Monett has had two 20-year contracts to buy electricity exclusively from Empire. The city has been Empire's single largest customer. Empire has similar contracts with Mt. Vernon, Lockwood and Chetopa, Kan.
Electricity is the sold by the city to residential, commercial and industrial customers through 4,600 meters. During the 2009-10 fiscal year, the city purchased $13.4 million in electricity from Empire and sold it for $16.7 million.
Monett's contract with Empire expired in 2009. Purchases have continued under the old contract during negotiations. Any new contract involving resale by cities will have to be approved by the Federal Energy Regulatory Commission (FERC) in Washington, D.C.
According to Monett officials, Empire is preparing a new rate schedule for their wholesale customers and has delayed offering terms for a new contract. This new rate schedule, referred to as a tariff, would need to be reviewed and approved by FERC.
On March 12, Empire filed a proposed new wholesale electric service rate for the Missouri cities and required a minimum contract term of 10 years. The new rates would change each year based on Empire's cost to provide service, unlike the old contract that had a steady rate.
On May 28, Empire filed notice with FERC that it would terminate current service agreements under the old tariff on July 31 and implement a new cost-based tariff effective Aug. 1.
Monett and other Missouri cities buying wholesale electricity combined their resources and, through the Missouri Public Utility Alliance, filed an intervention in the rate case to delay implementation of new rates until FERC could hear the city's arguments in opposition.
"Our position was that it was unreasonable for Empire to require the cities to commit to service agreements for 10 years when the terms and rates had not yet been established," said Monett Utilities Superintendent Pete Rauch, "The cities also believed that the 60-day termination notice did not offer adequate time for the cities to obtain service from an alternative supplier."
FERC issued an order on July 28 permitting Empire to implement the new tariff on Aug. 1 but made it subject to refund if FERC later approves a reduced tariff.
The Missouri cities have identified a number of potential problems with the service agreements Empire has filed with FERC, Rauch said. The cities have asked to have these points resolved prior to the new tariff going into effect.
Empire opted to implement the new tariff prior to final approval from FERC. Monett customers will consequently see a change in bills being mailed in September.
"Rather than increase our electric rates to adjust to the new tariff with the possibility of having to adjust the rates again when a final FERC order is issued, we have chosen to adjust the rates on a month-by-month basis using the fuel adjustment line on the customer's bill," Rauch said. "If the final judgment reduces Empire's tariff, we will refund the judgment amount back to our customers."
Bills going out in the coming week will reflect power consumed primarily during the month of August. Bills will show the fuel adjustment under the previous wholesale tariff of 2.1614 cents per kilowatt hour, plus the new potentially refundable tariff of 0.3837 cents per kilowatt hour. The surcharge is added to the total of each customer's bill.
The city has looked at alternatives to purchasing electricity from Empire. City Administrator Dennis Pyle said the city has considered joining a large pool of Missouri cities that would purchase power jointly.
"If Monett were to join the Missouri cities purchasing pool it would be a long-term commitment of 30 to 40 years, due to their ownership position in several coal-fired generating plants," Pyle said. "The advantage of this option is the expectation of stable long-term electric rates. However, ownership in the coal-fired plants also exposes us to potentially costly future regulatory issues that could be very expensive."
The city could also join into a shorter term contract, like a 10-year contract likely to be offered by Empire, or a shorter arrangement with other cities.
"The cost of wholesale energy fluctuates each hour of every day," Rauch said. "The cost of energy can change significantly over a short period. We've seen this scenario occur with other cities that have chosen to employ a short-term energy contract strategy, and it has had mixed results. One city experienced a 38 percent increase in rates in one year with the start of a new contract."
Three major options appear open to the city. Pyle said the city can continue its case with FERC in hopes of gaining a more equitable, cost-based formula to lessen the impact of rate increases on Monett customers. The city could join a pool of cities in a long-term contract to get more stable rates or negotiate short-term contracts of up to three years to get current favorable market rates but with the added risk of a more volatile electric market in the shorter term.
"Monett is a municipal utility, and our stockholders are the citizens of Monett," Pyle said. "Our objective is to continue working toward an equitable resolution with Empire that protects our customers while exploring other options in the energy markets."
The city welcomes questions and comments on the issue. Questions can be directed to the Utilities Department at 235-3300. City Council members can be contacted at 235-3763 or 235-3355.