City electric rates must increase to cover costs

By MICHELLE MCLEAN
Electric rates in Hillsboro must increase to keep pace with rising wholesale power costs, city commissioners learned Monday.
Missouri River Energy Services, the city’s supplemental power supplier, recommended a 20-percent increase spread over two years for both residential and commercial customers to keep the electric department from slipping deeper into the red.
Rates will likely go up January 1, 2008 — or it could be sooner.
“We’re deficit spending right now,” noted commission president Kevin Burg.
Through 2011, MRES calculated the city’s cost to buy and deliver power will rise from 2.7 cents per kilowatt hour to 4.21 cents per kwh.
In turn, residential customers will likely see a rate increase from 4.6 cents per kwh to 5.2 cents in 2008 and to 5.7 cents per kwh in 2009. Residential customers also currently pay a $16 base charge each month plus usage charges.
As proposed, commercial rates could be increased from 4.6 cents per kwh to 5.1 cents in 2008 and to 5.5 cents in 2009. Commercial customers now pay a monthly base rate of $32 plus usage charges.
Dual heat rates would rise from 3.8 cents per kwh to 3.9 cents next year and 4.0 cents the following year.
The proposed increase is estimated to raise a small user’s bill (500 kwh) from $39 to $42 month. A larger residential customer (1500 kwh) would see an increase from $124 to $138 a month.
For commercial customers, the rate increases would be similar — for example, 29,113 kwhs would cost $1,371 under the existing rate and $1,520 under the proposed new rate.
MRES rep Tim Miller told commissioners the new rate formula keeps Hillsboro’s rates in line with area municipal power companies and competitive with other suppliers. For example, 1500 kwhs would cost a Cavalier resident $92, an Xcel customer $108 and a Nodak user $125.
Commissioners have tried to hold off a rate increase until they could formulate a new rate structure with MRES’s help. In the meantime, the city has used reserves to absorb a 5.8 percent increase on its WAPA bill since January.
WAPA is forecasting a 25-percent increase January 1, 2008 to cover drought-related expenses. With low water levels, Garrison Dam has been unable to produce enough power and WAPA has been forced to buy more expensive power on the open market to meet contract demands.
MRES raised rates by 8.2 percent in January, an increase the city was able to absorb because of healthy reserves. Another 4.7 percent increase kicked in July and two more increases (4.7 percent each) are expected in January 2008 and 2009.
MRES blames damage to transmission lines in Nebraska storms as well as rising rail transportation costs to ship coal for large rate increases.
To bring power to the city, Hillsboro relies on Xcel Energy equipment. Transmission fees are expected to increase 47 percent in 2008.
Existing rates don’t cover costs, the study showed. The electrical fund is forecast to lose $42,000 this year, compared to a profit of $87,000 last year. Without a rate hike, the study predicted the fund would lose $155,000 in 2008. The fund has historically maintained a healthy reserve — about $500,000 — to cover emergencies, contingencies and improvements.
MRES’s recently completed rate study presented commissioners with a few additional facts:
n The city receives a fixed allocation of power from the Western Area Power Administration (WAPA) generated at Garrison Dam. The allocation is 57 percent of the city’s power requirements. MRES provides all additional power and it is forecast to provide 46 percent of the city’s power in 2011.
n In 2006 the city’s energy consumption was primarily residential (52 percent), followed by 35 percent commercial, nine percent dual heat, three percent city usage (estimated) and one percent for street lights.
n Metered sales to municipal customers in Hillsboro in 2007 are expected to be about $1.24 million.
Like most municipal utilities, Hillsboro relies heavily on “enterprise funds” (revenue-producing) to supplement the city’s operating budget. In recent years, about $175,000 a year has been transferred from the electrical fund to other funds to pay for things like streets and police.
The city’s general fund only collects about $82,000 in property taxes each year. State funding provides about $65,000. Licenses and fees add up to $35,000. However, expenditures in the general fund run $350,000.
The annual transfers are allowed by law — up to 20 percent of revenues — as long as the utility funds maintain a certain reserve. In 2007, the electric department will provide a $100,000 transfer to the general fund and $75,000 to the street department.