When the City Council passed an energy policy resolution last month one of the directives was to close the coal-fired Missouri City Power Plant by January 2016.
That was perfectly fine with Leon Daggett, Independence Power & Light director, as his department had already planned to do that.
One of his two presentations to the council on Monday detailed why IPL arrived at that decision and outlined the city’s possible options once the plant is closed.
Daggett’s second presentation dealt with Power & Light’s cash fund balance and rates.
The Missouri City plant, which has only been used during summer months since IPL took it off standby mode in 1998 and has a 38-megawatt capability, hasn’t operated at all this summer, Daggett said.
His presentation showed that continuing to operate Missouri City on coal would have required $66 million over the next several years for environmental compliance and other capital requirements. However, converting to biomass fuel still would have various capital investments that topped $50 million.
“It’s just not economical to invest that much into a plant that is 60 years old and is used in the summer months,” Daggett said.
Furthermore, when the city purchased an ownership interest Dogwood Energy Facility in Pleasant Hill a couple years ago, spending $46 million to have 75 megawatts from there on hand, it more than covered the potential loss of Missouri City.
“It’s run out its useful life,” Daggett said of the Missouri City plant. “Let it retire peacefully.”
The five closure options are:
• Placing the plant on hold – leaving the building and structures in place, with ongoing expenses for security and property upkeep.
• Demolish and hold – restoring the site, maintaining ownership with ongoing expenses for upkeep.
• Demolish and sell, which also involves restoring the site before selling.
• Selling as is.
• Redevelop and repurpose, such as when the city converted a former energy plant into the Sermon Community Center.
Daggett said of preliminary study done by Sega Inc. pegged the holding option at $900,000 and the demolition option at $18.2 million. When also considering the costs of closing the ash pond (which the plant stopped using in 2011), it could push demolition to $21-22 million, he said.
Power & Light will present an updated study on closing options by next July.
“That will be a significant decision for the Council,” City Manager Robert Heacock said of the holding and demolition options.
Power and Light funds
The subject of IPL’s fund balance has been a sore subject for some citizens who believe that power supplied by a municipally owned company should inherently lead to lower rates.
The city charter states that after providing for depreciation accruals (intended to account for capital improvements and additions to the system), amortization of bonds and reasonable accumulation of surplus, IPL should apply annual profits toward rate reductions.
According to information provided at the meeting, in the fiscal year ending in 2009, after several years of not having a rate increase, IPL had a fund balance of nearly $1.4 million in cash reserves and more than $33 million in restricted capital improvements (those approved by the Council, either by cash or bonds).
After a set of continuous rate increases went into place, the cash reserves have grown to more $34.1 million as of July 31, with more than $14.6 million for restricted capital improvements.
“When I came here in 2006, I wanted to set Independence up not just for 10 or 15 years, but for 50 years,” Daggett said.
A 2013 rate study recommended that IPL have a fund balance policy, which Heacock said would show citizens that IPL is abiding by the charter and explain the reasons for a fund balance, and figures a fund balance varying between $24 million and $26 million for a five-year forecast period. Daggett said he’s seen industry guidelines that advise having 60 to 90 days of reserves on annual expenses, which in Independence would be $22-33 million.
Among the factors in the fund balance are department cost increases, having money on hand for bond payments and emergencies such as an ice storm, environmental and regulation mandates, looming projects such as the Missouri City closure and future investments like renewable energy.
Daggett cautioned that increasing production of solar energy certainly won’t be cheaper than what it costs now for coal.
Council Member Scott Roberson suggested that IPL consider rate revisions to be more business-friendly.
“We need to be competitive,” he said. “We’re not competitive in terms of economic development.”
Daggett said surveys have shown that IPL residential customers (which would include some who own businesses in the city) gave the department good ratings for reliability, quick repairs and value of service, and reliability is something he simply won’t compromise.
“I’d like to have the lowest rates in the area,” he said. But what’s worse than having the lowest rates is having a system that doesn’t work. We have the most reliable system in the area, and to do that we need to spend some money.
“We will be competitive – I can’t think of one customer we’ve lost due to electric rates – but I will not let that happen by reducing money on reliability.”