Fourth in a series.
Hillsdale attorney Kevin Shirk advised the city against selling its Board of Public Utilities to generate road money last week, claiming the costs far outweigh the benefits.
The BPU consists of three services: water, wastewater, and electric with a combined annual revenue of approximately $15 million. The entities can be sold individually or altogether; however, BPU Director Rick Rose argues only the electric is marketable.
The city began discussing selling the BPU in the 1980s, but it was added to the recent road-funding list after a Hillsdale resident suggested the option at a work session in November.
“The responsibility of council is that we are the trustees of all the assets of the city,” Councilman Patrick Flannery said. “One of them happens to be BPU, and that’s an investment that we’ve made, so we need to look at it.”
The Hillsdale City Council then asked Shirk and City Attorney Lew Loren to research and offer advice about the idea.
Although Shirk’s research concluded selling the BPU is legal, he said council shouldn’t consider it a viable option.
“There are so many contractual and practical limitations that any such sale is not realistic,” Shirk wrote in his opinion.
The contractual limitations he mentioned include BPU’s membership in the Michigan Central Power Agency and several take-or -pay energy contracts with the Fremont power plant and American Municipal Power Inc.
These contracts make selling the BPU difficult because a purchaser would have to either meet the membership requirements or buy out all the commitments — an expensive choice. Also, the city would still have to pay for several contracts that couldn’t be transferred to BPU’s new operator.
Another impracticality of selling the BPU stems from the three-fifths majority vote needed from Hillsdale residents to pass the proposition.
Rose said that before any such vote could be taken, the city would have to determine BPU’s value through a study costing around $100,000.
“Suffice it to say that the voter restriction on any sale of the utilities coupled with the existing long-term contractual commitments of the city makes any potential sale of the utility ill-advised at best,” Shirk concluded.
Rose added that service quality would likely decrease if outsourced to another operator.
“Our guys are really dedicated, and we respond fairly quickly; people like that idea of reliability,” Rose said. “We have people ask us if they can get on BPU lines to get away from Consumers [Energy], because we can get there a lot faster.”
BPU employee Eric Sheffer agreed that quality increases because employees live locally.
“It’s a benefit that we’re community owned. We all live in the community, the majority of us live on BPU lines,” Sheffer said. “We know the people, they are our neighbors, friends, teachers, people we see in church every week.”
Rose added that a municipally-owned BPU helps recruit businesses to move to Hillsdale.
“It offers a competitive advantage when sitting down and talking to large power users. You’ve got control of your own destiny that way,” Rose said.
Also, the city tried to save money by outsourcing a BPU service before, and it didn’t work.
From 1993 to 2000, an outside operator ran the wastewater, and Rose said it cost the city an extra $150,000 a year.
In addition to the arguments about cost and quality, Rose said that BPU is Hillsdale’s only revenue-generating entity, and it often returns profits back to the city.
“I think BPU does a lot for the community that they don’t even realize,” said BPU employee Trenton Morrill.
The BPU gives 3 percent, about $500,000, of its gross revenue to the city every year, and helps the city pay for special projects.
“The board bought the city a hot patch machine to fix potholes and gave $150,000 for the airport a few years before that,” Rose said. “It’s just another thing that we kind of stepped up and did for the city because they didn’t have the funds. We’ve always been here as a resource for the community, and that’s something that is going to help us and the community grow.”
Also, BPU decorates Hillsdale with Christmas cheer every year.
“The previous decorations were really embarrassing,” Rose said. “We bought new ones and put them up every year. We felt it was a public good since it drives people downtown.”
In addition to BPU’s many recent donations, the city has relied on BPU for service since Hillsdale first started using electricity.
“Basically, we’ve been here since electricity came to town. We started with streetlights downtown and power for that came from a steam-driven generator at Stock’s Mill,” Rose said.
“Then, the city decided they wanted to provide its own street lights and electricity, so the board was created in 1893. Why would you want to sell something that’s worked for a 125 years?”