AUBURN — The leader of a major local business and the mayor agree — Auburn’s electricity rates for industries are creating a crisis.
“This is not a sustainable situation,” Matt Fetter, president and chief executive officer of Metal Technologies Inc., told the Auburn Common Council at City Hall on May 19.
Mayor Mike Ley said outside experts and an internal team are “digging deep” into the city-owned electric utility’s rates and realize “corrective measures are needed.”
“This is the worst electricity rate we have at all of our facilities,” Fetter said about Auburn’s charges. MTI operates in six U.S. cities and Mexico.
“Auburn’s now-uncompetitive industrial electricity rates … have and will continue to drive new investment to neighboring cities and states with far lower industrial electricity costs,” Fetter warned.
Ley said that already has occurred.
The mayor said Auburn recently was one of two finalists for an industry that would have invested $37 million to create 75 new jobs.
“Auburn was not selected solely on ... the cost of electricity,” Ley said. He called that “very disheartening.”
Fetter began his remarks by thanking the council for its May 5 vote to suspend a “demand ratchet” charge for six months during the COVID-19 pandemic.
Demand ratchet forces major customers to pay 60% of their monthly demand charges, even if they use less than 60% of their average power consumption. It applies to the city’s 115 largest power users.
The suspension could save an estimated $900,000 for major electricity customers over the next six months, council members heard May 5.
“What you did was very, very positive,” Fetter said, calling it a first step.
“I plead with you to not stop, but to go further to reduce electricity costs in our community,” he added.
Fetter emphasized that Metal Technologies has not benefited and will not benefit from the demand ratchet waiver.
However, demand ratchet affects customers who buy 80% of Auburn’s power, Fetter said.
He called it “only common sense to not charge customers for something they are not paying for” or penalize businesses that shut down due to the pandemic.
The demand ratchet charge does not apply to Auburn’s residential customers, who enjoy the lowest rates in Indiana.
Metal Technologies is Auburn’s largest user of electricity by a wide margin, consuming 30% of the city’s total and paying more than $9.5 million per year for power, Fetter said.
MTI pays $400,000 per month in demand charges alone, regardless of how much power it uses, he said. That hurt because MTI’s business has been down 75% in April and May, he said, adding that the company is seeing a comeback for June and July.
Despite buying power in huge volume, MTI pays 23% more per kilowatt-hour than a residential customer, Fetter told the council. He said in a recent month MTI paid 10.8 cents per kilowatt-hour, while a typical residence pays 8.7 cents.
At an MTI foundry in another state, electricity costs decreased by 15% from 2010 to 2019, Fetter said, while in the same period, power costs increased by 34.1% for its Auburn plant.
MTI does not pay any demand charges at its other plant, and its April power costs there were 67% less than in Auburn, Fetter said.
Auburn buys electricity at wholesale rates from Indiana Michigan Power and resells it to local customers through a city-owned power grid.
Other cities with their own electric utilities, such as Garrett, Avilla, Mishawaka and Sturgis, Michigan, stopped buying their wholesale power from Indiana Michigan Power and purchased from other providers at a significant savings, Fetter said.
Mishawaka’s mayor estimates his city is saving 25% by purchasing electricity from Wolverine Power Cooperative, Fetter said. Garrett recently switched to the same provider.
“Auburn’s electric utility needs to be a competitive advantage and provide our ratepayers — residential and business — the same advantages these other communities have seen by purchasing at market prices,” Fetter said.
“I can look three miles down the road … and see utility rates that are 30% less” in Garrett, Ley said.
However, Councilman Mike Watson said Auburn is contracted to buy electricity from Indiana Michigan Power for the next 18 years.
Ley said as recently as five years ago, Auburn’s power rates were an “economic driver” for the city.
“At what point did we lose our edge?” Councilman Mike Walter asked.
Ley said he will be able to share that history with the council, but it is more important to look forward.
“There is no question we can do better. The question is how do we do better,” the mayor said.
Ley said he heard concerns about power rates throughout his campaign for mayor in 2019, and they have continued since he took office Jan. 1.
High power rates for major users also affect nonprofits, churches and government, Ley said.
Fetter warned that Auburn industries with multiple locations may have to consolidate operations during a business decline. The cost of electricity in Auburn could affect those decisions.
Auburn cannot sustain its low residential rates if major industrial users leave, he added.
With its own power company, “Auburn has the potential for a huge competitive advantage … but we haven’t seemed to take advantage of it,” Fetter said. “We need to utilize that grid — like other communities — to go to the open market to drive down electricity costs for all ratepayers.”
Fetter concluded by saying, “I like the spirit of the mayor and the council. ... You’re thinking about it the right way, I encourage you.”