The Lodi City Council responded to complaints from the city's largest electricity users that the companies struggled to budget their costs each year because of the utility's Energy Cost Adjustment, a variable rate that changes from month to month.
The ECA is applied to residential, commercial and industrial bills as part of the city's per-kilowatt-hour rate for electricity. The Lodi Electric Utility started using the variable rate more than four years ago to recapture the actual costs of providing electricity.
But for at least the largest seven industrial users, this means that their monthly bills can fluctuate from $10,000 to $100,000, said Pat Patrick, president and CEO of the Chamber of Commerce.
"It's very hard to plan when you have such a large cost fluctuation," he said.
In a 3-1 vote, the council approved offering the top industrial tier the option for an annual fixed ECA. During the last month of the year, the business will then have to pay any difference between what they owe and what they have already paid.
Councilman Phil Katzakian was absent and Mayor JoAnne Mounce voted against offering the option.
The flat-rate ECA will be available to the seven businesses during the next fiscal year, which begins July 1. The eligible businesses — General Mills, Ralcorp, CertainTeed, Pacific Coast Producers, Lodi Iron Works, the city's White Slough wastewater treatment plant and Schaefer Systems — represent 12.4 percent of the utility's load.
The vote brought up several questions from council members and a utility watchdog.
Mounce said she would not support it because if the council is going to give this option to one tier, they should give it to all customers.
"I don't support the ECA as a whole and think if we are going to do this, we need to do it for the entire community, not just this tier," she said.
Councilman Larry Hansen requested that the council consider holding a shirtsleeve on the ECA and see if it should be adjusted on a less frequent basis, like quarterly or twice a year, to help both businesses and residents predict rates.
Patrick said he expects other businesses will also want the option of a flat-rate ECA.
Before the meeting, Lodi resident John Johnson questioned in a letter whether the proposal really is revenue-neutral.
He said the city needs to change the formula in order to prevent Lodi residents from having to bear the costs if the ECA is higher than the businesses' annual fixed rate.
"The ECA was designed to make sure rates reflected the true cost of power and that it was collected (in a) timely (fashion)," John Johnson wrote. "It was also designed to treat everyone equally in that everyone paid the same ECA times the hours used regardless of their rate structure. The current ECA does those things. This change does none of that."
Deputy City Manager Jordan Ayers said if the monthly ECA is higher than the flat rate, then the utility will use its reserve fund to cover those costs until the end of the year, when the businesses will pay the utility back.
There are three possible outcomes when a business does its true-up during the last month of the year, Ayers said.
If the city was right on target and energy costs are exactly what the utility estimated, then it's a wash. If energy prices are less than what is budgeted, then the utility has collected money from these customers in advance of what the actual costs are.
And if energy costs are higher than what is budgeted, the businesses will have to pay the difference at the end of the year, which will replenish the utility's reserves.
Councilman Bob Johnson said he has heard from five of the six actual businesses in the tier that their national corporations are frustrated with the inability to predict monthly utility costs, especially because the local plants are competing with other locations in different states.
He stressed that offering this option could help retain jobs at some of Lodi's largest businesses.
"We have got to do what we can to make sure that the people who are here, stay here," Bob Johnson said.
Contact reporter Maggie Creamer at email@example.com.