Shakopee City Council heard from three electric utility vendors Tuesday night in preparation for taking over management of Shakopee Public Utilities if the ballot measure to abolish SPUC is approved in two weeks.
The goal in finding an electric utility vendor is essentially to contract an electric department manager and support team for two years, according to City Administrator Bill Reynolds.
Minnesota Municipal Power Agency, Minnesota Valley Electric Cooperative, and Xcel Energy all responded to the city of Shakopee’s request for qualifications for electric management and each vendor presented its qualifications to council Tuesday night.
Each vendor has its own presence in Shakopee already, according to Planning Director Michael Kerski. MMPA is SPU’s wholesale power supplier and owns Shakopee Energy Park near Canterbury Park; Xcel has a power plant next to Quarry Lake and has key accounts in Shakopee including Rahr, Valleyfair and Anchor Glass; and MVEC already serves about 800 Shakopee residents.
The question remains what would happen to the utility after the two year contract period in which the vendor would evaluate the electric infrastructure and overall operations. In an interview with the Shakopean, Reynolds said there is no plan to sell the electric utility if the city assumes management of it.
“If we were bent on selling it, why would we wait two years and waste a lot of time and money fixing it? I would unload it immediately,” Reynolds said. “There are all kinds of cities that run their electric utilities, Chaska being one. If we were to sell it, we should do it outright and not mess with a mid-term manager. In reality, anything can happen, but why not keep it and transfer modest and reasonable funds to offset property taxes as do most cities with utilities?”
Reynolds has indicated two of the city’s existing department managers, Finance Director Nate Reinhardt and Public Works Director Steve Lillehaug, have the experience needed to manage the water utility, which would merge with the existing Public Works Department.
Future of SPU staff
City Councilor Jody Brennan broached the question of future layoffs under the vendors, saying folks in the community have expressed concerns that SPU workers will be laid off if the city absorbs the utility and contracts a manager.
“We would be using the current staff. The only thing we’re looking for in regards to this particular proposal is for essentially managing, much like a department head would, with some support staff, the electrical side of the utility. The personnel would be used the same,” Reynolds said.
With several existing vacancies in SPU’s finance and administration departments, the city predicts substantial cost savings via attrition. Instead of hiring new people to fill those open positions, existing city staff would absorb the job responsibilities.
City Finance Director Nate Reinhardt reported at an Oct. 6 council meeting that attrition could save $500,000 in the utility’s finance operations, plus additional savings from merging the water utility operations with Public Works. Reinhardt estimates a total savings of at least $1.78 million in the first year of the city managing the utilities.
The cost of contracting an electric vendor would cut into those savings, but Reynolds is emphatic in his belief that there would be a major savings regardless.
“(The cost of an electric vendor) is going to be less than $1.75 million,” he said. “The whole point of this is to save money.”
Kerski added that no matter the cost of the contractor, “we’re going to save enough money through consolidation that it won’t impact rates at all.”
What about rates?
Rates have been a prime concern among voters deciding whether to vote for or against abolishing SPUC. Brennan addressed the topic at Tuesday’s meeting, asking MMPA agent Derick Dahlen if the electric provider would suggest any rate alterations, particularly increases.
Dahlen pointed out that any change in rates would be a governing body decision left to the City Council, but Dahlen would not expect a rate increase. If anything, he would consider recommending a decrease.
“The profitability of SPU’s electric department is very good. Given the high level of profitability, we would see no upward pressure on rates,” Dahlen said. “You would clearly have a question about whether rates would be reduced.”
Reynolds told the Shakopean he sees no reason for voters to reject an idea that could result in cost savings and more prudent management.
“(Voters) have been bombarded with false claims that the city would raise rates if SPUC was abolished, paid for by current and former commissioners and employees who are directly responsible for the current state of the utility,” Reynolds told the Shakopean. “Now we have factual information that once again contradicts their false and unfounded claims. With that knowledge and the knowledge that the city can trim at least $1.75 million a year from the bottom line of the utility, the ratepayers can not only get full accountability for a utility that has no oversight, but have the prospect of a rate cut as well.”
To view Tuesday’s discussion in its entirety, visit the city’s website.