ROCHELLE — With a closing date for the city’s transmission asset sale agreement expected by the end of the month, city officials say the primary focus of Rochelle Municipal Utilities is on providing electric distribution service to its customers.
A transmission system carries large amounts of power at high voltages from generators to substations.
City manager Jeff Fiegenschuh explained the funds generated from the sale of the transmission system assets will be used for the electric department, and stressed the money cannot be used to fund pensions and that all legal procedures were followed in the process.
Currently Rochelle owns about 20 miles of 138 kV transmission lines and associated substation facilities. Since August of 2015, RMU has operated these facilities as the transmission owner under agreement with PJM Interconnection, LLC.
“As the transmission owner the city is responsible to front major expenses related to our transmission assets and then we recapture those costs over time through our rate tariff,” Fiegenschuh said. “Our City Council and staff feel our customers are better served by focusing our time and attention on our distribution assets, which is what most other small municipal electric departments do. The new strategic partnership with NextEra Energy will help Rochelle Municipal Utilities manage and fund our load growth in the future.”
The agreement with NextEra Energy Transmission MidAtlantic, LLC includes a payment of double the current book value of the transmission assets and an annual payment of $20,000 over the next decade to be used for community development projects. The agreement also includes a commitment from NextEra to design, develop, and construct an electric power transmission line from DeKalb, which a transmission line of this magnitude would have cost the city of Rochelle and its ratepayers $15-20 million upfront.
The specific terms were made public once council approved the agreement.
“We had a confidentiality clause that before the sale was actually approved we couldn’t divulge any of that info,” he said. “We took two council members with us when we interviewed these firms and it was a unanimous recommendation by this group that we go with NextEra.”
Fiegenschuh added that as of July 31, the net book value of the assets was $6,557,888.66. As stated in the agreement of 200 percent, the city stands to receive a payment of just over $13.1 million at closing, which is scheduled on or before Sept. 30.
“We don’t know when the actual closing date is at this point, but when we receive those funds, they will be deposited into a CD and we won’t spend that money,” Fiegenschuh said. “We will hold it for a year and use that interest that we generate off of the CD to help fund capital improvements, which will benefit all of our rate payers.”
Adding, “Also, one of the benefits we are receiving is a $250,000 annual PILOT (Payment in Lieu of Tax) from NextEra Energy. This payment will be made to the city every year as long as NextEra Energy owns the transmission assets.”
The process leading up to the agreement began over a year ago after RMU issued a request for a proposal, inviting respondents to bid on two different scenarios — either for a transmission-related strategic partnership, or an outright sale of its transmission assets to a transmission-focused company.
Fiegenschuh explained the nationwide request for proposals generated six responses.
“[With the sale of the transmission assets] we can focus on our distribution system. We will have a strategic partner that handles our transmission and we can focus on our distribution customers… when they build that third line from DeKalb, if we owned the transmission assets our sole rate payers, at least up front until we had the tariffs reimburse us over the 40 years, the city would have had to find a way to pay that,” he said. “I’ve been here for a year, and this was talked about before I got here. There were discussions on long term if it was in the best interest of the utility. Because they offered two times the book value and another added benefit included that third line they will construct to DeKalb, they felt it was in the best interest of our rate payers long term to go with this move.”
Fiegenschuh also addressed why the proposal was not put to vote with public referendum.
“We are not required by law to have a referendum to sell assets,” Fiegenschuh added. “We did follow our procedures, we went through the request for proposals twice. Obviously we couldn’t talk about everything in open session because we were selling assets. We had firms from all over the country who submitted proposals.”
Fiegenschuh said he’s heard statements that the sale is being done to fund the city’s pensions, but pointed out the money is earmarked for the electric department.
“The sale of these assets has to go into the electric fund. We can’t use it to fund pensions of police officers or firefighters… it has to go into the electric fund to fund electric-type work,” he said. “Our police and fire pensions are funded through the property tax levy. There is no correlation there.”
Fiegenschuh added that if anyone has any questions or concerns about the transmission assets agreement, they are welcome to contact him or Jason Bird, Supt. of Electric Operations at city hall, 815-562-6161.