Students and faculty could pay up to $15 more a month on their electricity bills next year if Indiana Michigan Power gets its way in increasing rates 21 percent.
I&M spokesman Mike Brian said the power company was hoping for a 14 percent raise, or $128.5 million, in increased revenue next year by changing the rates of different customer classes. To do this, residential rates would increase 21 percent and commercial and industrial ratepayers would pay between 9 percent and 13 percent more.
He said the percentages were determined based on the costs of providing service to each customer class. It costs more for residential payers because of distribution lines and metering, he said, whereas large industrial payers will take power at a higher voltage. The industrial companies put the voltage through their own equipment, which makes servicing charges less expensive for I&M, he said.
Brian said residential customers have been subsidized for higher rates in previous years, so I&M was trying to align the costs and eliminate the subsidy in steps. He said the power company did not want to eliminate the subsidy at once because it would have made the increased rate higher.
"I think it's a fairness issue," Brian said. "Commercial and industrial [businesses] are covering the cost of providing service to that class of customer, and we think it's fair for each class to pay and provide their cost of service. We want each category of customer to pay what it costs to provide service to them."
He said the rate increases were for 1,000-kilowatt hours, which is what a typical customer used. He said students would not typically use that many hours, but bills could increase from $72 a month to $87 a month.
Tina Mays and Ryan Wilson, property managers at Windermere Place and Silver Tree Apartments, respectively, said because tenets paid their own electric bills, the possible rate increase would not affect students' rent.
They said the costs for electricity in the office might increase, but it was hard to tell how much that would affect the apartments' budgets.
"[Rent increases] are usually decisions that are forecasted later on because you have to look at annual numbers," Wilson said. "In terms of comparing what we're using, it's minimal to what people are using who are renting from us, and there are various factors that go into determining rent increases, and that would be a minimal factor."
Mays said if I&M increased the rates she thought Windermere might experience more complaints.
"Right now residents and potential residents that come through ask how much [electricity] runs because that's the only utility they pay," she said. "Right now we're able to tell them, so if the rates go up that's going to be the only issue. I don't anticipate us having to increase rent to cover cost, but it'd be a corporate decision."
Kevin Kenyon, associate vice president of Facilities Planning and Management, said he could not determine how the possible increase would affect students, but the university could see a small increase in what it has to pay. Because Ball State is in the industrial class, it would experience the 9 percent to 13 percent increase if I&M's proposal is approved, he said.
"The budget for academic administrative buildings is based on state funding, so there's a budget allocation from the state," Kenyon said. "I can't say students won't see an effect. Ultimately, if taxpayers have to pay more it comes back to everyone including students as taxpayers and parents as taxpayers."
He said for the 2008-09 fiscal year from July 1 to June 30, Ball State's utility budget was about $11 million. That amount included costs for gasoline for vehicles, gas for heating facilities, electricity, sewage, water and coal, he said.
Kenyon said the university typically did not spend the entire budget because the budget is higher in case of a bad year with severe weather or costs to burn more fuel.
He said people should not be too concerned I&M wanted to increase its rates.
"I don't want people to say increasing energy costs isn't something they should worry about, because it's important and we should control all costs including energy costs," Kenyon said.
Although Brian said I&M thought it was fair to increase the rates, Anthony Swinger, director of External Affairs for the Indiana Office of the Utility Consumer Counselor, said his office recommended I&M decrease the electric rates 1 percent.
According to the OUCC Web site, it represents utility ratepayer interests for residential and business consumers in cases before state and federal regulatory commissions.
Swinger said the OUCC represented consumer interests in cases that went before the Indiana Utility Regulatory Commission. According to the IURC Web site, the commission hears evidence in cases filed before it and makes decisions based on that evidence. State statute requires the IURC to make decisions that balance varying interests and ensure the utilities provide adequate and reliable service at reasonable prices, according to the site.
Swinger said I&M filed testimony before the commission with the 21 percent electric rate increase, and the OUCC had several months to review the proposal from accounting, engineering and economic perspectives. Based on the review, OUCC filed its own proposal for the commission to consider.
"In the I&M case it's the first time they've come under review since the early 1990s," Swinger said. "As far as our recommendation goes, if you look at I&M's operating and maintenance costs over the last 15 years since the current rates were approved, the costs since then have gone up, but our review based on the information we currently have shows that other factors offset the increased operating maintenance expenses."
Another major factor is depreciation expenses, he said. The OUCC and I&M made an agreement last year that allowed the power company to reduce depreciation expenses, which played a major role in offsetting the costs, he said.
