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Greenville Utilities to Cut Approximately $7.4 Million in Expenses in FY 2009

Just like organizations all across the country, Greenville Utilities is facing  challenges due to increased costs and the national economic downturn. While cost containment measures have always been the rule at GUC, we now have a “perfect storm” of events that calls for a higher-level response. As a result, we have implemented a cost management strategy that will cut approximately $7.4 million from the overall GUC budget through the end of the current fiscal year (ending June 30, 2009). Here are the reasons why this action is necessary:

4% Wholesale Electric Increase
Our electric wholesale costs are on an upward trend. In August 2008, we experienced a 14% increase in the wholesale cost of power from NCEMPA, our supplier. As a result, our electric fund budget was faced with an additional annual expense of $20 million. Because of the timing and magnitude of the increase, the decision was made to directly pass this cost through to our customers, resulting in an 11.2% overall retail electric rate increase.

Now, an additional 4% wholesale electric increase has gone into effect just six months later, on February 1, 2009. This translates into a $2.5 million increase in GUC’s wholesale power bill for the remainder of this fiscal year. Over a twelve-month period, the increased costs will be about $6 million.

Passing through an additional retail increase, on top of the recent 11.2% increase, could be financially devastating to some of our customers. For that reason, we are planning to absorb the 4% increase in its entirety. Absorbing increases is nothing new for GUC. When we’re faced with an increase in wholesale electric rates, we don’t pass it on to customers automatically. First, GUC tries to absorb as much as possible. We went for more than a decade (1991-2002) without raising retail electric rates. However, our costs to purchase power increased by 6% ($6 million) during that time. Since 2002, we’ve absorbed nearly $3.7 million in wholesale electric cost increases and nearly $10.4 million in increased costs for poles, transformers, wire, vehicles, etc., all of which have an impact on our bottom line. By absorbing increased costs, GUC is left with less money to spend on infrastructure, system improvements, new initiatives, programs, etc. In the past, we were able to offset those cost increases through efficiencies and system growth. Since the national economic situation has impacted growth in Pitt County, absorbing this 4% increase presents a difficult challenge that will require a collective effort on the part of all employees.

Changing Economic Climate
While the economic downturn has impacted the rest of the country for several months, GUC is just beginning to feel the effects. Less development has led to fewer installations and the fees that accompany growth, and customers are reducing their consumption of all utilities. Investment earnings are down, and because of the deterioration of the bond market, it is not feasible to issue bonds at this time. Plans to borrow funds ($4 million) to help pay for capital outlay projects on the electric system are not practical with the current bond market. All of this adds up to less revenue than expected. At the same time, we are faced with increases in ongoing operational costs to maintain our systems. It’s a “perfect storm” of events, and we are prepared to respond.

A Strategic Approach
To absorb a 4% wholesale electric rate increase, offset the impact of a sagging economy, and have a balanced budget at the end of the fiscal year, GUC proposes to cut approximately $7.4 million from its budget through the remainder of FY 2009. To accomplish this goal, and continue to provide high levels of service and reliability to customers, we have set realistic targets.

Overall, GUC plans to delay some capital projects, not have any net increase in personnel (currently at 410 employees), reduce overtime through shift work and scheduling changes and reduce contracted services. Proposed vehicle and equipment purchases, and travel and training will also be reduced.

Our strategy will be re-evaluated each month, and adjusted accordingly. “We believe this is an achievable goal,” said Ron Elks, General Manager/CEO. “We owe it to our customers to be as fiscally prudent as we can be while maintaining the high level of service and reliability they deserve. It will take all of us rallying together to meet this goal.”