Willmar Municipal Utilities' proposed electric hike goes to council
WILLMAR -- The Willmar Municipal Utilities Commission has approved a two-step electric rate increase of 7 percent in July for the remainder of 2011 and a 7 percent increase effective Jan. 1, 2012. The increases now go to the City Council for a public hearing and final action.
The commissioners approved the increases after taking comments during a public hearing from three individuals who expressed concerns about the increases and asked what the utility is doing to control costs.
Ron Christianson asked when will be the next increase.
General Manager Bruce Gomm has said the utility is facing increased power supply and transmission costs.
The commission initially discussed a 6.5 percent increase each year over three years, but the planning committee reviewed the numbers and settled on a two-year increase because the utility does not do detailed budgets that far out.
"This increase still puts us in a pretty tight (situation) financially,'' Gomm said. "It gives us retained earnings of very close to zero for 2011 and 2012, but we decided because of the very challenging financial times that we're very satisfied that just staying neutral on the rate of return was OK for a couple of years.''
The big contract with Great River Energy expires in 2015 "and we're working hard to replace that,'' Gomm said. "We're in final negotiations with a couple of suppliers. But in 2012 we'll know what those prices will be in 2015. We will address our rate needs in 2013 at that time.''
Christianson asked if the rate covers 100 percent of the cost of electricity or is it for capital improvements or wages and benefits.
Gomm said the numbers do not include any wage increases. He said wages were not increased in 2010 and there has been no increase in 2011. If union negotiations results in any type of wage adjustments, the money will have to come from somewhere else in the budget.
Christianson also asked where the utility is trying to save money and control spending.
Gomm said the utility is "looking at everything we can. We did very deep cuts in the budgeting process, as deep as we felt we could but still resulted in negative net earnings for us.''
Gomm said the utility waited until after the first quarter, hoping to find ways to control costs, but expenses were greater than anticipated due to natural gas purchases needed for generation because the power plant received unusable coal and the plant can only burn coal from one supplier due to the plant's air pollution restrictions.
"That is pretty much beyond our control,'' he said. However, future power plant improvements will allow the utility to buy coal from more than one source. He said the rate increase anticipates some capital cost that would be associated with the improvements.
"That is the only big project we are looking forward with at this time,'' Gomm said. "We continue to do capital improvement and maintenance projects in the distribution department and some in transmission, but projects that are deemed necessary for reliability.''
Melanie Kirgiss said the increases were detrimental to many people and end up being 14 percent in a very short amount of time.
Commissioner Dave Baker said Willmar's rates were near the bottom of rates in a comparison of six cities.
"I think the community has enjoyed some really good rates over the years,'' Baker said. "Because our contracts are sort of winding down with where we buy half of our power, we're going to see some increases coming down the road whether we want to or not. It is hard to swallow. Be assured we will do everything we can to keep rates as low as we can.''
Randy Alsleben, director of engineering at Jennie-O Turkey Store, said the increases are huge and substantial. He said Jennie-O buys about $4.5 million in electricity a year and the new rate would result in an increase of about $300,000 a year.
He said Willmar's rates are competitive with other cities where Jennie-O does business. But after the two increases, Willmar will be at the high end, he said.
Commissioner Matt Schrupp said the commission understands the increases are difficult on both individuals and industrial users and affect many people.
"As a commission we feel there's a fiduciary responsibility that we have to make sure we maintain a good financial status and it is importance that we maintain that,'' he said. "As we move forward, we need to make sure that we're doing everything we can as a utility to maintain good reliable energy and cost effective and make sure we minimize the cost as much we can.''