Public Power - September 2008 - (Page 48)

FOR GOVERNING BOARDS Death on the Prairie By William Atkinson te being short-lived, the CBS television series Jericho was followed by an entourage of fanatical fans. So fanatical, in fact, that some of them made a point of trying to locate the fictional town—Jericho, Kan.—on the map. Set at the intersection of three highways—Interstate 70, U.S. Route 83, and U.S. Route 40—when fans pulled out their maps, they found that a town did, indeed, exist there—with a different name. That town is Oakley, Kan., more famous for being the birthplace of “Buffalo Bill” Cody, and the home to Annie Oakley Park than the location of a truncated television series. As the characters starring in Jericho dealt with the fallout of a nuclear blast in September 2006, around that same time, Oakley was dealing with a challenge of its own. The citizens had just voted to eliminate the city’s 96-year-old public power utility. Residents would, instead, be served by Midwest Energy, a large co-op. In June 2006, Midwest Energy offered Oakley $2.5 million for the purchase of its electric distribution system. Until late 2006, Midwest Energy provided natural gas service to Oakley customers, and the city-owned utility, which began operation in 1910, delivered electricity to 1,300 homes and businesses. Although, a month earlier, Kansas Municipal Utilities Executive Director Colin Hansen, and board members Carolyn Armstrong and Bill Callaway traveled to Oakley to discuss the benefits of a locally owned pub48 SEPTEMBER 2008 Despi lic power utility, their effort was unsuccessful. “They met with us to be polite,” Callaway said. “They already had their minds made up.” Armstrong had the same impression. “They had already made the decision to sell the system before we attended the meeting,” she said. “They didn’t want to have to face raising the rates enough to do the required maintenance on the system.” It was difficult to hire linemen and other utility employees, because of the unemployment rate in the region. “They felt that selling the utility was the easiest solution,” she said. “By the time we showed up, they weren’t interested in hearing any other sides of the issue.” In August, Midwest Energy placed newspaper ads to explain what it perceived to be the benefits of the sale, distributed informational flyers around the city and sent letters to residents to encourage them to vote in favor of the acquisition. On Aug. 25, the co-op mailed out ballots asking residents to approve or disapprove the sale. Almost 75 percent of the voters replied to the mail ballots, and approved the sale by a margin of about 7 to 1. The sale was the largest municipal sellout in the state in 40 years, and the first since DeSoto sold off its electric system in 1993, according to the KMU Dispatch. After the Kansas Corporation Commission approved the transfer of ownership, the sale officially closed Nov. 28, 2006 . As a result, residential cus- tomers in Oakley were expected to save about $190 a year in electric costs, and industrial customers were expected to save over $700, according to a 2006 press release from Midwest Energy. Some people believe the sale went through because the city had used too much of the utility’s money for other projects, leaving insufficient funds for electric system infrastructure needs. “Oakley had used its electric utility funds for non-electrical purposes, such as extending a water main out to the eastern part of the community, as well as building a new swimming pool,” said Armstrong, utility manager for the city of Colby, Kan. “Subsequently, they found themselves in a situation where they had to do a lot of maintenance on the distribution system and other parts of the utility, but there was no money left to do that.” With professional management and proper direction from the City Council, Oakley could have avoided this situation altogether, Armstrong said. “Here in the city of Colby, we have strict rules about our funds,” she said. “For example, we don’t use electric funds to pay for other projects.” In the 16 years she has been with Colby, there have only been a couple of occasions when other departments borrowed money from the electric fund. However, the loans were tacked on as debts to other departments that paid interest on the borrowed money. “You cannot sustain a utility without reserves and funding,” said Callaway, superintendent of utilities for the Clay Center Public Utilities. “When you start subsidizing other things in a community with utility reserves, the utility goes downhill.” Reserve funds are in place for a reason, he said, especially in electric utilities. It is easy to look over and see money in the fund, and take it out to buy something the community wants or needs. “However, in a situation like this, you need to ‘bite the bullet’ and raise taxes instead.” Although, it is sometimes tempting to do just the opposite: “Utility reserves are not as visible as the general fund and other accounts, so it can be easy to transfer money out of the utility reserve to another department,” he said. “It is important for communities that are served by municipal utilities to remember that it is the only source of revenue they have other than taxation.” “Here, we do a direct transfer monthly into the general fund in lieu of franchise fees and taxes, so we have an established transfer,“ Callaway said. As a result, when the city decides to go out and do a project, it does not raid utility reserves in order to accomplish it. “I think all utilities should create this established general fund transfer each month,” he said. “If you don’t have a set transfer amount each month, which allows the utility to plan its own projects by knowing how much it will have, it will be suicide for the city and the utility.” Oakley paid for a number of things out of its electric fund, said Allen Dinkel, city manager of Hoisington, Kan., who was city administrator in Oakley from 1989 to 1999. In 1986, the city used electric utility funds to match a Federal Aviation Administration grant to extend the runway at the airport. “It was one of the oldest municipal utilities in the state,” Dinkel said. “When I arrived, it was fairly progressive. After I left, though, they stopped putPUBLIC POWER

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Public Power - September 2008 Contents Perspective 10 Questions What’s Good About RTOs? Capturing Coal’s Carbon Carbon Safety Valves Greater Glass, Greater Savings Getting Customers to Embrace Compact Fluorescent Lights LEEDing Green Kansas City Shows How to Build Green For Governing Boards Safety Community Broadband Hometown Connections Parting Shot

Public Power - September 2008

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