The Owensboro Utility Commission unanimously approved the 2020 budget for Owensboro Municipal Utilities Thursday. The budget, which will be effective June 1, reflects the first unit closure at Elmer Smith Station and the expansion of the William H. Cavin Water Treatment Plant.
“This budget represents a significant step in the transition from nearly 120 years of self-generation using coal to purchasing all of our customer’s power needs from third parties in fiscal year 2021,” said OMU General Manager Kevin Frizzell.
The budget projects a $32 million net operating revenue for the consolidated electrical system, which is made up of electricity sold to Owensboro customers and to the wholesale market as well as telecommunications. OMU estimates they will generate 1.6 million megawatt hours, down from 2.1 million in 2019.
Financially, the budget is down 17.2 percent from the previous year. According to OMU Senior Financial & Budgeting Accountant Laura Chapman, majors drivers of the decreased budget are lower fuel, maintenance and operating costs of Elmer Smith.
That electric budget is before a $22.4 million debt payment, a $9.7 million fund transfer to the City of Owensboro. The funds paid to the City are made up of a $7.3 million cash dividend and $2.4 million payment in lieu of taxes or free services provided to the city. Once those revenue requirements are met, OMU projects a net cash flow of $681,000.
“When they look at our net income, they think OMU is a not for profit, why do you have a net income,” Chapman said. “It’s because we do have to satisfy our debt payments.”
Chapman said OMU is projecting a very modest net income for the telecommunications division of OMU until 2025, which is when she expects OMU to have enough fiber optic customers to offset their investment in the technology.
“When you’re growing the business, there are a lot of upfront expenses you have to cover,” Chapman said.
The next segment of Owensboro to come online with OMU fiber optic will be in the heart of Owensboro around the Wesleyan Park Plaza area, which the utility estimates will cost $3.6 million.
OMU estimates that it will produce 4.4 million gallons of water in 2020. The water budget projects $6.6 million of net operating revenue, which is up 18.6 percent from the previous year as OMU plans to begin the Cavin Plant expansion project. This is before $4.6 million in debt payments, and $347,000 of payment in lieu of taxes to the City of Owensboro, giving OMU an estimated $141,000 of net cash flow.
In the general and administrative budget, a $426,000 — or 12 percent — increase in employee pension costs dictated by state legislature was offset by switching from the wholesale power marketer ACES to Kentucky Municipal Energy Agency with the ramping down of Elmer Smith. This provided a 5.6 percent budget decrease for the public utility, which is expected to employ 234 this fiscal year.
OMU capital projects for 2020 include electric delivery to the west side neighborhood Bluegrass Commons, the Shoppes at 3800 on the site of the former Texas Gas building as well as Gateway Commons.
Most interesting to Chapman in the production capital budget is that water production is estimated to cost upwards of $37 million, while power production is expected to sit around $33,500.
“This really tells the story that our focus has shifted from electric production to water production,” Chapman said. “At one point those numbers would have been inverted.”
This is directly related to first unit closure at Elmer Smith and the expansion at the Cavin Plant.
According to Sonya Dixon, communications and public relations manager for OMU, the first unit closure at Elmer Smith can be expected in early summer, but an exact date has not been set.
Dixon said OMU officials have talked about a ceremony for the day the first unit goes offline for good, but she said they have decided to wait until Elmer Smith is officially decommissioned with the closing of the second unit in the summer of 2020.
“No employees are going to leave as a result of unit one closing,” Dixon said. “We will probably invite the retirees back. Multiple generations have worked at that power plant. It’s been important to Owensboro and it’s a big change.”
On Thursday, the Utility Commission also approved a request for an additional 80 hours of unused vacation carry-over for Elmer Smith employees from the 2019 calendar to 2020. Those employees were previously allowed 40 hours without approval, but this would potentially allow for an additional 160 hours from 2019 to 2020, with a maximum of 200 hours to be carried over.
The commission also approved a new layoff policy giving those with most seniority the option to volunteer to be laid off before forced layoffs from the bottom.
While officials only expect this change to affect five to six Elmer Smith employees, Frizzell told the commission it was a good move for the utility.