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Municipal Utilities will save more without district heat

Briana Sanchez / Tribune Joel Braegelman talks about the city's hot water heating system, Tuesday, Jan. 24, at the Willmar Municipal Utilities service center building.

WILLMAR — While Willmar Municipal Utilities will see a reduction in revenue if district heat is discontinued, Utilities General Manager John Harren said the utilities will save more than it will lose once the heating program is shut down.

"There are significant savings to be had by not running district heat," Harren said in an interview with the West Central Tribune on Tuesday.

Harren said currently it costs the power plant approximately 15 cents to produce one kilowatt of power along with heat. If the utilities decided to continue producing power at the plant, but not district heat, the cost would drop to around 10 cents per kilowatt. The savings would be even more if the power plant ceased operations and the utilities purchased all the power it needs from power supply contracts at a rate of approximately 5 to 6 cents per kilowatt. This could potentially save the utilities $2 million per year.

"The real cost is on the power supply side," Harren said.

If the utilities decided to continue operating its district heat program, it would require significant upgrades at the plant.

"It has served its purpose, it's getting old," Harren said.

The consequences of that would mean nearly doubling the rates for district heat customers. Harren presented information on the district heat program along with a tentative decommission date and financial assistance program at Monday's work session of the Willmar City Council.

After speaking with customers and heating contractors, Harren said the utilities had settled on July 1, 2020, as a potential decommission date for district heat.

"That is one year longer than statute requires," Harren told the City Council.

Already this past week Harren said two residential and one commercial customer have transitioned off district heat. In 1990 district heat had nearly 400 customers. Today it is just over 200.

"That number continues to dwindle," Harren said.

When speaking with customers, Harren said most would rather put their money in their properties than have the utilities invest in district heat and then double the rates.

"Customers would prefer to invest in their own systems," Harren said.

The extra year will also give the utilities more time to get a plan in place for its power plant workers, especially if the utilities decides not to continue power production at the plant. Willmar Utilities will need its employees at the plant for the next three years, so utilities leadership is looking at establishing a severance package that will entice employees to stay until July 2020. Leadership is also looking at employment opportunities with the utilities and city, job training and possible retirements.

"It is high interest for the employees. To have an understanding when we say we need to take care of our employees, what does that look like," Harren said.

A financial assistance program has also been proposed, to help residential, commercial and industrial customers switch over to an electric heating system.

"It is really a last resort for anyone who can't obtain financing elsewhere," Harren said.

The proposed program would provide a five-year loan, with an interest rate of 9 percent, for the installation of a new heating system, which must be 100 percent electric. Harren said the utilities had looked into grant programs but were unable to find any.

The Willmar Municipal Utilities Commission will hold a public hearing May 22, during its regular meeting, about the potential decommissioning of district heat. The commission could adopt a resolution to approve the decommission at that meeting.

The resolution would then go to the City Council for possible approval. This would also include a public hearing, perhaps at the June 19 council meeting. The council does have veto power over the utilities and could decide to not move forward with the decommission.

If approved by the utilities and City Council, the resolution to decommission would be sent to the state Department of Employment and Economic Development.