WILLMAR -- The Willmar Municipal Utilities Commission received information Monday on a proposed electric rate increase of 6.5 percent per year over three years, beginning this year. Commission members directed their Planning Committee to study the increase and return with a recommendation.
Electric rates were last increased in 2009. A 2009 report said the increase was expected to be sufficient to cover revenue requirements and capital improvements through 2010.
The report said the commission should continue to monitor its operating results and its planned 2011 bond issue and should consider an additional rate increase in 2011 as necessary.
The utility has been concerned for about a year with rising power supply and transmission costs.
The need for the increase became apparent during the budgeting process that the utility would be unable to maintain a positive rate of return with the current rate structure.
General Manager Bruce Gomm said he waited until the electric division's first quarter financial results for January through April 30 were completed before making a recommendation. The electric division is the largest of the three divisions. The other two are the water and heating divisions.
Gomm said the results were "more negative that we thought.'' The electric division budget analysis showed retained earnings, which pay for capital projects and unexpected expenditures, had a loss of $80,650 for the period compared with a budgeted loss of $114,732.
Electric division retained earnings for the year are budgeted to have a loss of $1.07 million.
Gomm said the rate increase has been discussed for more than six months.
"When we looked at what we would need to bring our retained earnings back as close to neutral as possible, we see that we need about a 6.5 percent increase,'' he said. The utility would continue to work to control costs, he said.
Retained earnings for the combined divisions was slightly better at 1 percent for the four-mouth period.
"Over the next two years, although we shoot for between 5 and 7 percent return ... we're hoping for a little better than breakeven and we hope to control expenses enough to be able to be slightly positive,'' Gomm said.
He said rising transmission cost is the biggest reason for the rate increase. He said the utility continues to experience cost increases from the Midwest Independent System Operator, a non-profit agency that serves the electrical transmission needs of much of the Midwest. The agency also coordinates the planning and operation of the wholesale electric transmission system in all or parts of 15 states and one Canadian province.
The need for the increase is also due to changes made in the contract with Great River Energy, which supplies about half of Willmar's energy needs. That change resulted in about a million dollar increase in annual transmission costs, he said.
Under the proposed rate structure, a small residence using 250 kilowatt hours per month would see an increase from $28.95 to $30.85. The rate for a residence using 500 kilowatt hours per month would increase from $48.90 to $52.10. The rate for a larger residence using 1,000 kilowatts would increase from $88.80 to $94.60.
The proposed increases would place Willmar about in the middle of rates charged in five other cities. Residences using 500 kilowatts a month pay $55.69 in Marshall, $48.80 in Alexandria, $50 in Moorhead, $50.10 in Hutchinson and $60.51 in Rochester, according to a rate comparison presented to the commission.
The comparison showed Kandiyohi Power Cooperative customers using 500 kilowatts per month pay $81.50.
Increases are also proposed for commercial and industrial customers.