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Multiple factors combine to hike the city of Willmar's cost of purchased energy during year's first quarter

WILLMAR -- Power plant maintenance shutdowns and colder than normal temperatures contributed to a higher than average cost of energy purchased by Willmar Municipal Utilities during the first three months of this year.

The price of purchased energy averaged $42.96 per megawatt from January through March in 2008, compared with an average of $34.52 per megawatt for the same period in 2007 and $36.54 for the same period in 2006, according to the quarterly power supply report to the Willmar Municipal Utilities Commission.

But the higher than average cost is not expected to have a major effect on this year's budget, said Bruce Gomm, utilities general manager.

"We're expecting to be OK,'' Gomm said Monday. "We have budgeted for this and it's coming in basically where we expected it to.''

Prices were up mainly because Great River Energy's Coal Creek power plant, which provides a majority of Willmar's energy, was unexpectedly shut down for two weeks in March. The plant came back up for about a week, and then was shut down for a scheduled, extended maintenance period.

"When Coal Creek is shut down, that means we have to secure that power from somewhere else and generally that's never as economical as the contract is (with Great River Energy),'' Gomm said.

Willmar contracts with Great River Energy for 30 megawatts of energy. Willmar has a peak load of 60 megawatts in the summer and 45 megawatts in the winter.

When Coal Creek is down, Willmar must buy power from different entities, according to Gomm. The average price of energy in this area was higher than normal because other power plants were also shut down, he said.

"We were aware that Coal Creek was going to have the extended outage, so we have budgeted some extra money. We're close to what we expected,'' he said.

Spring and fall are usually the times of year when utility companies shut down their plants for maintenance because electrical energy consumption is the lowest. Energy usage is highest in the summer for air conditioning and in the winter for heating, Gomm said.

Willmar's power plant was shut down for a once-every-five-year extended maintenance period on turbines and boilers.

"We're in the process of that right now,'' Gomm said.

The plant provides 7 to 8 megawatts of power from coal for district heating, 8 megawatts from gas and another 6.5 megawatts occasionally from gas.

"The nice thing about the power plant is it allows us to hedge a lot of different prices,'' Gomm said. "If we know that prices are going to be higher than what it costs us to produce, we go ahead and produce it ourselves. If the market is high and we don't need the power, we can turn around and sell it also. It helps us control our cost by taking advantage of the markets.''

Cooler weather also played a part.

The State Climatology Office said February and March temperatures finished significantly below normal, resulting in an increased demand for electricity.

Gomm said the 500-to-580-megawatt Big Stone II power plant proposed at Big Stone City, S.D., will help limit Willmar's exposure to higher energy prices.

"As we continue to see periods where we have to purchase more energy than normal from the market, we are more and more aware of the market's volatility, and the market reflects the availability of the commodity, which basically in this case is electricity,'' he said.

"Since we're running out of generation and transmission capacity, that commodity is getting more and more valuable, so the price becomes more volatile and basically means that the price goes up,'' he said.

"Without some sort of hedge against that -- some way to guarantee that you have your own energy coming -- you are subject to that volatility. Big Stone II allows us to limit our exposure to that ever increasing market piece.''