Elizabethton Electric discussing sale to JCPB

John Thompson • Apr 25, 2012 at 8:25 PM

ELIZABETHTON — The Elizabethton City Council is exploring the possible sale of the Elizabethton Electric Department to the Johnson City Power Board. Council members were briefed on the early negotiations during a workshop on Wednesday.

After hearing details, council members allowed city staff to continue the exploration and data gathering.

Talks between Elizabethton and Johnson City officials are still in the early stages, but Elizabethton Finance Director Jerome Kitchens said Power Board representatives have been impressed with the condition of the recently upgraded Elizabethton system and personnel.

It is still too early to tell what the price of the electric system would be, but Kitchens said the deal would have to be worked out rapidly because it would have to be approved by the Elizabethton voters in the November municipal election. Energy consultant Chris Mitchell is working with both groups to determine the value of the assets.

Details, including the sale price, must be provided the voters well in advance of the election, which will be held at the same time as the presidential election.

In order for the referendum to get on the ballot, the council must approve it during the June and July sessions. The council also will get the final say. If the voters approve the sale in the referendum, the council must still vote to sell the utility. If approved, it would be the last say the council would have until the franchise expired in 25 years. At that time, Elizabethton could buy it back if it chose.

Although Elizabethton Electric has more customers outside the city limits, only city customers may vote in the referendum because the city purchased 100 percent of the assets of the utility in 1945.

Kitchens said both Elizabethton and Power Board customers could benefit from the sale because of the advantages of economies of scale. Elizabethton customers would benefit first because the combined system would use the Power Board rate schedule, which is slightly lower than the rate charged by Elizabethton. The average savings would be about $50 a year for residential customers. Small Elizabethton businesses also would see a savings. Larger commercial customers would see a slight increase. There would be no immediate change to Power Board customers’ bills.

Due to economies of scale, it is expected customers will pay less over time as a part of a combined organization rather than what the customers of two smaller independent organizations would pay.

The Power Board would establish an office in Elizabethton to provide for all customer service needs. The proposed JCPB Elizabethton district office would be located in the existing EED complex at 400 Hatcher Lane.

Currently, the Johnson City Power Board has 75,780 customers and the Elizabethton Electric Department has 26,044 customers. JCPB has 2,032 miles of distribution line while EED has 833 miles. Both utilities are nonprofit municipal operations.

Kitchens said the possible sale came about after the council asked city staff to explore all possible ways to keep rates lower.

During the difficult budget deliberations a year ago, the electric department had asked for a $5 per month increase. That came at the same time the council was considering a $10 fee for household garbage pickup and a $6 increase on water rates and a 21 cent increase in property taxes. In the face of such an increased tax burden, the electric rate increase was rejected.

Cash flow difficulties in the system led to the council voting in December to approve a 3.4 percent rate increase. At the time of the vote, the council asked city staff to search for ways to lower the costs to the ratepayers.

Kitchens said it was the council’s request that led city officials to approach the JCPB about a possible merger. He said Johnson City officials were receptive to the idea and the negotiations have continued, along with the seeking of advice from Mitchell and the University of Tennessee’s Municipal Technical Advisory Service.

Kitchens said details are still sketchy, but assured the council enough details would be worked out to give the members an informed choice when it comes time for a decision on whether to hold a referendum.

Among the questions Kitchens could answer was the status of EED employees. He said most would become JCPB employees but the utility was not obligated to hire everyone. He said Elizabethton had leaner manpower on its line crews than the JCPB.

On the question of the recent bond issue to finance the rebuilding of the EED substations, Kitchens said the sale must include enough to cover the pay back of the loans. He said because the bonds could not be paid back for a length of time, the pay back money would be placed in an escrow account. This defeasance of the bonds would legally erase the city’s debt until the bonds mature and the bondholders are paid with the funds in escrow.

The proceeds of the sale that are not needed to pay off the bonds could be used for a variety of projects for which the city does not have the funds, such as water and sewer infrastructure improvements and other major capital projects.

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