Niles could see electric rate increase

Published 10:27 am Tuesday, May 9, 2006

By By ANDY HAMILTON / Niles Daily Star
NILES - The City of Niles has secured a long-term contract for electric power.
The “cost-based” contract with American Electric Power (AEP) was unanimously approved Monday night by city council following a presentation by Utilities Manager James Lehmkuhl. The plan will go into effect starting July 1.
The initial increase in cost to Niles utilities customers could not be determined because a cost of service study is yet to be completed, Lehmkuhl said. But, Lehmkuhl did estimate based on 2005 numbers the increase could be in the range of 9 percent.
Results from the study are expected in early June.
Lehmkuhl termed the current wholesale power situation as a “seller's market” and said AEP was the only energy provider willing to discuss a cost-based contract that extended for more than four-and-a-half years.
The other companies, including AMP Ohio, DTE Energy and Cinergy, would offer only one, three or four-year contracts.
The approved agreement means Niles will be in contract with AEP for power for a minimum of 13 years.
However, Lehmkuhl said the city does hold the right to give notice to terminate the contract for the first time in 2012 and every year following until 2018. The contract would not be terminated for seven years following a notice, and, if no notice of termination is provided to AEP by the year 2019, Niles must fulfill the agreement for the full 20 years until 2026, Lehmkuhl said.
The “near-term” prediction is that the contract will keep the city's rates at least 20 percent below the market rates.
Looking ahead, Lehmkuhl said rates would likely remain reasonable given Indiana and Michigan (I and M) - an operating company under AEP serving northern Indiana and southwest Michigan- remains consistent and the Donald C. Cook Nuclear Plant is operational.
Lehmkuhl said there are “off-ramps” figured into the contract that will allow Niles to cancel the agreement early. For example, if a 35 percent increase in megawatt per hour rate is seen in one year, the city can cancel the agreement within six months.
Niles could also back out if I and M acquires an excessive amount of natural gas through mergers and acquisitions that would drastically increase gas prices, or, if either power unit at Cook Power Plant in Bridgman or the Rockport plant in southern Indiana shutdown.
Also provided in the contract are opportunities for annual “true-ups,” which AEP will use to compare the estimated cost with the actual cost and update the cost to the city to reflect the most recent power rates.
Niles is allowed to question the rates provided and can file a grievance with the Federal Energy Regulatory Commission if the city believes cost issues are not being addressed by I and M.
Mayor Michael McCauslin said after the presentation, “It's not a great contract but it's the best, I think, that we could get.”
Reaching the tentative agreement has taken a year worth of negotiating with electric wholesale providers, in part because of recent deregulations within the electric utility industry that have complicated power contracts, Lehmkuhl said.
Arranging the contract, including adding the necessary off-ramps, took a lot of negotiating because AEP “would not budge,” Lehmkuhl said.