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Mazomanie seeking a 5% utility rate increase

 

May 16, 2019



The Village of Mazomanie is seeking a 5.18 percent rate increase for its electric utility as well as changes to the utility’s rate structure. On April 23, the village board approved a resolution allowing the village to apply for the rate increase with the Public Service Commission, which will enable the village to pay for wholesale power as well as prepare for future projects and investments.

“The way we are operating right now, we get the bill to pay for wholesale power, but we have to hold payment until we collect our accounts receivable,” board president Ray Schlamp said. “With a rate increase we will have cash on hand to pay that bill. And that’s the way a business should operate.”

Brian Roemer of Ehlers and Associates who serves as the village’s financial advisor, said rate increases happen as costs go up and can be “scary” and takes a lot of money to invest in a system with the ultimate goal being to provide “safe and reliable service.” The village began the process of undertaking a utility cash flow analysis for both water and electric with a debt issuance.

“When you issue revenue bonds, essentially you pledge to have a certain amount of revenue year after year and your bond holders are promised that,” Roemer said. “You started with the cash flow analysis for debt flow issue, which lead to looking at future capital items, long range cash flow and potential future rate increases.” Roemer said this is typically done to avoid rate shock among taxpayers.

A capital analysis was presented to the utility commission in December, which then decided on an electric rate study for its electric utility. Initially, a 10 percent rate increase was projected, primarily due to debt issuance, meaning the village would have additional principal and interest payments. The amount resulted in a $70,000 overall increase for electric. The next major influencer is increasing operating expenses – specifically between 2016 and 2018 – which showed a $400,000 increase in operating expenses.

The details of the rate increase need to be submitted to the Public Service Commission for approval. The commission serves as an independent regulatory agency serving the public interest with regards to the regulation of the state’s public utilities.

“The rate study serves as a building block to develop self-sustainable rates,” Roehmer said. “It ensures you have an enterprise fund for the village and have cash available for investments.”

Roehmer said it is important to make sure each utility “pays its own way” and to not let one utility subsidize another. “You don’t want to put the burden on one utility to support another,” Roehmer said. “You also want to make sure your rates and fair and equitable, and that residents aren’t subsidizing industries and commercial properties, for example. You want to make sure those who cause the costs pay for the costs.”

The rate structure change will ensure utility tariffs are designed to recover costs. By law, the village must submit an application to the Public Service Commission when it is seeking a rate structure change.

“It’s what we have to do to in order to recover costs,” Roehmer said. “(The PSC) looks at the village’s operating and maintenance budget for the utility; specifically how much it costs to operate on a daily basis. It also looks at whether the village is operating at a rate to recover depreciation.”

Roehmer said the commission also looks at a municipality’s rate of return.

“Better put, they look at how the village can make enough money to ensure it has revenues available to fully invest in capital expenditures, like upgrades needed,” Roehmer said. “You will have debt that can be incurred. You undertake debt obligations and ensure you have revenue available.”

The board approved a motion for the village to apply for a 5.18 percent rate increase to the Public Service Commission, equating to an overall $221,000 increase to ensure it maintains expenses, has funds for future projects and positive cash flow.

“The Public Service Commission can say, ‘Not that high,’ or ‘higher,’” Roehmer said. “We will then bring those results to the board for approval at that time.”

Discussion of finding a new dump site for the village’s brush collection was put on hold. The DNR is requiring the village find a new location for the brush dump largely because burning brush has become a nuisance to nearby property owners.

It was suggested once the village collects brush, it hires a contractor to grind it into mulch. This process is considered environmentally-friendly and could result in the village being a candidate for incentives.

Schlamp said the village needs to find a new, permanent site for its brush collection, and fast. “We are running out of time with the DNR,” Schlamp said.

Other board news:

The village passed resolutions in support of four initiatives being brought forth by Gov. Tony Evers – all of which would be favorable to the village of Mazomanie, according to Schlamp. The four resolutions are recommended by the League of Wisconsin Municipalities, and address shared revenue limits, funding for roads, levy limit flexibility for municipalities and closing a property tax loophole regarding certain commercial properties. The first addresses decreases to shared revenue funding – which have been cut by $94 million over the past 18 years. Gov. Evers is recommending a 2 percent increase to shared revenue funding to take effect in 2020. Schlamp said the governor’s resolution has the potential to “take the pressure off property tax payers.”

The second resolution by the governor proposes levy limit flexibility for municipalities. Currently the village of Mazomanie can only increase its levy limits based on the value of new construction. Last year the village had about 10 new homes constructed. The change would provide the village with the flexibility to raise the levy limit by 2 percent – or by the total amount of new construction; whichever is higher. This protects the village during years when no or little new construction occurs.

The governor’s third proposed change involves an eight percent gas tax increase. Schlamp said the only way roads are going to get fixed is if they can get more money into the budget. It could mean having funds to fix Highway 14 between the village and Middleton and other troublesome roads.

The fourth resolution would close a taxing loophole pertaining to commercial property holders.

“Walgreens buildings are owned by real estate investment companies,” Schlamp said. “Those companies went to local assessors, and said if Walgreens moves out, what good is the building to them because it was built for a specific purpose. They don’t want to be taxed based on the building’s value with Walgreens in it; rather what it would be if it was vacant. No one has brought it up yet, but it could happen to us with Dollar General.”

 
 

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