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MUC, feeling the sting of open market costs, OKs consultant to study possible hike to rates

WILLMAR -- The Willmar Municipal Utilities Commission has hired consultant R.W. Beck of St. Paul to determine if new electric rates are needed to keep pace with increasing power supply costs.

Rates were last raised in April 2007 when an average increase of 5.8 percent went into effect. The increase was approved by the utilities commission and the Willmar City Council.

Bruce Gomm, utilities general manager, said power supply costs have gone up quite a bit this year due to long-er-than-anticipated outages at Coal Creek St-ation in North Da-kota, wh-ich provides 30 megawatts of power to Willmar.

When a major power supplier such as Coal Creek is shut down, Willmar and other customers must buy power on the market, where prices have increased. As a result, the utility has been adding the energy acquisition adjustment to customers' bills during the past four months to make up the difference between revenue and expenses, Gomm told the commission Monday.

"We are having a harder time keeping up with our current rates. ... Our intent is that we wouldn't have to use (the energy acquisition adjustment), that our rates would be such that they would fulfill the needs of our expenses without that,'' Gomm said.

Beck will determine if rate adjustments are needed to cover debt service financing and operating expenses for the new wind turbine project and proposed power plant efficiency improvements.

Beck has been providing consulting engineering services to the Willmar utility since 2001.

As part of the study, Beck will analyze the cost of providing power to various customer classes to determine if all customers are paying their fair share of the expense of providing that power, Gomm said.

Gomm was asked how often studies are required.

"They should be done as often as you need them. The industry trend has changed in the last several years. It used to be you could be 10-plus years ... But since the energy market has been changing so fast, I think the industry standard is probably more like two to three years,'' he said.

Gomm was asked if utility staff members can determine the size of the adjustments.

Gomm said the staff does not have the capability to compile and study the amount of information needed for a rate study.

Also, he said a study by an outside, unbiased third party is required to assure a bonding authority that revenue will be sufficient to cover payments for bonds sold to finance local projects.

Utility officials hope to have the study completed and rates in place by the first of the year.

In other business, Gomm said he had a good meeting last week with the utilities' environmental consultant and the Minnesota Pollution Control Agency to discuss modifications to the power plant's air permit.

The bad news, Gomm said, is that the permit approval process will take a year.

A new permit is needed before the utility can have a test-burn of corn cobs in the mainly coal-fired power plant. Burning corn cobs is being proposed to help the utility comply with renewable energy regulations.

"It's a different fuel than we're permitted to burn. If the permit is approved, the utility could burn it within a couple of months easily,'' he said.

The utility is negotiating with farmers to harvest and sell 500 tons of corn cobs at an estimated cost of $50 per ton. Coal costs $43 to $44 per ton. The cobs will be stored at the old airport.