"If it weren't for those expenses, then a rate increase in this case would be justified," Swinger said.
Brian said I&M wanted a 21 percent increase because it had been 15 years since the last increase and the consumer price index has increased about 43 percent since then.
"We feel like we've done everything we can to cut costs and have downsized staff and are being more efficient by using technology," he said. "We've done everything we can to streamline operations and keep costs down. We think we are doing a good job because customer satisfaction is at an all-time high for customers. We feel like we're doing a good job but costs are getting ahead of us."
Roommates Matthew Harvey, a senior history major, and Caleb Whitmer, a junior marketing major, said if I&M increased the rates the extra $15 would come out of their gas tanks.
"I think I'd have to rebudget and allocate funds differently so I don't drive as much," Harvey said. "[I'd also have to] decide if I'd go home as much. It's only $15, but it could make a big difference. It's about $70 a semester so that's quite a bit."
Nathan Meeks, a junior industry and technology major, said he would not change how he paid for things because $15 was not going to make or break him.
"It's only a few more [dollars] a week," he said. "It's more important to have electricity than that extra beer at Scotty's."
Aly Tennant, a junior social work major, said she would have less money to do other things she wanted to do for fun if the rates increased, but having a roommate would help split the cost.
"I would just have to rebudget and take it out of food," she said. "It's not that $15 will make or break you; it's just taking it out of something else."
Brad Gottschlich, a sophomore political science major, said the extra amount also would not make or break him, but he did not want to pay the extra money if he did not have to. He does not pay a separate electricity bill because he lives in the Sigma Phi Epsilon fraternity house, but part of his rent goes toward electricity costs, he said.
"If I could pay less, why would I choose to pay more?" he said.
I&M has until Oct. 15 to file rebuttal testimony responding to what the OUCC and other interested parties have filed. The IURC will have an evidentiary hearing in December in Indianapolis.
Although neither party said they could speculate on what the decision would be or when it would occur, Brian said he expected the decision to be made in the first part of 2009. If I&M's proposal is passed, the rate increases could happen quickly, he said.
I&M serves 455,649 customers in Indiana and has the lowest rates in the state for industrial utilities, Brian said. Even if IURC gave the power company everything it asked for, its rates would still be the fourth lowest out of five companies, he said.
"We feel as if we're being responsible in our obligation to serve customers," Brian said. "But just like the higher rates are affecting customers, the higher gas prices - because we consume 1 million gallons of gasoline and diesel every year - so all those costs impact us as well. We have to buy materials for putting up lines and substations, and those costs have increased."
He said I&M also was trying to introduce technology on its power lines that would provide better reliability, so if the power went out, the company could get the power back more quickly.
"The infrastructure out there was built in the 1940s and 1950s," Brian said. "That's aging and needs to be modernized because there's so much computerization and computers react differently to reliability. [It] has taken on a whole new meaning, so we're trying to keep up on consumer expectations."
MARG:
For more information about Indiana Michigan Power as well as ways to save on energy costs visit indianamichiganpower.com
For more about the Indiana Office of the Utility Consumer Counselor visit in.gov/oucc
For more information about the Indiana Utility Regulatory Commission visit in.gov/iurc
For a general overview of the case process visit in.gov/oucc/2439.htm
For an overview of expenses that go into a customer's bill visit in.gov/oucc/2500.htm
For more information about I&M and OUCC's testimony visit in.gov/oucc/2984.htm
For more information about billing comparisons visit in.gov/iurc/files/2008_Residential_Bill_Survey_Presentation(2).pdf
The other Indiana electric companies and their monthly rates for 1,000 kilowatts in 2007 and 2008 are:
Company: 2008 2007 % change
Duke Energy Indiana $96.62 $90.20 7.12%
Indiana Michigan Power D/B/A AEP $73.66 $71.96 2.37%
Indianapolis Power & Light Co. $74.72 $76.20 -1.94%
Northern Indiana Public Service Co. $105.37 $105.61 -0.23%
So. Indiana Gas & Electric Co. D/B/A Vectren $119.04 $103.02 15.55%
Key Terms:
Depreciation: A non-cash expense that reduces the value of an asset as a result of wear and tear, age or obsolescence. Most assets lose their value over time or depreciate, and must be replaced once the end of their useful life is reached.
Subsidy: Financial aid given by the government, individuals or groups
Consumer Price Index: An inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is also called the cost-of-living index and is published monthly.
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