FRANKLIN—Franklin Councilman Greg McLemore doesn’t want the city to consider raising electric rates to cover a $1 million loss to its electric fund.

New City Manager Randy Martin believes it may be inevitable.

“We entered a 20-year contract, and we are in our first year,” McLemore said during Monday’s City Council meeting. “It wasn’t their mistake. It was ours. Our citizens will have a fit. We have people paying higher utility bills than mortgages.”

City Finance Director Melissa Rollins told Council that since initiating a 20-year contract in January 2011 to purchase electricity from Dominion Power through the Virginia Municipal Electric Association, the city lost $1 million the first year. Worst-case scenario calls for another $300,000 loss by the end of June.

Creating the situation was a 14 percent increase in VEMA’s rates to the city and another 3.5 percent passed on by Dominion Power. City Power and Light Director Mark Bly expects VEMA to levy another 5 percent increase in July. The three increases total 22.5 percent.

At the same time, a 7 to 8 percent net rate increase — $8 a month —was passed onto the Franklin residents in September.

“The change made in September was not adequate to handle the pass-through costs,” said City Manager Randy Martin.

Residents have been asked to cover about one-third of the city’s 22 percent rate increase.

“It wasn’t an overwhelming increase (for residents),” Martin said. “We’re going to do everything we can to try and avoid that (another increase). When it comes to pass-through costs, those are the things you can’t ignore.”

He noted that the city with the lowest rates that buys electricity through VEMA just increased rates by 14 percent.

“Now they will be four percent higher than Franklin,” he said.

The City has a policy of maintaining a $1.1 million savings in its electric fund. A savings of $1.69 million in January 2011 fell $686,341 one year later, Rollins said.

Martin said he will explore how this year’s electric budget can be cut and supplement it with other city moneys.

“With one quarter of the year left, most of the expenditures have been obligated or completed,” he said.

Councilman Benny Burgess said the news about the electric fund “really caught him off guard.”

“This is a major problem for the city,” Burgess said. “I would like to see the city replenish that with other city dollars from other departments. We also need stepped-up collection.”

He asked for monthly or quarterly reports on the electric fund.

“I’ve never seen a report in four years,” Burgess said. “We need better reporting so us on council can see it occurring before we get run over the bus.”