Utilities’ largest expense continues to be purchased power
WILLMAR — The cost of purchased power continues to be Willmar Municipal Utilities’ largest expense, a year-to-date budget report to the Municipal Utilities Commission shows.
The report by Finance Director Tim Hunstad shows purchased power cost rose from $12,923,522 in 2012 to $14,349,802 in 2013.
“The biggest increase is the one we have the least control over,’’ said General Manager Wesley Hompe in an interview following Monday’s commission meeting. He was referring to purchased power costs.
Hompe said the utility buys almost 80 percent of its power through contracts with outside sources and those contracts are scheduled to increase. Hompe said those increases are reflected in the 2013 budget and will be reflected in the 2014 budget.
“We have significant power supply increases,’’ he said. “And when you have a significant increase on that portion of your budget, which is well over 60 percent of our budget, it has a big effect on the rates.’’
Hompe said the utility budgeted for higher purchased power costs and budgeted for a cost-of-service study to ensure rates do reflect costs.
Hunstad’s report shows preliminary year-to-date 2013 actual revenues of $29,842,446 compared with a budgeted figure of $30,461,800.
Preliminary year-to-date 2013 actual operating expenses are $26,501,075 compared with the budgeted amount of $27,742,800.
Preliminary 2013 net earnings, after subtracting expenses from revenues and calculating other income and expense, total $3,263,555 compared with a budgeted figure of $2,542,800.
After subtracting the 2013 intergovernmental transfer payment of $1,955,400 to the city, the report indicates 4 percent retained earnings of $1.3 million. Retained earnings pay for future projects.
But retained earnings could be closer to 2 percent because the utility has some long-term bonds at lower rates in its investment portfolio and the cost-benefit of replacing those investments doesn’t seem obvious yet, Hompe said.
“We have to wait for interest rates to go up significantly and they really have not,’’ Hompe said.
He said operations are tight.
In other business the commission was informed the utility will continue to participate in the Minnesota Municipal Utilities Association’s scholarship program.
The association has budgeted $5,000 for the scholarship as a public relations tool to increase the awareness of public power and to create goodwill for city-owned utilities.
Willmar Municipal Utilities sponsors its own scholarship program, in which high school seniors submit essays on public power.
The first-place winner receives $750 and the second–place winner receives $250.
Willmar and other municipal utilities then enter a local winner in the state contest.