Cities could feel the heat from 18 percent power rate hike

NORFOLK

The five cities in South Hampton Roads will see their collective electric bills increase by nearly $15 million per year if Dominion Virginia Power receives the full 18 percent rate increase it has asked the state to approve.

Only Portsmouth has set aside money for the expected increase, which was announced May 6, too late for most cities to react. A week later, Virginia Beach, Chesapeake and Portsmouth approved their budgets.

Betty J. Burrell, Portsmouth's chief financial officer, said the city inserted a last-minute provision in its budget anticipating a 15 percent increase.

If the rate increase is approved, several local city councils may have to revise their budgets this summer. It has already been a difficult budget year for most cities because of a stagnating economy, rising fuel costs and rising real estate taxes.

"It's not something anyone is looking forward to," Norfolk Mayor Paul Fraim said.

The rate increase, to be debated at a State Corporation Commission public hearing on June 24, would go into effect on July 1. That's the beginning of the new fiscal year for local cities.

The increase was requested to compensate for increasing fuel costs. With the price of oil having nearly doubled in the past year, and the cost of coal nearly doubling in the past six months, Fraim said he understands why the power company is seeking more money.

He's just not sure how his city will pay for the higher rates.

Virginia Beach, the state's largest city, would have to pay approximately $5 million more per year. Norfolk ($4.4 million), Chesapeake ($2.8 million), Suffolk ($1.5 million) and Portsmouth ($1 million) would also face increases, according to figures provided by Dominion Virginia Power. Suffolk officials said they think increases would be closer to $800,000.

Fraim opposed a real estate tax rate reduction in Norfolk in part because of the expected jump in energy costs. The city will begin the fiscal year with a $500,000 surplus, which Fraim expects to be quickly eaten away by the rising energy costs.

The city has a $4 million economic downturn reserve it could draw on to pay the remainder of rate increase. Before that happens, Norfolk likely will attempt to pay its bills by making further cuts in its budget and possibly extending a six-month hiring freeze.

Virginia Beach assistant budget director David Bradley said that a hiring freeze expected to end in September might be extended and discretionary spending might be reduced.

"We will review this, as well as other issues," including the overall economy, he said.

The Virginia Beach City Council on Tuesday heard a proposal to issue $10 million in debt - split between the city and the school division - to finance new energy-saving programs. They would include replacing outdated lighting and modernizing heating and cooling systems.

Dave Hansen, the city's finance chief, said the projects - "energy performance contracts" - pay for themselves over time by generating savings on bills. The contracts also come with guarantees of cost savings. If the savings don't happen, he said, the company that signed the contract pays the difference. "Maybe we haven't been doing things as efficiently as we could," Hansen said. "Now the costs of energy will force us to do that."

The Norfolk school system made a similar pitch to its City Council last year, but the city significantly reduced the program after citing concerns about the city's debt limit. Hansen said Virginia Beach can afford to take on the debt because it would be paid for by the savings, not by the general fund.

Beach council members could make a decision by summer's end.

Chesapeake and Suffolk are both working to identify areas of potential savings.

The Suffolk school system recently began restricting community athletic organizations from using lighting on its athletic fields. Teams can still use the fields, but not the lights.

James Thorsen Jr., executive director of facilities and planning for the school system, said school employees are being asked to use "common sense" to save energy. "If you're not using the room, turn the light off," he said.

Fraim long ago recommended that Norfolk hire an "energy czar," someone to monitor the city's energy consumption across the board. He said the recent increase in oil prices makes his proposal even more urgent.

"What's happening to energy prices is scary," he said.

Staff writers Mike Saewitz and Jen McCaffery contributed to this story.

Harry Minium, (757) 446-2371, harry.minium@pilotonline.com