City Faces Tough Decisions on HMU

The city should reconsider its plans to expand the Hercules Municipal Utility, which has run in the red since its inception in 2002, costing the city’s general fund close to $9 million, interim City Manager Fred Deltorchio said.

In a vote last year, the City Council approved bond financing for equipment to build a $6 million substation. The city currently uses a PG&E-owned substation to service HMU but with a contracted 3.4 megawatts, it is reaching capacity.

The new substation would allow the HMU to take on new customers, theoretically making the project profitable in several years.

But profitability would be based on a series of unlikely scenarios, Municipal Services Director John Stier said. To make money, HMU would need to quickly grow its customer base, which extends only to the redevelopment project area. The growth would rely on big-box retailer Costco opening shop in Hercules and existing big businesses switching from PG&E to HMU, which, due to the city’s shaky financial reputation, is unrealistic, Stier said.

The city has the option of returning the equipment for the substation, but would face steep penalties as a result. HMU consultant Glenn Reddick said that each day the city stalls on either cancelling or constructing the substation, equipment fees and interest go up.

On March 8, city staff will present several electrical utility options to the council.

One option would be to move forward with the new, multimillion-dollar substation.

Other possibilities include renegotiating the contract with PG&E in order to up the amount of energy put out by the existing substation, doing a $1 million upgrade on the current substation or selling HMU to PG&E.

“We aren’t choosing what works best,” Deltorchio said. “We are choosing what’s least painful.”

Deltorchio, along with Stier, called a town hall meeting Tuesday to shed light on the future of the HMU, which "has become a draw on the general fund,” he said.

Deltorchio said that the city was scheduled to transfer $600,000 from its general fund to the HMU this year to make project look profitable to bond buyers, but that he did not plan to make that transfer. 

At the town hall meeting, city staff and the public (all four council members attended) also discussed the Intermodal Transit Center, which the city is trying to move into its first phase of construction, and Sycamore North.

City officials said that without enough funds, it might be forced to stop construction on the Sycamore North project, which has already cost the city over $30 million and is projected to cost roughly $40 million more, even though it is valued at only $25 to $35 million.

Deltorchio, who has tried bring more transparency to Hercules government dealings since he took office in December, said he wants local residents to be a part of the decision-making process for Sycamore North.

“This is your decision and the benefits or consequences will be for you to (feel),” he said.