Electricity rate among highest in state
High rates expected to continue for a while
By Phyllis Booth
September 13, 2012
PRINCETON -- Residents will receive a letter this week informing them of the financial status of the Princeton Municipal Light Department.
The news isn't good.
PMLD General Manager Brian Allen worked with local resident Jon Fudeman, retired CPA, to produce a financial analysis of the department. The entire report is available on the PMLD website.
“I'm very grateful to Jon Fudeman,” said Allen at the Sept. 12 meeting of the Board of Light Commissioners. “He spent a lot of hours and looked back over 10 years to see where the problems started,” he said. “It's important this information gets out there so people will understand where we're at.’’
In 2011, Princeton residents’ electric rates were 36 percent higher than the average rate in Massachusetts. The average PMLD customer using approximately 800 kilowatts per hour of energy a month paid $516 more for electricity in 2011 than the average Massachusetts customer paid.
In 2011, the wind turbine project lost $628,000. From Jan. 1, 2010 through June 20, 2012, the wind turbine project has lost $1,875,000. That is after credits for renewable energy production.
Original projections for the wind turbine project showed that Princeton residents would receive a financial advantage, wrote Allen. “In fact, Princeton residents have suffered a financial loss. The original projections overstated both the kilowatt hours produced, as well as the price of electricity and understated the expenses associated with the project.
“Before the wind turbine project PMLD was in a more solid financial position than it is today. PMLD had relatively little debt and its customers paid just slightly more than the average Massachusetts customer for electricity,” according to the letter.
Liabilities then were just under $1 million. In 2009 liabilities were $9.5 million. At the end of 2011 total liabilities were just under $8 million. Other financial losses include a $757,000 loss between 2006 and 2011 for providing Internet service. In 2008 the department experienced a $407,000 Internet related expense that should have been recognized in earlier years. PMLD is no longer in the Internet business.
Allen expects the wind turbine losses to continue at the rate of approximately $600,000 a year, assuming current wholesale electricity rates, no need for extraordinary repair and that both wind turbines continue operating. If any major repairs are needed that would mean additional expense. The original warranties on the turbines have expired and extended warranty options are not available.
Initially, the wind turbines were projected to produce roughly 9,000 megawatt hours each year, but based on the past two and a half years of experience, a better estimate is 6,500 megawatts a year with both turbines running, wrote Allen. That is roughly 28 percent less than anticipated. Also, the original projections were made when wholesale electricity rates were higher and assumed the excess wind turbine production would sell for $80 a megawatt hour.
The average wholesale rate during the first six months of 2012 was $31 a megawatt hour, and it is currently $35 a megawatt hour. “The breakeven point for the wind turbine project is a wholesale electricity rate of $125 per megawatt hour,” according to the report.
Because of the wind turbine losses, ratepayers are being charged more to cover the losses, resulting in “Princeton having one of the most expensive rate structures in the Commonwealth.” It also means PMLD must run a lean operation in all other areas, resulting in an inability to build up a reserve in the event of a major storm or other catastrophe, such as the 2008 ice storm, and upgrade of the infrastructure is limited. That increases the risk of future power outages in the case of a major storm.
Allen and the commissioners are considering alternative courses of action including offloading all or a portion of the energy output from the windmills, the associated costs and future risk and benefits. Allen favors that option. He said that several utility companies have expressed an interest. Allen has also met with legislators and others to discuss options and possible financial assistance to PMLD.
Another issue contributing to financial losses is the failure of the gearbox in the southern turbine unit. That went out of production in August, 2011 and went back on line in July 2012. In theory, PMLD should not have to bear the expense of the repair for that piece of equipment, wrote Allen, but because PMLD was a third party to the warranty, and there have been problems between the three companies involved, the entire issue is in litigation, which may take time to be resolved.
The goal of Allen and the commissioners is to resolve the issues facing PMLD, and restore the rates to a more appropriate level, while still providing the expected level of service.
Allen believes the local light department should concentrate its efforts of the core business, providing electricity, and do it better than anyone else.
Resident David Nichols said he was surprised that more people didn’t react publicly when Allen's first letter regarding the financial issue was distributed in February.
“They paid the light bill but didn't even read the letter,” he said. “I hope they read this. You've done a fine job of communicating and I commend you,” he added.