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Hagerstown officials flag mounting shortfalls in municipal electric fund, ask whether city should remain a power provider
Summary
City staff told the mayor and council that the electric utility faces a negative beginning cash balance and multi-year deficits driven by rising purchase-power costs and larger capital outlays, prompting discussion about options including rate cases, bonds and whether the city should remain an electricity provider under PSC limits.
City officials warned May 5 that Hagerstown's municipal electric fund is on a multi-year path to deeper deficits as purchase-power costs and capital needs outpace what regulators allow the city to recover from customers.
In a detailed FY2027 financial briefing, staff projected roughly $45 million in operating revenue and noted that purchase power accounts for roughly 75% of operating costs. Despite that revenue, the electric fund shows a beginning cash balance reported in the budget materials as -$694,000 and is forecast to run recurring deficits when large capital projects are factored in. Staff listed FY27 capital priorities including a $1.25 million meter-replacement tranche and $450,000 in substation work.
The council's discussion focused on two linked problems: rising, market-driven costs the city pays to outside suppliers for generation and constrained ability to raise local retail rates because the utility is regulated by the state Public Service Commission (PSC). "We have a negative cash balance," budget staff said, describing how operating revenue barely covers ongoing expenses and leaves little to fund long-term infrastructure repairs. Staff added that after accounting for planned capital spending, the fund would use cash and the shortfall would compound in later years.
Council members and staff pressed different options. Staff said a pending retail-rate filing with the PSC could adjust the local distribution component but could not immediately close the gap. The administrator and some council members urged exploring bond financing to spread the capital costs over time, though staff cautioned that the fund's weak cash position would make bond markets and rating agencies cautious. One council member framed the question bluntly: if the city cannot grow its customer base or recover sufficient costs under PSC rules, should it remain in the business of operating an electric utility?
Staff framed the choices without recommending a single path: step up internal planning for rate relief and capital finance; consider more bond issuance if the fund can present a credible repayment plan; and study the long-term policy option of selling or otherwise exiting municipal generation and distribution. They noted that some capital projects (meter replacement, substation upgrades) are needed to avoid service failures but are costly in the near term.
The council did not take a vote; it agreed to continue budget deliberations and pursue more detailed financial options and risk analysis ahead of upcoming public hearings on the FY2027 budget.
The meeting continues the mayor and council's multi-session review of the proposed FY2027 budget; staff said the council will reconvene enterprise fund discussions next week and hold public hearings on the budget and tax rate.
