Study: Resident-heavy base keeps IPL rates from going lower
A recent study commissioned by Independence Power & Light shows that IPL's average rates are high compared with neighboring and peer utilities in Missouri and Kansas, but given the current customer mix, they can't get go much lower without putting the utility in severe financial stress.
About 91 percent of IPL's 57,000 customers are residential accounts, and just a handful of accounts are industrial customers, which buy electricity in the largest bulk.
The study, completed by Finley Engineering at a cost of $18,000, was presented to the Public Utilities Advisory Board last month. The presentation to the City Council is scheduled for Monday.
The report compared IPL to four other municipal utilities (Springfield, Missouri; Columbia, Missouri; McPherson, Kansas and Kansas City, Kansas) and three private utilities (Evergy, Ameren and Liberty) within 200 miles of IPL. All except McPherson generate more than $100 million in revenues.
Over 2019-20, IPL sold power at an average of 12 cents per kilowatt-hour, even including the 6 percent rate cut in 2020 – the highest among the utilities examined. Others generally ranged from 9 to 11 cents in 2019.
To get to the 10-cent median among the compared utilities, the study showed, IPL would need to add 33,300 residential customers (homes, as opposed to population) or 4,000 commercial customers or 27 industrial customers.
“Obviously all three of those would be very difficult for Independence to achieve,” IPL Director Jim Nail told the PUAB.
Nail stressed that Finley's report was not a cost-of-service study, but strictly looked at financial reports to compare IPL with other utilities. Finley did both unweighted and weighted analyses. The attempt in the weighted analysis was to show how other utilities' rates would compare if they served the same customer mix as IPL.
None of the other utilities could maintain their rates and achieve the same revenues if they served the same lopsided percentage of customers as IPL, the report showed, and if all the utilities served the same median mix of customers, IPL's rates would be one of the lowest.
“If you have more industrial customers, it helps you lower your rates,” Nail said.
He explained that operating costs don't vary much from customer to customer, no matter how much electricity one consumes.
“You have 100 feet of line, a pole, and a meter and a meter base – that costs the same whether it's to a home or to a business that's keeping the lights on 24/7,” Nail said. “When a tree knocks a line down and a lineman has to fix it, it doesn't matter whether it goes to a home or business, it costs the same to fix.”
Springfield, a 9 cents per kWh, has more industrial and commercial customers in the mix than IPL, and Columbia (10 cents) has the University of Missouri among its consumers. Those utilities serve the most similar population to IPL.
“All three have some unique characteristics,” Nail said. “They can offer you lower prices because you're buying a lot more at one time.”
McPherson averaged 6 cents per kWh sold in 2019. It's a county seat in central Kansas with a population of about 14,000, but has several factories, including a large refinery that accounts for a bulk of the industrial sales. While McPherson clearly is an outlier, its inclusion in the study shows how larger customers can affect the rates for all
“McPherson, they're the Sam's Club customer,” Nail told the PUAB. “They're able to buy in bulk. It's a small residential town surrounded by factories, so they have a huge, huge imbalance.
Also by comparison, Water Director Dan Montgomery said, Independence is able to offer low water rates to citizens because it sells wholesale to neighboring cities like Blue Springs, Lee's Summit and Sugar Creek.
Independence has been trying for years to attract commercial and industrial development in the Little Blue Valley, though one proposed project fell through shortly before the pandemic after some neighborhood criticism.
The Lake City Army Ammunition Plant, though long one of the city's biggest employers, is not an IPL customer. Though it wouldn't completely swing IPL to the other side of spectrum, Nail said, Lake City would change the equation a bit if in a future contract it went IPL's way.
“Several years ago, there was an opportunity (to gain Lake City), but they decided to stay with Evergy,” Nail said. “Obviously that's an opportunity in the future to try and get that business, or any business that wants to develop in the area.”
Larry Porter, chairperson of the PUAB, said after Nail's presentation that the lack of industry affecting rates isn't a surprise to many, and he doesn't blame utility rates for that lack. He questioned if city codes and regulations could be too cumbersome and said in general citizens could be more accepting of industry.
“I think we're not selling our city the right way,” Porter said. “Myself, I think the rates are fine, we all know the problem – industry. But the citizens of this town don't want to give up something to get industry in this town.”