numbers from the study before we finalize a proposal to take to the board,” he said, estimating it will be August or September before the measure might be presented to the board for vote.

The cost charged for the four utilities under the tentative plan would climb by 3 percent in year one, 3.3 percent in year two, 3 percent in year three, 2.9 percent in year four and 3.1 percent in year five.

In year one year, the four-utility total could climb by $5.57 a month for a total of $184.33. It would increase by $6.20 in year two to $190.53; by $5.93 in year three to $196.47; by $5.77 in year four to $202.24 and by $6.40 in year five to $209.08.

Mark Beauchamp, president of Utility Financial Solutions, presented the proposed figures at a special meeting of the village board recently.

Beauchamp said he was attempting to accomplish two things with the rate adjustments — keep the utility financially stable and limit impacts to customers as much as possible, phasing increases in slowly.

If approved, the new rates would be implemented in May 2020.

Factors for consideration

Beauchamp said he considered several factors, including debt ratio, cash reserves, utility income, system depreciation and potential growth.  He said the electric utility is the most financially stable of the four utilities, with projected reserves exceeding $7 million in 2020. That amount will decline over time to about $4.5 million in 2024.

“The minimum cash you want to see is about $4.8 to $5 million,” Beauchamp said. “In year five you’re starting to get toward that critical point.”

Beauchamp said utilities have different costs of replacement. Looking at depreciation, if a million-dollar asset is put in that has a 20-year life span, each year, the utilitydepreciates by $50,000, “so you want to put that much aside.”

If that money is not set aside, “what will happen at the end of 20 years, when you go to replace it, it will cost more than $1 million because each year the replacement cost goes up,” he said. “So we also set what we call a target operating income, which is nothing more than the inflationary increase in the cost of the assets.”

Beauchamp said the village’s “generating assets” are starting to age and are at 56 percent of depreciation level.

Because of the way the village receives its energy supply from the Illinois Municipal Electric Agency, its risk factors there “are relatively low,” he said. Included in the village charge for electricity is a residential distribution customer charge, which is figured through a minimum-system analysis

“What we try to do with that is we look at what the minimum-sizing requirements are on the electric utility, and we allocate to that customer charge the minimum-sizing requirements,” Beauchamp said.

Because of solar and energy-conservation efforts that are occurring in the industry, those customer charges have been under challenge.

“When you charge the appropriate customer charge, it tends to stabilize (utilities’) revenues,” he said. “It will adversely impact low-use customers. There’s a perception in our electric industry that low-income customers are low-use customers, and that tends to be false. In every community that services low-income, some are low use and some are high use. (Low-income) tend to live in older homes and are not properly insulated” and have non-energy-efficient appliances.

Beauchamp was asked if the village is considering a rate for solar customers.

“Everybody’s probably heard of net metering,” he said. “On the surface it sounds ... fair. What net metering does, when I first started 10-15 years ago was to promote the use of solar. They knew at the time there was a cost shift that would occur and that solar customers ... wouldn’t fully pay for the use of the distribution infrastructure.”

Beauchamp said the way net metering works is if a customer takes 1,000 kilowatts off of a system and gives back 600 kilowatts, he or she is billed for 400 kilowatts.

“But what happens,” he said, “they are drawing 1,000 off the system. We have to size our distribution system to handle that demand. That transformer ... still has to be there to provide them with that peak demand. To make that worse is residential homes tend to peak at 7-8 o’clock in the evening. Solar production peaks about 2 o’clock in the afternoon. By 4:30, it reverses, and by 7 o’clock it’s barely producing anything, so it doesn’t reduce the demand the customer creates. The distribution system is not sized to handle the kilowatt hours. It’s sized to handle customers’ peak demand.”

He said if there are a small number of solar customers, “it’s not a big deal” but if there are more and more solar customers, it creates an adverse impact on electric rates for everyone else, meaning the non-solar users have to pay more to offset.

“Only one-third of solar production in this country is roof top,” Beauchamp said. “Two-thirds is utility scale solar, which costs about one-third of the cost of roof top, partially due to economy of scale, but partially because they are able to remove that profit margin.”

Natural gas utility

The natural gas utility is the smallest operated by the village. Beauchamp said when the village took over the system, it was incurring substantial losses. It incurred about a $3.5 million deficit, and utility staff made “substantial improvements.” He said there was no way the village could ever pay back that deficit, so it was written off to the electric department.

Public Works Director Greg Hazel said the loss was due to the operation of the steam plant.

“That was the component that wasn’t economical, so we shut it down and ended up taking a writeoff,” he said.

Beauchamp said the utility is not generating enough cash to fund its debt-service payments. The village is looking at a negative $6,000 cash balance by the end of the year, which is projected to get worse each year if not corrected. He said a 3.8 percent rate increase was set per year under the tentative proposal, which will cover the debt ratio and improve cash reserves.

Trustee Gary Wilson asked if the village had ever considered selling the natural gas system since it is not a money-maker. Hazel said the village received an offer from Nicor at one time, but the offer “was not attractive.”

The village has about 1,400 natural gas customers.

Beauchamp said the water utility “is doing pretty good with adequate cash reserves.”

Income would improve at a solid rate as a result of the increases.

He said the wastewater utility is not bringing in enough money to pay debt. Consequently it will have the largest tentative rate increases of the four utilities.

Mayor Chuck Smith said the village “ate $4 million in an unfunded mandate” from the state of Illinois to remove phosphorous from village wastewater.