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Co-op connection fee bump has developers rethinking build sites

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A group of Columbus-area real estate developers say a revised Bartholomew County electric cooperative policy nearly triples the cost of running power lines to new subdivisions, and it could slow or stop homebuilding in some neighborhoods or make houses more expensive.

At issue is a policy approved in 2010 by the board of the Bartholomew County REMC, a 75-year-old rural electric cooperative that serves roughly half the county and competes with publicly traded Duke Energy, which brings power to the other half.

Basically, the revised REMC rule grants real estate developers 70 percent less credit for the revenue that new houses will generate once home buyers move in and start paying their monthly utility bills.

Developers say the REMC rules will end up costing the typical developer between $2,500 and $3,500 extra per lot, driving up development costs for a 100-lot subdivision by as much as $350,000 if they build in areas served by the co-op.

“Maybe they figure homebuilders and developers are chumps, and we just don’t know anything about math,” said real estate developer Doug Osborne, who has built subdivisions at Tipton Lakes in the past. But Osborne said he’d be reluctant to build anything new on land served by the cooperative now that the new rules and higher costs are in effect.

Osborne and fellow developers Joe Thompson of Loahan Development Co., which built the Villas of Stonecrest, a gated Columbus community between Talley and Marr roads on REMC territory, and F.A. “Buck” Ritz of Columbus-based Milestone Contractors and Heritage Land Co. LLC said the REMC policy is just hitting home with most developers now.

Until the past few months, the policy largely was overlooked by developers because home construction was nearly at a standstill because of the lingering effects of banks’ lending woes and the U.S.


The issue got hot last fall when Jim Turner, chief executive and general manager of Bartholomew County REMC, sent a letter to the real estate community explaining why line extension charges were going up. He said the new policy was written with the help of a utility industry consultant, The Prime Group LLC of Louisville, Ky., which has worked with 100 other power companies.

“If we didn’t make the change, our (10,000) members would see increased rates due to residential growth,” Turner wrote in the open letter.

He said the new policy ensures that all members pay their fair share when new lines, transformers or underground conduits are built to serve their property.

In an interview this month, Turner said the REMC board decided its previous policy of reimbursing developers for most line extension costs over six years was “too lenient.”

He said the co-op allowed a $4,000 to $5,000 per lot credit for new lines in the past. Now, an all-electric home gets an $1,850 per lot credit.

The more generous credit would lead to higher utility rates for every customer, Turner argued, and “we don’t feel like it’s fair for our other members to subsidize new development. This is just another cost the developer has to pass on to the person who buys a house.”

Turner said anyone who builds a single home for their own use has to pay similar costs to the co-op.

“We’re here to promote development, but not at the expense of our existing members,” Turner said.

He said a recent poll of the co-op’s members found overwhelming support for the new rule.

Co-op vs. Duke Energy

Real estate industry critics say the REMC rules pit that agency, which operates independently and is governed by a seven-member board, versus publicly traded Duke Energy.

Duke Energy charges builders an upfront fee for extending power lines to new areas but allows the developer to earn nearly 100 percent of it back as homes are hooked up one by one.

That’s similar to the long-standing standards used by many of the 18 other rural co-ops that dot the state of Indiana and serve mainly rural areas.

Jed Wheatley, head of the Jackson County REMC, said developers who create subdivisions in that sparsely populated county south of Columbus are repaid over several years for line extension charges based on the assumption that a home will generate $150 a month in utility revenue for the co-op once someone moves into it.

L. Chester Aubin, CEO of the Johnson County REMC, said that agency collects $1,500 per lot upfront for line extension costs from developers, and they have seven years to build out their subdivision and get their money back as homes go on the power grid.

Columbus area developers say the Bartholomew County rules will drive most new construction onto patches of land served by Duke Energy.

“You’d have to be an absolute idiot to build on an REMC site. You’d need more seed money to get a project done on REMC land,” said Thompson, who built most of Villas of Stonecrest under the previous, more generous REMC payback rules.

“It’s a no-brainer. You’d buy ground where Duke provides the energy.”

Choice home sites affected

Developers say the new rules could slow development in some of the most desirable parts of Bartholomew County, including remaining home sites near Tipton Lakes and land near Harrison and Grandview lakes, all on the western edge of Columbus.

Developer Jeff Bush, who has been active building in Tipton Lakes over the past two decades, and partner Jeff Marshall said the next phase of work on their Spring Hill Lake subdivision off Goeller Boulevard will take a financial hit due to the higher line extension charges.

The unexpected costs could amount to $3,890 per lot, the two developers said.

Bush said he’ll build the streets, sidewalks and curbs for the next wave of lots there, but the Spring Hill project won’t make much money now.

Their $7 million project had been on hold through the recession and was resurrected only last year after the new REMC rules had kicked in, Bush said.

He and other investors bought the land in 2006. Sewer and water lines already are installed.

“I have to finish this one. I can’t walk away from it, but it will be a marginal project. I just have to find a way to deal with it. But my next subdivision won’t be done on REMC territory,” Bush said.

In some cases, REMC sites are literally across the street from areas served by Duke Energy, real estate experts point out.

The county’s utility service map was rearranged by the state of Indiana in the 1970s based on where each utility company had existing lines at the time, and it hasn’t shifted much since then.

Duke Energy can serve an area that has traditionally belonged to REMC — or vice versa — only if a revenue neutral swap of territories occurs, and both companies agree to make the change.

The Indiana Utility Regulatory Commission must bless such deals.

Chip Orben, area manager for Duke Energy, said such swaps occur but they’re rare.

Service areas not uniform

Today, the utility map shows a virtual crazy quilt of service areas, with Duke Energy handling most of the Columbus city limits, where the population is denser.

The utilities split the rest of the county about equally in terms of acreage, although the county REMC does serve a few pockets on the outskirts of Columbus surrounded completely by Duke territory.

Osborne said Turner and other executives with the Bartholomew County REMC don’t understand the economic value of encouraging new subdivisions, which spark spinoff commercial and industrial development as businesses follow rooftops.

“Buck (Ritz) and I met with them and tried to point out the difference to them of running a line to one house a quarter-mile off the road versus picking up 200 homes in a subdivision no more than 80 feet apart. Those are huge cash cows,” Osborne said.

The Bartholomew County REMC and 18 other rural co-ops statewide were created to bring power to rural parts of Indiana that public utilities didn’t necessarily find economical to serve.

The co-op has no more than eight or nine customers per mile, while Duke Energy probably has five times that density, which makes it more difficult for the REMC to cope with rising operating costs, Turner said.

All the state’s co-ops operate independently of the Indiana Utility Regulatory Commission. In effect, the co-ops set their own policies under the control of separate boards of directors that their members elect.

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