The proposed Fiscal Year 2022 budget for Owensboro Municipal Utilities includes predicted continuing declines in water and electric revenues as well as major budget cuts. However, the commission said multiple factors including a restructuring of debt gave them confidence that revenue streams could bounce back in the near future.
The proposed budget will be considered for a vote during the regular meeting later in May.
“The Fiscal Year 2022 budget presented the challenge of reduced usage and revenue from both electric and water because of projected continuing coronavirus impacts,” said General Manager Kevin Frizzell.
He said though the COVID-19 pandemic “looms over everything we do,” several factors helped mitigate the decline in revenue and usage.
OMU reduced budgets among different departments and implemented “forward-thinking decisions” for the electric system that included shutting down the Elmer Smith Station and purchasing power at a fixed rate from Big Rivers Electric Corporation.
Frizzell also said both the electric and water systems were operating at adequate cash flow levels, and OMU shifted its fixed cost recovery to fixed charges in recent rate changes.
“I think we’ve met the challenge,” he said. “Cuts were made … we’ve already reduced this budget by $1.5 million since [the City Utility Commission] last saw it.”
Frizzell said Fiscal Year 2021 would end with a positive reduction in the balance, which would continue in 2022.
“We’re meeting our goals and metrics,” he said. “Electric rates will not increase, and they will continue to decrease.”
Senior Financial and Budgeting Account Laura Chapman said water rate increases had already been implemented for the Cavin Plant expansion project, and the base rate on electricity would remain the same until a projected increase would take place in fiscal year 2024-25.
Water rates would remain the same until a projected 5% increase in 2025-26.
“It’s a tight budget, but we feel pretty good about it,” she said. “The budget really depends on usage and revenues. It’s tight … but we projected the numbers based on conservative estimates.”
A projected 2.7% decline in electricity sales would bring the ECCA revenue down by $1.9 million.
Elmer Smith Station decommissioning costs would total $12.8 million, including expenditures related to ash ponds, coal piles, slack removal, asbestos removal, structural work and environmental remediation.
A net operating revenue of $28.7 million was proposed for the consolidated electric system, including a debt service fund of $18.6 million. The budgeted operating revenue was predicted to decrease by 6.5% ($6.1 million).
Budgeted operating expenses would decrease by 7.8% ($5.1 million).
“This year’s [decreased budget] is primarily driven by lower power costs,” Chapman said.
As part of the consolidated electric system, telecommunications revenue was expected to increase 25% compared to last year. The budgeted operating revenue was proposed to total $3.6 million for the 2022 year.
Telecommunications expenses were predicted to increase by 11% due to growth, Chapman said.
“Revenue will continue to grow for telecom through 2041 as subscribers continue to grow,” she said. “We expect the revenue to increase by $800,000 to $1.5 million each year after 2025.”
The biggest driver in the reduced water and electric sales stemmed from the school systems and commercial customers using less energy during the pandemic, Frizzell noted. Usage from industrial customers, however, had nearly bounced back to “pre-COVID levels.”
Frizzell predicted that usage and revenue would increase as the economy continued to reopen.
Total employee costs were projected to total $22.8 million for 2022. That would be a 9% decrease compared to the year before, Frizzell said. He attributed the bulk of that decrease to having a proposed 42 fewer employees.
The power purchasing agreement with Big Rivers had gone “very smoothly” so far, Frizzell said, and decommissioning work at the Elmer Smith Station had resulted in a good safety record and the ability to retain a number of quality employees who’d been stationed there before its closure.
The Cavin Water Plant expansion was also going well. Currently, the station was running through 20 million gallons of water per day, Frizzell said. It would be completed by the end of the month, and Frizzell commended those who’d been able to see the project through during such a difficult time.
