Business and Economics

Mayors, Utilities Battle Over Customers In Annexed Areas

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February 6, 2015 —

INDIANAPOLIS – A Senate committee passed a bill on Thursday that would ban municipal electric utilities from automatically taking over customers from private electric companies in areas they have annexed.

The bill written by Sen. Michael Crider, R-Greenfield, passed the Utilities Committee 8-2 and now heads to the full Senate for consideration.

Crider said that he believes the bill is fair and gives neither the cities nor the private utilities an advantage. He said he is simply trying to level the playing field.

But mayors and other city officials say the bill strips them of the power to serve their communities.

“This entire deliberation, in my opinion, should be about two very important things: The best interest of the customer and economic development,” Washington Mayor Joe Wellman said.

Under current law, a city that annexes a neighborhood can file a petition with the Indiana Utility Regulatory Commission and shift customers from the private utility that had been serving them to the municipal power company. The city-owned utility then pays the private company for the loss of their customers.

Representatives of Rural Electric Membership Corporations and investor-owned utilities say that’s unfair. REMCs in particular say they have been tasked in the past to handle customers outside of city limits that were not financially beneficial to the municipalities at the time. Then later, they’re required to give those customers up.

“What the REMCs of the state of Indiana are simply asking this committee is let’s all be treated equal,” said Michael Burrow, the president and CEO of NineStar Connect, an Indiana co-op. “I don’t think we can ask any more of our government, but we certainly shouldn’t ask any less of our government.”

Currently, private electric companies and REMCs have about 93 percent of the state’s power customers to the 7 percent that the municipalities serve. However, cities have a much higher density compared to the private companies whose customers are spread out over a much broader range.

And those issues – population density and who should control which areas – make up much of the controversy about SB 309.

Carolyn Wright, who represents the state’s 72 municipal electric utilities, said that REMCs want to increase their customer density by serving areas that are growing in population, even if they’re within city limits. “The more customers you have per mile, the lower your costs can be,” Wright said.

Representatives of the municipal companies also said that giving customers choices is important.

But under the legislation, Wright said, newly annexed customers won’t receive all the benefits of living in the city.

“Unless both utilities come to an agreement, there will be no change of service between the incumbent utility and the municipal service,” she said. Customers “desire to be a part of a community and desire to have that local service even though they are municipal customers.”

But Burrow said that in his time working with electric companies, negotiations between private and public utilities always seem to come out the same. “Ultimately, the government always wins; the co-op always loses,” he said.

According to Burrow, NineStar Connect consistently negotiates with Duke Energy and exchanges territories. He thinks that if SB 309 becomes law, the municipalities would also negotiate.

“That will bring the cities also to the table and we’ll do it in terms of an arms length transaction,” Burrow said.

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