Niles City Council OKs electricity rate increase

By By JAN GRIFFEY / Niles Daily Star
NILES -- Niles City Council recently approved a change in the way the city's utilities department accounts for services it provides presently at no charge to the city, as well as approved an increase in what customers will pay for electricity.
The city's utilities department hasn't increased rates in 17 years, said Niles City Adminstrator Terry Eull.
For many years, the utilities department has provided street lights and all other electricity services to the city free of charge.
However, a consultant hired by the city to study its rate structure, pointed out it can prove more expensive for the city's utilities fund to raise money for capital improvements if free services are provided to the city.
The study firm -- Utility Financial Solutions -- told city officials the cost to issue revenue bonds is greater when free services are provided, as rating agencies look unfavorably at this practice, Eull said.
The free services provided to the city in the past have amounted to about 4.8 percent of the revenue received from the utilities' electric division.
Eull said, based on industry data publishes by the American Public Power Association, as well as information from nearby Michigan municipalities, the average contribution from a city's municipal election division to the city's general fund is 7 percent.
In the future, the city will be responsible for paying for electric services it receives from the utilities department. In exchange, the city council approved Monday night a payment-in-lieu-of-taxes arrangement with the utilities division. The utilities will pay 7 percent of its annual electric sales revenue to the city's general fund. The city will use those funds to pay for electric services it has in the past received for free.
In addition, acting on recommendations from the study firm, the council approved changing the rate structure for the utilities electric customers.
The council approved a 10 percent rate increase that will be enacted over two years.
During the first year, ratepayers will see an average 6.1 percent rate increase and a 3.9 percent increase in the second year. That means a residential customer who uses between 600 and 700 kilowatt hours of electricity per month, will see about a $2.50 per month increase the first year and a $1.80 per month increase the second year, Eull said.
The study firm also recommended -- and the council approved -- moving away from the utilities' traditional stepped rate structure to a structure built on a customer charge portion plus a flat rate for energy used and a demand rate, where appropriate.
Councilmember Dan Vanden Heede was the only council member voting against the rate increase. He said he thinks the rate increase is excessive.

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