In an effort to establish consistency for both city coffers and utility department accounting, Hastings Utilities officials are considering changes to the way local payment in lieu of taxes is calculated.
Utilities Department Administration Manager Derek Zeisler and Utilities Manager Kevin Johnson spoke about the proposal at the Hastings Utilities Board meeting on Thursday.
Currently, the utilities transfer 5.6% of total annual electricity operating revenue – retail and wholesale – to the city, split in the form of monthly payments. The utilities also transfer a portion of gas and water revenues to the city, but no proposed changes are being made for gas and water at this time.
Discussions on changes to the PIL structure began in late 2021 following the February 2021 freeze.
It is unclear how this is calculated due to fluctuations in wholesale sales.
Zeisler said that when it comes to payment in lieu of taxes, most communities follow state law’s recommendation of 5% gross retail.
Wholesale sales can be inconsistent.
In February 2021, there was a surplus.
It is also possible that the external market is more attractive than Hastings Utilities producing and selling electricity.
“So if the city is counting on very volatile revenues due to the electricity market, that could put them in deficit or surplus year over year,” Zeisler said. “The only thing is we don’t want to put the city in deficit if they expect a certain amount of money on average.”
Thus, utility officials recommend a payment in lieu of taxes of 6.1% for retail sales only.
“The proposal here was to try to get back to some consistency with what those revenues would be, setting that percentage at 6.1% but only applying it to retail,” Zeisler said.
Board member Jeanette Dewalt asked why Hastings Utilities would make a 6.1% payment in lieu of tax transfers if that amount is higher than other communities in Nebraska.
“Why would we do this if everyone is making 5%?” she says. “I understand you say ‘Keep the city whole’, ‘Help the city budget’ but is that what the utilities are doing? We are in business to maintain stable rates for our taxpayers, not to subsidize the city. Even though we are a city department, we are separate.
Johnson said the 6.1% recommendation came from past direction from former city administrators to establish some level of payout.
The proposed 6.1% of retail sales would generate approximately $2.1 million per year, which is similar to the amount generated by the current formula.
“If we were going to move that way, that’s the direction we had to go to keep the city whole,” he said of the 6.1% retail sales recommendation.
Zeisler said the amount is another discussion.
“What we were trying to figure out is how to get that consistency in a way that doesn’t negatively affect either party from where they currently sit,” he said.
Johnson said this discussion is the first step toward moving to retail-only sales.
“Then I think we can have this discussion, because it’s a viable discussion, absolutely,” he told the percentage.
No action was taken on Thursday, but when changes are made to the utility’s electricity payment in lieu of taxes, those changes will take effect for the next fiscal year, which begins Oct. 1, 2023.