HomeMy WebLinkAboutAM 2023-011 Reasons Why to Sell Electric Utility City of Seward
Action Memorandum 2023-011
Meeting Date: August 14, 2023
To: City Council
From: Council Members DeMoss and Wells
Subject: Action Memorandum 2023-011: Determining It Is In The Best Interest Of The
Seward Community To Sell The Electric Utility And Specifying The Primary
Reasons
Background and justification:
The topic of selling the City of Seward Electric Utility has been an item of discussion, various action, and
community interest for several decades. On May 9,2022;the Seward City Council passed Resolution 2022-
067, directing the City Manager to develop a timeline and process for examining the advantages and
disadvantages of selling the Electric Utility and bring recommendations back to City Council for adoption.
Since that time,the question was placed on the ballot for a Special Election in May 2023. The proposition
obtained approval from 58.4%of voters and did not meet the Charter provided threshold of 60% in order
to pass. During the City Council meeting on July 24t'', City Council passed resolutions to place the question
on the October 3, 2023 ballot and provide voters another opportunity to vote on the question of selling the
Electric Utility.
In recent City Council meetings, members of the public have stated a desire to formally hear from City
Council members on "why selling the electric utility is a good thing for Seward". City Council members
have verbally discussed the reasons they believe selling the Electric Utility is a positive action for the
community,but no formal legislation has been passed which explicitly stated the reasons. The intent of this
Action Memorandum is to provide a formal list of those reasons so that the public can hear from City
Council as a body and put to rest any lack of clarity for the public.
City Council believes the following reasons are primary motivating factors for selling the Electric Utility:
1. RATES. Rates Over the next 10 to 15 years,the city' s electric system faces multiple rate increases
as the utility plays catch-up on deferred maintenance, and begins updating technology to modern
standards. Economic modeling shows ratepayers can expect several of these rate increases to reach
10 percent or more. This is the reality of a small utility that cannot spread costs over a large
population—the city of Seward has fewer than 3, 000 electric meters.When regular maintenance
is postponed, eventually bigger investments are required to get back on track. This is the situation
in Seward today.
2. RESOURCES.A larger utility brings more resources to bear,both human and financial. Our system
in Seward operates with only 10 employees, most in positions that are operations focused.
Additionally, limited personnel results in coverage gaps when an employee retires or otherwise
moves on from the utility.And as we all know,finding skilled new employees is often hard because
of Seward' s relatively remote location. Seward' s staffing limitations also mean the utility cannot
rely on in- house expertise offered by larger utilities, especially in areas like billing, engineering,
rate design, cybersecurity, and communications. Instead, Seward' s electric department relies on
consultants for these services, which is expensive and inefficient. This reality routinely results in
project delays.
3. RELIABILITY. Running an electric utility is expensive. It requires regular investments in
maintenance, new infrastructure, updated technology, and employee training and retention. In
Seward,it is even harder when only 2,900 meters are available to drive revenues and system growth
is stagnant. These factors make ongoing upgrades difficult to achieve. Overtime, this places the
utility in the difficult position of weighing system investments against the impact those costs will
have on customer rates,which could directly impact reliability.
Comprehensive and Strategic Plan Consistency Information
This legislation is consistent with(citation listed):
Comprehensive Plan:
Strategic Plan:
Other:
Certification of Funds
Total amount of funds listed in this legislation: $ 0
This legislation(✓):
Creates revenue in the amount of $
Creates expenditure in amount of: $
Creates a savings in the amount of $
x Has no fiscal impact
Funds are (✓):
Budgeted Line item(s):
Not budgeted
x Not applicable
Fund Balance Information
Affected Fund(✓):
General SMIC Electric Wastewater
Boat Harbor Parking R Water Healthcare
Motor Pool Other
Note: amounts are unaudited
Fund Balance/Net position—restricted $
Fund Balance/Net position—unrestricted/unassigned $
Available Unrestricted Cash Balance: $
Finance Director Signature: No fiscal impact
Attorney Review
RxYes Attorney Signature:
Not applicable Comments:
Administration Recommendation
rq Adopt AM
Other:
City Council Approved Action Memorandum 2023-011 on August 14,2023—Kris Peck City Clerk