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    Posted: Jan 13 2016 at 12:19pm

Electricity Customers Suing For

City of Coleman to Sell System

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Coleman Growing In Spite of Itself

 

Six new businesses – four retail stores, a brick oven pizza and a bakery – have sprung up recently in the four blocks of Commercial Avenue in downtown Coleman, with three more businesses—a winery, a farmer’s market and another restaurant on the drawing boards.  What makes that amazing is that the growth has occurred in spite of what locals consider outrageous electric rates.

 

Some electricity consumers in the city of Coleman are suing the city to try and force an election to get the city to sell its electricity business because these consumers are paying what are perhaps the highest electric rates in the state of Texas.  Depending on usage and type of account, users are paying anywhere from 17 cents/Kwh to over 30 cents/Kwh.   To put that into perspective, if the accounts were OUTSIDE Coleman city limits, the rate with Coleman County Electric Cooperative would be 12 cents/Kwh, which is around the state average.

 

One fabrication company in town is now getting much of its electricity from its own welding machines instead of using city power.

 

The cost difference between the Coleman average rate and the state average rate amounts to over a 50% premium.  But the rate by itself does not represent the total cost to residents of Coleman.  There’s the sales tax on the premium and the property taxes paid on the interest and sinking fund portion of property taxes for Coleman utility bond amortization—if there were no electric utility bonds, there would be no tax to cover that bond cost.

 

Coleman city council meetings have experienced very heated discussions about the electrical issue and there have been meetings held with City Manager, Paul Catoe[1]; Consulting Engineer, Steve Moffitt[2] of Schneider Engineering, Ltd.; and Austin utilities attorney, Geoffrey Gay[3] of Lloyd Gosselink Rochelle & Townsend, P.C.  All saying nothing can be done and all discouraging sale of the system.

 

 However, a group calling itself ‘Power to Transform’ (PTT) claims that something can be done.    PTT, a non-profit organization formed for citizen advocacy, has hired Sweetwater attorney Zollie C. Steakley[4]  and filed a Writ of Mandamus to force an election to sell.  The group is led by Craig Allen[5] who has business interests in Coleman.

 

PTT plans on having a public meeting, with their attorneys present, on January 14 at Heritage Hall, 400 West College Avenue, Coleman, Texas.

 

Coleman built its first power plant and distribution system in 1902.  Unfortunately, the city did not continuously modernize the plant, so it was finally closed and later demolished.  But the city kept the distribution system.  The city, which had been purchasing some power to meet peak loads, was then in a situation that demanded the city purchase all of its power for resale.

 

In 2007 natural gas prices were rising rapidly, driving electricity prices up, and city leaders, on the advice of Moffit and fearing the trend would continue, negotiated a 10-year contract with AEP Energy Partners (AEPEP),  a subsidiary of American Electric Power (AEP), to provide power at the then prevailing rate.

 

 Less than two years into the 10-year Coleman/AEPEP contract, natural gas prices dropped dramatically, thereby lowering energy costs for most in the state.  Coleman, however, was locked in to the high rate contract until the end of 2017.

 

Natural gas prices to electric utilities are currently less than half what they were when the Coleman contract was signed.

 

Some wonder if AEP could have foreseen the drop in natural gas prices due to the development of new shale fields.  It turns out that AEP has forecasting assets not available to small towns like Coleman.   AEP has long been a supporter of the Gas Technology Institute[6], formerly known as the Gas Research Institute – an organization right in the middle of shale ‘fracking’ development[7] which was the key element in lowering gas prices[8].

 

City leaders and AEPEP have negotiated several changes to the contract since 2007 to avoid a city bancruptcy.  Complete terms of the current contract are mostly confidential and so have not been released to the public.  One of the changes to the original contract that has been released is that the contract is extended to the end of 2018.  Coleman users have nearly three more years of high rates.

 

A strong proponent of the city keeping the system is retired businessman Roy Poage who participated in some of the negotiations with AEPEP.  Poage is on one of the city’s economic development boards and is usually in attendance at city council meetings.  He contributed to the campaigns of several of those currently serving on the city council.

 

Poage has referred to the city’s electrical business as a ‘Golden Goose’.  However, he lives outside the city limits, has no property in the city of Coleman and purchases his electricity from the CO-OP.

 

Coleman’s budget for 2014-2015 shows the city deriving a net of $1.2 million in excess revenues from its electrical system to support other city functions.  However, based on what Coleman electric customers are paying over competitive electric rates, plus what they are paying in ad valorem tax utility bond costs, it costs the citizens of Coleman about $2.6 million over competitive rates for the city to get that net revenue.

 

Simply put, Coleman citizens pay over $2.00 in excess fees for each $1.00 the city gets from being in the electric business.

 

Although some say that it is critical to have the electric utility to fund the city, others claim that replacing the revenue shortfall can be done without incurring the dire consequences –raising  other utility rates, increasing the tax burden, cutting services and firing city employees—predicted by city management.   Those pushing for a sale argue that citizens will be better off with the city selling the system and they back their claims with numbers from the city’s own budget[9].

 

Another proponent of selling the system is downtown resident, Eric Joffrion[10].  Joffrion says that, with the proceeds of the sale of the system, cash on hand held by the city, and a few other conservative actions, the city could pay off enough current liabilities to lower city operating costs to a level that would eliminate the need for the city to use the system as a profit center.

 

Advocates for selling the system also claim other reasons why Coleman should not be in the Electrical business.  First and foremost that Coleman does not have the expertise to negotiate energy contracts or accurately predict energy costs.

 

Other reasons cited are questionable safety practices, economy of scale issues, electrical rates paid by all the tax-supported entities in the City (School, County and City), and the property taxes that would be paid by a privately owned utility to the city and to other entities in the community – the hospital and school districts and to the County.

 

There are roughly 400 cities in Texas with populations similar to or greater than that of Coleman.  Of those 400 cities, 72 have municipally-owned electric utilities.  The other 300+ operate without being in the electrical business.

 



[1] Coleman City Manager, Paul Catoe (325)625-5114

[2]  Schneider Engineering, Ltd (830)249-3887

[3]  Lloyd Gosselink Rochelle & Townsend, P.C.  (512) 322-5875

[4] Zollie C. Steakley, PLLC 325-455-0628

[5] Craig Allen (325) 625-5419

[6]Exploring Distributed Energy Alternatives to Electrical Distribution Grid Expansion’ December 2005.  See http://info.ornl.gov/sites/publications/files/Pub6763.pdf

[7]GRI and NETL performed [tests] in vertical wells in the 1990s” http://www.gastechnology.org/Expertise/Pages/Hydraulic-Fracturing-Test-Site.aspx

[8] U.S. Natural Gas Electric Power Price (Dollars per Thousand Cubic Feet) https://www.eia.gov/dnav/ng/hist/n3045us3m.htm

[10] Eric Joffrion (325) 669-5946



Submitted by Eric Joffrion:


Complete article with detailed facts and figures can be downloaded here.




Edited by administrator - Jan 13 2016 at 6:00pm
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Nancy Quote  Post ReplyReply Direct Link To This Post Posted: Jan 14 2016 at 9:12pm
Excellent article, Eric!!
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