Page Electric Utility Spends $1.5 Million on the Plant in Payson, Utah
Jun 28 - The Arizona Daily Sun
Last weekend's wildfire-caused power outages have not been Page Electric Utility's only concern of late, thanks to complications at a power plant 330 miles to the north.
Nebo, Utah's first power plant to be powered by natural gas, went on line in
April 2004 and has proven a short-term bust partly because natural gas prices
have increased by 2 1/2 times since 2002.
Page Electric is spending $1.5 million a year on Nebo in annual fixed costs,
including debt service, staffing and fuel costs. But the city-owned utility is
expected to earn only about $90,000 this fiscal year from Nebo energy sales. The
losses will be absorbed by Page Electric's reserve account of about $7 million.
Page, long a Cadillac of public utilities, showed an operating loss of nearly
half a million dollars in fiscal year 2003-04 and could post an even bigger loss
in 2004-05, General Manager Bryan Hill said. Page is the second-largest
stakeholder in Nebo, with a 17 percent share.
Hill and other Page officials have suspected the 146-megawatt Nebo has
shortcomings beyond the steep increase in natural gas prices.
Page Electric commissioned an independent audit by RGL Forensic Accountants
and Consultants of San Francisco, and the auditors' May 6 report is raising even
more concerns.
RGL found accounting, budgeting and performance flaws at Nebo. The plant
operator, Colorado Energy Management, has kept workers onsite even though the
facility only recently began to run on a summer schedule of 16 hours a day.
UAMPS also is collecting debt service in excess of the amount required, the
report said.
UAMPS general manager Doug Hunter defended the practice of keeping idle crews
at the plant: "This plant isn't a taxi cab that you can just start running
for the Olympics. There is long-term maintenance that needs to take place to
ensure it operates properly when it is running," he told The Salt Lake
Tribune recently.
"We're just trying to maximize use of the facility," said Phillip
Solomon, UAMPS' representative for St. George, Utah, the third-largest
shareholder of Nebo with a 13.5 percent share. "We, like the other large
participants, are trying to get our value out of the facility."
But Solomon said St. George is looking at selling off some of its entitlement
in the project to reduce its debt. A prime potential buyer could be a large
power broker like PacifiCorp, which does business in Utah as Utah Power.
RGL audit would suggest the 48-member UAMPS is a better buyer of power than a
producer of it.
"This is the first time that UAMPS has stepped to the plate and tried to
manage a power plant, and the auditor suggests there is big room for
improvement," Hill said last Thursday.
"In this industry with the natural gas prices as high as they are, it's
a challenge for anybody to operate a gas-fired plant profitably," said
Brynn Johns, chairman of the Page Electric board. "There are some that are
able to do it, but UAMPS may not be one of them."
Hill said he wanted auditors to determine whether Page's operating and
scheduling procedures were being followed by UAMPS at Nebo.
"We weren't getting satisfactory answers from UAMPS, and it led us to
believe they didn't quite have their accounting act together yet," Hill
said.
"We asked them to go in and ask them, 'Are our bills correct? What's
your impression of the management of this plant? How can it improve?'" The
report also said prepayments of $5 million by Page and $300,000 by Santa Clara,
Utah, were unfairly allowed to subsidize the project. The communities were not
rewarded for the savings produced by their prepayments, the auditors said.
The report said many adjustments had been made to the budget overall and the
individual billings attributed to Page Electric. The changes in budget have
caused the monthly fixed cost billings to vary from month to month.
It said the variations in fixed cost budget items "may be symptomatic of
business problems or may be a reflection of the dynamic business climate of the
Payson business environment."
Page Mayor Dan Brown told mayors of the other UAMPS cities last week he
thought the audit revealed the need for "further investigation and
clarification of critical accounting and management issues."
Brown suggested that UAMPS' response to the audit could lead to some more
friction. The RGL auditors also noted they ran into some initial resistence
obtaining records from the UAMPS office in Salt Lake City.
"UAMPS staff has had an opportunity to review and respond to the
independent audit," Brown wrote in his June 20 letter to other mayors.
"Our review of the staff response supports a disturbing finding that
UAMPS intends to discredit our intentions as misplaced and to further argue that
any subsequent inquiry will cost you money and compromise plant
productivity."
UAMPS' Hunter said the real problem is cities like Page are committed to
buying more power than they need to serve their customers.
"Given the time it can take to bring new power plants on line, it is not
uncommon for cities to do that if their projections indicate that they will
eventually need that additional power," he told The Salt Lake Tribune for
its June 19 editions.
When it was dedicated last July, the plant was touted as the most efficient
plant in Utah because of its use of less natural gas per megawatt produced of
any plant in the state, Gov. Olene Walker said at the ceremony.
The biggest Nebo shareholder, Springville, Utah, wants to see how the plant
fares this summer under a more productive schedule before walking away from it.
St. George's Solomon said the plant has run 16 hours a day only sporadically
since June 1 because of some exciter regulator problems.
"It will be interesting to see how Nebo performs," Springville
Power's Matt Hancock told The Tribune. "And I'm curious to see where
electric prices go and whether the plant can cover its costs."
Before considering further action, Hill said he wants to discuss the
situation with other UAMPS representatives and the Page city council.
"I don't think it's in Page's best interests to continue to send money
to an organization without having accounting policies and procedures that are
trackable and auditable," he said.
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