City Talks Renewable Energy Options, Audit
By Beth Milligan | Jan. 9, 2018
Traverse City commissioners have multiple options on the table for fulfilling their pledge to power all city operations with 100 percent renewable energy by 2020 – but must start deciding soon among offers made by potential suppliers. Commissioners discussed those offers at their Monday night meeting, and also reviewed the results of a recent city audit – which came with a warning from auditors about the city's increasing pension liabilities.
Renewable Energy Options
At least three different suppliers have offered to sell the city solar or wind-powered energy to meet its goal of powering 100 percent of city operations with renewable energy by 2020 – with even more potential partners waiting in the wings.
Traverse City Light & Power Executive Director Tim Arends met with city commissioners Monday to give an overview of the three deals currently on the table for the city. The city is already nearly a quarter of the way toward meeting its renewable energy goal, thanks to a deal struck last year to purchase power from a one-megawatt solar array owned by Heritage Sustainable Energy at the corner of M-72 and Gray Road.
Heritage is interested in expanding its array by an additional 2.25 megawatts this year, Arends told commissioners. TCL&P has the first right of refusal to buy all of the power produced by the expansion at an estimated cost of 9.95 cents per kilowatt hour, or roughly $49,000 per year. The arrangement would allow the city to take advantage of federal renewable energy credits and bring the city up to nearly 43 percent of its 2020 goal. Heritage has also offered to donate two percent of its royalty interest from the project to the Father Fred Foundation to help low-income customers pay their electric bills, and to reserve 250 kilowatts of solar panels for use by the general community.
“There’s been interest from some of our customers to be 100 percent renewable yesterday, but we don’t have anything right now to offer them,” Arends said, highlighting the community solar panels and the locally produced nature of Heritage’s power as advantages of the deal.
But two other suppliers are also hoping to do business with the city. Cadillac-based Spartan Renewable Energy has offered a 20-year fixed contract to provide a minimum of five megawatts of renewable energy at an estimated annual cost – at least in the contract’s initial years – of approximately $50,000. Both TCL&P and Spartan representatives estimated, however, that the deal could eventually save the utility $225,000 over the contract's lifespan due to its fixed terms and projected future rising energy costs. Accepting the Spartan deal would boost the city’s renewable energy usage by an estimated 45 percent.
Arends also noted that the Michigan Public Power Agency (MPPA), a state agency consisting of 22 municipality members, is exploring 10 different solar energy projects throughout Michigan. If realized, those projects could allow Traverse City to buy renewable power at a lower projected rate than other competitors. But with no projects yet set in stone – and the city’s self-imposed deadline approaching in two years – commissioners debated Monday whether they should move forward with other options on the table now or wait to see what deals might materialize with MPPA. Arends noted he’d be meeting with state officials soon and said he'd try to bring a formal proposal from the MPPA to commissioners in the near future.
In the meantime, commissioners will likely vote on at least one offer within the next month. According to Arends, Heritage has set a February 18 deadline to receive an answer from the city on whether it’s interested in purchasing power so that the company can determine whether to proceed with its solar array expansion on M-72. The proposal could return to the board for a vote by early February. Arends also told commissioners he continues to receive an average of three inquiries a week from other suppliers interested in working with the city on renewable energy projects, providing a variety of options commissioners could mix-and-match to meet or exceed its goal by 2020.
“Wind and solar have come down in price so much over the last few years…before it was not even competitive with other energy resources, now it is very competitive,” Arends said. “We’re not looking at renewable energy anymore as a feel-good thing. We’re looking at renewable energy as an adequate hedge complement to our portfolios, because the price points actually favor our overall average cost of power.”
A required annual independent audit of the city’s finances in 2017 earned a “good clean opinion” from auditing firm Vredeveld Haefner LLC, according to partner Doug Vredeveld – but brought warnings the city will need to address its pension liabilities and fund balance.
Vredeveld gave a brief overview of his findings to commissioners Monday, saying his firm’s affirmation of the city’s financial statements and regulatory controls was “certainly what you hope for when you have an audit done.” When commissioners were given time to ask questions, however, Commissioner Richard Lewis queried Vredeveld about reporting regulations that will require the city to start listing other post-employment benefits (OPEB) - a form of retirement debt - on its balance sheet next year. “Your thoughts on our pension liabilities, seeing that they’re going to show up next year?” Lewis asked.
“They’re very high,” Vredeveld acknowledged, estimating the city’s pension liability at $26 million and OPEB liability at $7 million. “Those liabilities aren’t going to go down with the current funding level. You’ll have to actually put more money in…it’s almost like paying your mortgage early, if you want to do it. It’s not very glamorous to throw a bunch of money into a pension plan, but it pays off at the end.” Vredeveld told commissioners the “only way to make (the retirement liability) go away is paying the money faster than the actuary says you have to – or reduce benefits, but that’s not a popular thing.”
City Treasurer Bill Twietmeyer also told commissioners the audit showed that the city’s general fund balance is at 12 percent. Commissioners approved a new policy in December to maintain a fund balance in the 15 to 20 percent range to provide the city a safe financial cushion will also ensuring taxpayer dollars are not unnecessarily hoarded. Twietmeyer told commissioners they would need to address the fund balance in this spring’s budget process to ensure it was raised enough percentage points to meet the new guidelines.
Photo credit: Heritage Sustainable Energy