City of Hagerstown plans for reduction in light fund revenue

December 19, 2010|By KATE S. ALEXANDER |
  • The former Washington County Hospital building on East Antietam Street in downtown Hagerstown has greatly reduced its electricity use since it moved Dec. 11.
By Joe Crocetta/Staff Photographer

HAGERSTOWN — One of the City of Hagerstown’s biggest electric customers, Washington County Hospital, has quit accepting patients and moved to the new Meritus Medical Center building outside the city and a second major customer plans to shut its doors in 2011.

Those moves will mean a loss of revenue for Hagerstown’s light fund, but officials said the city’s power customers will not be stuck with the bill because the city planned ahead by making cuts.

City Utility Director Mike Spiker said he has been trimming expenses from the light fund since 2008 in anticipation of projected losses and to avoid seeking a rate adjustment from the Maryland Public Service Commission.

“We try to (make reductions) within every aspect of the operation. We don’t just pick on one part of it,” Spiker said.

Hagerstown expected light fund revenue to diminish by approximately $3.5 million a year because of the hospital’s move, along with the expected closure by Unilever in 2011 of the Good Humor-Breyers Ice Cream plant on Frederick Street, Spiker said.

On the other hand, once both closures have been accomplished, the city will save about $2.8 million it would have spent each year to purchase power to supply those two customers.

Using those figures, city Budget Officer Al Martin projected that once the hospital and the ice cream plant left the city, the net revenue shortfall will be about $700,000.

Martin said the city has projected a $465,229 deficit in its light fund for fiscal year 2012, which begins July 1, 2011.

The hospital accounted for $240,000 of the projected shortfall, and planned capital projects also contributed to the projected deficit, Martin said.

Martin said he budgeted for the hospital to use a small fraction of the power it used previously. He projected the city will be able to reduce its cost of purchased power by $960,000 in fiscal year 2012 because of the hospital’s move.

Meritus Health President and CEO James P. Hamill said previously that once the health care facility moved, it would continue to use power at the building on East Antietam Street to keep some heating, cooling and lights on in the building.

The hospital became the first of the two big customers to leave the city limits, officially moving from its East Antietam Street location on Dec. 11.  

Unilever spokesman Dean Mastrojohn said in an e-mail that his company still plans to close the Hagerstown Good Humor plant by the end of 2011.

The company in June 2009 said it would shift production from Hagerstown, and those plans have not changed, Mastrojohn said.

Together, the hospital and Good Humor accounted for 11 percent of the light fund’s gross $32.4 million revenue, Spiker wrote in an e-mail. Revenue from the hospital was budgeted at $1.4 million in fiscal 2010, and Good Humor revenue was budgeted at $2.1 million, he wrote.

Planning ahead

Because Hagerstown’s light fund is a self-supporting fund, its expenditures must be balanced with revenue, Spiker said.  

Spiker said operational expenses have been cut annually since fiscal year 2008 to balance the fund and to avoid a shortfall in fiscal 2012.

For instance, seven positions remain unfilled in the department, he said.

Other steps also were taken.

“We don’t want to do everything on the backs of the employees. We need to make other cuts, not just by keeping staff reduced or something along those lines,” he said.

To that end, capital outlay was cut from $1.3 million in fiscal 2008 to $676,000 in fiscal 2010, he said.

Hagerstown Light Department reduced its vehicle fleet, froze vehicle-replacement purchases, and eliminated external seminars and noncertification training, he said.

As a result of the cuts, Spiker said, light fund expenses were reduced from $33 million in fiscal year 2008 to $31 million in the current fiscal year.

Despite the efforts, Hagerstown has projected a deficit in its light fund for FY 2012, but Martin said the loss will be offset in the budget through more expenditure reductions.

“The city has been belt-tightening to live within means,” Martin said. “The bottom line on looking at projections, the hospital loss is built in (to the budget).”

If more cuts are needed, capital outlay, projected to be about $1.3 million again for fiscal year 2012, could be reduced further, Spiker said.

“In my tenure here ... we have never spent what we have said we were going to do on CIP (capital improvement) projects,” Spiker said.

Because of operational cuts made by the Hagerstown Light Department, city power customers will not see their rates increase anytime soon, Spiker said.

Monthly Purchase Power Adjustments are the only fluctuations seen by customers on their monthly bills, he said.

Market energy costs fluctuate frequently, so the state allows Hagerstown to recover any additional money it has to pay to purchase power wholesale through a monthly purchase power adjustment, he said. But it also requires the city to give customers a rebate if the purchase price is lower than anticipated.

Power rates

Power rates, established in 2005 by the Maryland Public Service Commission (MPSC), will remain the same for now, Spiker said.

Under the current rate structure, Hagerstown’s 15,802 residential customers pay about 5.1 cents per kilowatt hour, he said.

The city’s 2,367 commercial customers pay a base rate of about 6.7 cents per kilowatt hour for the first 700 kilowatt hours, and about 3.8 cents per kilowatt hour for all usage above 700 kilowatt hours, Spiker said. There is a demand charge of $3.83 per kilowatt hour for the highest usage above 7.5 kilowatts in a 30-minute period, he said.

The 253 industrial customers, such as the hospital and Good Humor, pay a base rate of about 2.7 cents per kilowatt hour for the first 15,000 kilowatt hours and about 2.4 cents for the next 85,000 kilowatt hours. They also pay 2.1 cents for all usage above 100,000 kilowatt hours, with a $5.04 per-kilowatt demand charge for the highest usage in a 30-minute period.

Hagerstown does not generate its own power and pays about $25 million a year to purchase an average of 348,476 megawatt hours per year from Allegheny Energy Supply Inc., Spiker said.

“Any overcollection of revenue in excess of our yearly expenses is rebated back to our customers over a 12-month period and conversely, any undercollection is collected over a 12-month period,” Spiker wrote in an e-mail.

The city adjusts customer monthly bills for any difference in the purchase price from Allegheny and the rate paid by customers, Spiker said.
The Public Service Commission conducts studies to determine fair rates for each class of power customers.

Historically, Hagerstown has sought a rate study every 10 to 12 years, Spiker said. Because the studies cost nearly $500,000, no rate study is on the horizon for the city, he said.

A base-rate adjustment has not recently been a topic of city council discussion, said Councilman William Breichner.

The last time Hagerstown adjusted its base rates was in 2005, Spiker wrote.

Councilwoman Ashley C. Haywood said Hagerstown’s rates are competitive and she would like them to stay that way.

“I’d like to see no (rate) increase in the city,” she said.  
Losing its two largest power customers gives Hagerstown motivation to entice other businesses to locate in the city, she said.

Haywood said increasing its customer base is the best way to for the light department to offset losing the hospital and the ice cream plant.

Hagerstown Light Department has limited options for increasing its customer base, Spiker wrote.

Expanding its distribution area is not an option because the light department operates within a defined 1943 city boundary and cannot add customers outside that area to supplement any loss, he said.

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