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Committee recommends March 2 public hearing on utility rate increases

WILLMAR -- The Finance Committee will recommend the City Council set March 2 as the date for a public hearing on proposed electric and water rate increases.

WILLMAR - The Finance Committee will recommend the City Council set March 2 as the date for a public hearing on proposed electric and water rate increases.
Committee members voted Monday afternoon to recommend the council set the hearing date after they received a report from Willmar Municipal Utilities officials on the 2014 cost of service and rate design study and the reasons for the proposed average 4.5 percent electric rate increase and the average 20 percent water rate increase.
The last cost of service and rate design study was performed in 2008 and rates were last increased in 2012.
The council will consider the committee’s recommendation Feb. 17. (The council meeting was rescheduled from Feb. 16 due to the Presidents Day observance). If the council approves the increases in March, utilities officials said the rates would go into effect with the summer billings.
The request for the council to hold a public hearing came from the Municipal Utilities Commission, which earlier Monday held its own public hearing and approved the proposed rates.
Utilities General Manager Wesley Hompe and Finance Director Tim Hunstad said the rate adjustments were needed to cover the increased cost of doing business during the last four years and to provide revenue necessary to pay for major improvements in electric and water infrastructure.
After rates were last increased, Hompe explained he was told by the commission to keep an eye on rates and to avoid such a large increase in any subsequent rate adjustments. Hompe said the consultant studied the cost of providing service to the various classes of electric and water customers and recommended the proposed adjustments.
Hompe said the vast majority of the utilities’ costs “are items that we have very little control over.’’ Those costs are power supply, transmission (getting power from the source to Willmar), local electric production, and labor and overhead. Those fixed costs represent 62 percent of all costs, they said.
During the last four years, Hunstad said power supply costs have fallen from 50 percent in 2012 to a budgeted 44 percent in 2015. Local electric production costs are steady at 11 percent.
However, transmission costs have risen from 1 percent of costs in 2012 to 10 percent budgeted in 2015. Also, transmission costs are expected to increase 6 to 10 percent a year as more power line projects are completed, such as CAPX 2020, and projects for mandated renewable sources, he said.
Hunstad said the utility is attempting to ameliorate rising transmission costs by investing in transmission projects and receiving revenue paid to powerline owners.
Hompe said larger utilities are also taking similar steps. He said Willmar Utilities is involved in a CAPX power line from Brookings, S.D., to south of Minneapolis. Revenue from that power line will go against Willmar’s transmission costs, said Hompe.
“Our goal is to be transmission revenue neutral so that the revenues are equal to the cost of using the (Midcontinent Independent System Operator) transmission system, and the cost to Willmar electric consumers on the transmission piece will be zero,’’ he said.
The complement of employees is the same in 2015 as in 2012, said Hunstad. But the utility has had to deal with a rising health care market, and he said health and medical benefit premiums have increased 14 percent across this time period.
Hunstad also said depreciation of assets has decreased from 9 percent to 7 percent, meaning the utility has not been investing into its assets. He added that most of the utility’s assets are old and aging.
“There needs to be going forward a very conscious effort to plan for replacement and upgrades in some of those asset areas,’’ Hunstad said.
On electric production, Hompe said the utility is in the midst of a local generation study, which he hopes will provide some direction on what the utility should do with its aging power plant.
In addition, officials said the water rate hike is needed to pay for large capital investments in the utility’s northeast and southwest water treatment plants between 2017 and 2022.
“Those are extensive, big ticket items that must be done in order to continue to have the quality of water that we do in the city,’’ Hunstad. He noted that 20 percent sounds like a lot, but equates to an increase of $1 to $2 per month.
Hompe recalled the days before the treatment plants were built that water users would get a blast of rusty water when they turned on the tap. Hompe said the filters are 20-some years old and in need of rehabilitation, and are “one of the big ticket items’’ coming up in 2015.
Hompe said the utility does not have enough retained earnings annually to provide for that.
“We will do some bonding,’’ he said. “But the remainder needs to be made up in rates.’’

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