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Baldwin City purchasing right to provide electrical service to industrial park

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March 3, 2015

With assurances from city staff that it was a sound business decision, the Baldwin City Council approved an agreement Monday to purchase the right to provide electrical service to the industrial park from Kansas City Power & Light.

In the agreement approved, the city will purchase the electrical service rights for four customers along North Sixth Street and seven in the industrial park area and the power poles, transmission lines and transformers KCP&L uses to serve the customers for $633,617.

The city has statutory authority to purchase the right to provide service within the city, but state statutes also dictate the conditions of such sales, the council was told. Baldwin City Administrator Chris Lowe said the city made a counter offer to the sale price, but KCP&L, having experience with the statutory conditions that favor investor-owned utilities, was not willing to budge from its price.

City financial director Brad Smith proposed revenue generated from the sale of power to the new customers be used to retire the 20-year bond secured for the purchase with annual payments of $45,000. He “conservatively” estimated KCP&L made $54,000 to $65,000 a year from the 11 customers. That figure did not include the added profit associated with demand power during peak consumption periods, which could add as much as 30 percent more to KCP&L’s profit, he said.

Should all the revenue from the customers be applied to debt service, the bond could be retired in 10 years, Smith said. The 20-year length of the bond would provide a cushion against the loss of revenue should one of the large customers close down or move from the city, he said.

“We think it is a good business decision and a good long-term decision for Baldwin City,” Smith said.

The city would also install buried power lines to serve the new customers at the cost of $100,000. The electrical department’s reserves would be used to pay for that expense, Smith said.

Baldwin City electrical power plant superintendent Rob Culley said the city investigated buying service to the area in 1999 and again in 2003. The cost of the purchase put an end to the 2003 discussions, he said.

The city would be able to provide service to many of the businesses in the industrial park cheaper than KCP&L, Lowe said. Moreover, the utility is currently seeking a 12-percent rate increase for residential customers and would probably be granted half the requested hike. History suggested a request to increase the rates of commercial customers would soon follow, he said.

The city was promoting the purchase to the 11 new customers as a service upgrade, Lowe said. It was noted some the customers asked for the change after experiencing a long power outage after a winter storm two years ago when Baldwin City had power restored to all customers within 12 hours, he said.

The advantages to the city was squaring its service area with the city boundaries, the addition of a new revenue stream and putting the city in position to provide service to any residential growth west of the industrial park, Smith said. The city would pay more for the service rights if it waited until development started in that area, the council was told.

Culley said the city could handle the added demand with no effect on distribution capacity because the city would activate one of four unused breakers at the new substation to serve the new customers.

Councilman Ken Wagner recommended approval of the purchase as a member of the council’s utility subcommittee with Councilman Jason Mock, who was absent Monday. His industrial park business, Heritage Tractor, would be one of those affected by the purchase, but Wagner said it would be the one company that would see an increase in its electrical bill.
“I’m willing to step up and pay more because quite frankly the service provided makes up for that increase,” he said. “There is no conflict of interest on my part.”

The purchase was an indication of the progress city staff and a succession of city councils have made in the management of its enterprise utility funds, Wagner said. The financial struggles the city had with its utilities derailed past attempts to purchase the industrial park service from KCP&L, he said.

Lowe said there was a lot of paperwork to be completed before the purchase was completed. It deal should be completed before the end of the year, but he was hopeful it could be finished by summer so the new customers could take advantage of the city’s better rates.

Originally published at: http://www.baldwincity.com/news/2015/mar/03/baldwin-city-purchasing-right-provide-electrical-s/