Front Royal invests in power to keep rates low

By Alex Bridges

Front Royal boasts the lowest electricity rates in Virginia and town officials credit wise bets on a power stock market.

Department of Energy Services Joseph Waltz spoke recently about the way the town, as a municipal supplier of electricity, invests in electrical generation projects that have, for the most part, paid off.

Front Royal customers also see the benefit in their electricity bills. Information released by the Virginia Attorney General’s office earlier this year shows that Front Royal charges the lowest rate per 1,000 kilowatt hours among municipal, investor-owned and cooperative suppliers statewide.

Waltz credits the town’s low rates to its investments in the power market.

“All of this has to do with the town’s forward-thinking on how they handle their power purchasing,” Waltz said.

Waltz pointed out that, as a municipal provider, the town operates essentially as a nonprofit. Additionally, voters select Town Council, which maintains control over the department’s budget.

Waltz took over the department in December of 2005. At that time the town held a “full requirements contract,” which meant Front Royal went out every three to five years and obtained its electrical power from one provider at a rate set for that period. The town’s contract came up for renewal in mid 2006, Waltz said. But Hurricane Katrina had hit the United States in the fall of 2005.

“When Katrina hit, it just upset the wholesale [power] market and it was one of the worst times to be on the market and to buy energy,” Waltz recalled.

Front Royal faced a 66 percent increase over the previous contract price, he said.

“The town realized we had to do business a little differently than this so we started exploring options,” Waltz said.

The town turned to American Municipal Power — a nonprofit organization that provides electrical energy to municipal systems at wholesale prices.

“The good thing about AMP is any new generation project they do, as a member, you can choose to participate in it or not,” Waltz said.

AMP allowed Front Royal to come up with a diverse portfolio of investments that spreads the risk and gives the town more control over the costs to distribute power, Waltz explained. The wholesale cost of power to the town makes up almost 75 percent of the rate charged for electricity, Waltz said.

“So no matter what you can do on your [operations and maintenance costs], if you can get substantial savings in that 75 percent, you can definitely control your rates a lot better,” Waltz said.

The town spread its investment portfolio primarily among three projects out of state that derive power from coal, natural gas and wind. The town can sell any investments, if it so chooses, Waltz said. The portfolio should leave room for future investment options. Front Royal may in the future want to bring other sources of power generation such as solar into the town, Waltz added.

The town will add hydroelectric power to its portfolio next year, Waltz said.

Investing comes with some risks. Town Council recently learned Front Royal would need to pay its share of an investment in another coal-fired power plant that had fallen through. AMP withdrew from the project when the organization discovered the cost far exceeded the estimate. AMP advised the town that Front Royal owes more than $500,000 in stranded costs related to the investment. The town will pay off that amount in monthly installments of $3,000, but AMP is still seeking legal action against the company in charge of the plant project and a ruling in the organization’s favor to alleviate Front Royal of the debt. The town also owns a share of the property for the project.

But, as Waltz explained, the $500,000 loss shouldn’t have much effect on the department’s budget of about $16 million when spread out over the years. By Waltz’ calculations, each customer would have to pay about 43 cents extra per month to cover the $3,000 payment.

“Yes, it is a loss,” Waltz said. “There’s no doubt about it.”

But Waltz added that the town still comes out on top with its other strong investments.

Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or abridges@nvdaily.com