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Monday, Sep. 22, 2014

PILOT: Surcharge to other cities is cause for concern for BMU

Sunday, February 2, 2003

SIKESTON - The Board of Municipal Utilities has never been against a payment in lieu of taxes on retail electrical sales, according to Ed Throop, general manager. "In fact, they encouraged it in 1994."

"We're not the opposition," Throop continued. "We just want to do it right."

The problem is with the other two of the BMU's three sources of electrical sales revenue: spot market sales and wholesale sales to the long-term contract purchaser cities - Columbia, Carthage, Fulton, West Plains and Trenton.

Spot market sales, or the sale of excess electrical power on the open market, account for roughly 20 percent of BMU's electrical revenues, according to Throop. Being a commodity, if the price is increased even marginally, purchasers will buy someone else's excess power instead at the base market price.

The five long-term contract cities pay cost plus 10 percent, with cost defined as fuel, operation and maintenance and bond payments. Manuel Drumm, attorney for the BMU, among others maintains that a PILOT can not be included as part of cost.

"We can not find valid authority to charge another city a surcharge to be used for this city's infrastructure," said Throop.

In a resolution passed by the BMU during a special meeting Jan. 20, the board states "any attempts to surcharge the contracting cities will damage the critical relationships Sikeston has with the cities" and that "imposing surcharges on the contracting cities and then seeing what happens when the lawsuits start flying is dangerous, irresponsible, and inconsistent with the business practices of the Board of Municipal Utilities."

Steve Forbis, BMU chairman, noted the 1994 opinion from John Oliver used by PILOT supporters cautions in closing that "the mechanism for collecting the PILOT through the Purchase Power Contracts is untested, and therefore is subject to a potential for litigation."

The largest of the contract cities, Columbia, has already responded with a letter (see page 5) which states their arrangement is to support the plant "in a manner similar to a cooperative...In no event was it ever contemplated that the cost of our share would be subject to any local payment-in-lieu-of-tax."

Dick Malon, director of Columbia Water and Light, points out in the letter that "Columbia has stood by Sikeston and the Sikeston plant from the very beginning" and through tough times. "To seek to frame this relationship as a mere energy sale is in direct conflict with the spirit and intent of the participation agreements and our long time relationship."

A similar letter has also been received from the City of Trenton, according to Throop.

If Sikeston's charter is amended so BMU must transfer roughly $1.6 million each year, but the BMU is unable to get it from either the long-term contract cities or the spot market, "then it would have to come from retail," Throop concluded. "There's only one place to get it."

To raise $1.6 million from the retail sales alone would require an increase in retail rates of approximately 10-14 percent, Throop said.

"And we don't think that will be agreeable to the citizens of Sikeston," said Forbis.

Additionally, the BMU's Jan. 20 resolution notes that all electrical system revenue is pledged as collateral for the power plant's bonds, and that BMU must have permission from the bond holders or their agent to transfer any money to city hall. Some have also noted the importance of maintaining reserves for maintenance of the 21-year-old power plant.

Forbis also noted the BMU's previous attempts at voluntary transfers. "We've tried to work with the city," he said.