The plan is a followup to a smaller conversion program that saw 1,315 lights converted to LED. While the staff report says the $8 million investment would eventually pay for itself through savings in energy costs, it warns that Greater Sudbury Utilities could simply increase fixed rates it charges the city to make up for lost revenue.
It's something that happened with the 2012 conversion, the report said, taking a big bite out of projected savings to the city.
“In 2013, GSU applied for a rate structure that increased the fixed cost per streetlight fixture in order to offset the declining revenues from the 2012 LED conversions,” the report said. “If the city completes the conversion on the remaining streetlights, there is a risk that GSU and (Hydro One) may revise the billing structure to include a higher portion of fixed charges.
“This would result in the city not achieving the expected financial savings in spite of reduced electricity usage.”
But GSU spokesperson Wendy Watson denies that changes to the billing structure were a result of the LED conversion.
“We did change the billing structure for streetlights, they're right about that,” Watson said Tuesday. “But it was not because of lost revenue from reduced energy consumption.”
She said the process actually began in 2006, when a review found that rates charged for streetlights only covered 13 per cent of the cost of maintaining the infrastructure necessary to deliver power to each light. The study also found that fixed rates charged to other major power consumers – hospitals, universities, the city – was too high.
So the GSU applied to the Ontario Energy Board to change the rates using a new model to make it more fair, Watson said. The fixed rates charged to big consumers was revised downward, and the rate charged for streetlights increased. In 2010, the fixed charge per month for each streetlight was $2.91. In 2012, it was $3.72, rising to $5.25 in 2013 and $5.32 in 2014.
“And that was because the class designated as streetlights were only paying 13 per cent of the costs for the infrastructure needed to provide power to the lights,” Watson said. “But it had nothing to do with the LED program. It has nothing to do with how much electricity is used period.
“The theory is every class should pay its proportional fair share to support the infrastructure. There has always been a fixed charged to cover those infrastructure costs, it just wasn't enough. So that fixed charge had to increase.”
The goal of the new rates was to make the system fairer, she said, and has not led to an increase in revenue to the GSU. While it may have taken a bite out of the projected saving forecast as part of the LED conversion program, Watson said it's still worthwhile to find ways to reduce energy costs.
That's because the province's long-term energy plan predicts energy rates will increase by 20-40 per cent in the next few years.
“So reducing consumption is going to be increasingly important," Watson said. "The city can still save money by consuming less energy. And that doesn't affect their distribution costs at all.”
For its part, the operations committee put off a decision on whether to proceed with the $8 million LED conversion plan until it had a more detailed report from staff on the results of the 2012 conversion.
It was on the agenda for the Feb. 11 finance committee meeting, but the meeting ran long. So the report will be debated at a meeting Feb. 24.