Chelsea City Council Approves Electric Rate Hike to Secure Utility Future
At its January 8, 2024, meeting, the Chelsea City Council deliberated on a proposal to increase electricity rates during a recent public hearing and subsequent council meeting. The proposed increase, primarily driven by the need to maintain the city's financial health and invest in infrastructure, marks the first potential rate adjustment since July 2019.
Marty Colburn, Chelsea City Manager, outlined the situation in detail. "Last year, the city council had approved to contract with Utility Financial Solutions (UFS) to conduct an electrical cost of services and rate study," he explained. The study revealed that at current rates, the city would face financial shortfalls within three to five years, risking its ability to maintain essential reserves and continue necessary capital investments.
Colburn emphasized the city's "fiduciary responsibility" to operate its enterprise funds effectively, considering the broader service area beyond Chelsea, which includes electric, water, and sewer utilities. The proposed rate increase focuses on eight customer classes, with significant attention given to the primary classes: residential, commercial, and industrial.
The City Council discussed the recommendations, with varying opinions on the approach. Councilmember Keaton expressed support for the UFS's thorough analysis and the need for a gradual increase, particularly for residential customers. "The total company increase is only one and a half percent per year," he stated, advocating for an annual review of the rates.
Councilmember Ruddock did a quick Google search to contextualize the proposed increase, noting, "In the United States, the average electrical increase from 21 to 22 is 13%." He found the 4% increase for residential customers reasonable given the broader economic climate.
The overall average rate increase is 1.5% across different user classes. Among others, residential will experience a 3-4% increase, and industrial will see a 1% increase. The discussion touched on the disparity between the increases for different customer classes. Colburn explained that various factors influenced these decisions, including usage patterns and time. "A lot of the different costs have to do with the amount of usage and the time of their usage," he said, indicating the complexity of rate design.
The council passed the resolution to raise rates effective March 1, 2024, by a vote of 5-1. Yes: Iannelli, Merkel, Mehuron, Ruddock, Keaton. No: Morris. Absent: Pacheco.
Details of the UFS study results and recommendations can be found in the council’s meeting packet.