Cleveland City Council Questions CPP Contract With American Municipal Power

Power lines run crisscross the air above a street in Cleveland's Detroit-Shoreway neighborhood.
Power lines run crisscross the air above a street in Cleveland's Detroit-Shoreway neighborhood. [Nick Castele / ideastream]
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Cleveland Public Power (CPP) is facing criticism from City Council regarding contracts it entered into with a power supplier more than a decade ago.

The utility provider gave an overview of billing and electricity procurement Tuesday at the latest in a series of hearings as part of a larger review of the 110-year-old electric service.

The contracts with American Municipal Power (AMP) were meant to provide reliable electricity at competitive rates, council members said. But the costs for many of those agreements have been higher than projected due to delays and bigger generator construction costs than expected.

CPP agreed to cover some of those costs in exchange for partial ownership of the facilities, said Public Utilities Director Robert Davis. Once the construction costs are paid off, he said, the rates should drop and could even go below market rate.

CPP officials plan to meet with AMP, which is under new leadership, and renegotiate the agreements in the near future, Davis said.

AMP allows municipal power companies like CPP to pool resources, Davis said, and work toward goals for renewable energy and meet demand. Contracts have been signed at various points for natural gas, coal and other options such as hydraulic power, to meet the city’s goals for renewable energy. But, Davis said, meeting those standards carries costs.

“We have reached council’s goal of 20 percent renewable energy by 2020, with the understanding that some of these renewable energy contracts are above market [rate],” Davis said.

Many of the AMP contracts have been in place since 2007, said Councilman Brian Kazy, and are meant to last for 40 to 50 years.

“I think the ratepayers of the City of Cleveland are due an update from AMP,” Kazy said.

AMP has failed to deliver on its promises both in terms of the rates charged and in terms of reliability, said Councilman Kerry McCormack.

“Seeing the original context in which these contracts were entered upon, presented to council, and the dramatically different reality that we’re living today, I don’t believe that it’s a matter of just the market,” McCormack said. “I think there was a lot of negligence around the construction, the operation, the projections.”

The utility provider on Tuesday also presented a breakdown of how ratepayers. There are three categories of charges: electricity charges, which include a fixed rate for kilowatts used per hour and go toward salaries and operations; energy adjustment charges, which cover costs incurred by CPP in purchasing power, transmission and capacity; and an excise tax mandated by the state.

Listing the energy adjustment charge separately from the electricity charge is confusing to the ratepayer, Kazy said.

“Turning on the lights, making sure my refrigerator runs, my garage door’s going to open, the electricity... I would think the electricity charge is for that,” Kazy said. “But what you’re saying is the EAC [energy adjustment charge] actually goes toward that, and not my electricity charge.”

The adjustment charge allows CPP to change rates for customers based on the market for electricity, Davis said.

“You have to buy the power, and that’s the difference between the base rate and the energy adjustment charge, is actually power cost recovery,” Davis said. “We’re buying the power and we have to recoup that cost.”

In order to change the electricity charge, CPP would need to go to council for approval, Davis said. The electricity charge has not changed since the 1980s, he said, but the energy adjustment charge is evaluated annually.

“The energy adjustment charge has outweighed or is more than the base rate because the power cost has increased over time, and the base rate has stayed the same,” Davis said. “That’s not why we have the energy adjustment charge, but that’s why the energy adjustment charge is a little bit more than the base rate.”

Cleveland City Council will meet for the final CPP hearing Oct. 6.

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