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Electric and district heat rates should be increased, report states

WILLMAR -- A consultant's report is recommending the Willmar Municipal Utilities Commission increase electric and district heating rates next year. The commission took no immediate action on the report.

WILLMAR -- A consultant's report is recommending the Willmar Municipal Utilities Commission increase electric and district heating rates next year. The commission took no immediate action on the report.

The report recommends an overall electric rate increase of 5.8 percent. Increases in generation costs and the costs to purchase power are responsible for 3.5 percent of the overall increase, while increases in local operating costs account for the remaining 2.3 percent, according to the report.

Utilities general manager Mike Nitchals said Willmar's electric rates were last increased in 2003.

Actual rate increases would vary by customer class. Residential customers would see a slightly larger increase of 6.9 percent, while general service, commercial, large power and industrial customers would see an increase of 5.4 percent.

Nitchals said rates are based on cost of service.

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The report, presented by David Berg, senior director for R.W. Beck, estimates electric requirements will grow 12 percent during the five-year study period from 2006 through 2010, while estimated expenses for purchased power are estimated to increase 31 percent during the period.

The report recommends electric rates rely less on the "energy acquisition adjustment," which is a billing mechanism used to cover sudden or dramatic increases or decreases in costs.

While the adjustment helps the utility recover higher costs, Nitchals said, it does not reflect actual usage among the customer classes.

"We have different rates for different classes of customers, but the energy acquisition adjustment is collected on the same basis no matter what class you're in. Also, it does not take into account the time of use or who put those burdens on,'' he said.

"So we really need to get those costs put into a cost-of-service analysis so those are attributed to the right customer class. By collecting it on a per-kilowatt-hour basis, it isn't really reflecting cost of service at the class level,'' he said.

The report recommends increasing overall district heating rates by 20 percent over two years. The district heating system serves customers located downtown and on the north side.

Also, the report recommends establishing two rate classes for district heating: one rate for residential and small commercial customers; and one rate for medium and large commercial customers. The report recommends two rates because different customers use heating at different times of the year.

A small commercial customer would be a small downtown store. Medium and large commercial customers would include school buildings and Rice Memorial Hospital.

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Nitchals said a cost-of-service analysis showed residential and small commercial customers use heating during the heating season only, while medium and large commercial customers use heat during the heating season as well as during other times of the year.

Nitchals said district heating rates were last increased in 1989.

"It doesn't necessarily mean that our costs have increased dramatically just in the last year or two,'' he said. "It's kind of an overall accumulation of things.''

Most recently, he said, the price of coal, including freight, increased 40 percent in one year.

"That is the one thing that's probably driving our need for a rate adjustment on the district heating division,'' he said.

Nitchals recommended the commission act on the report after the first of year.

The process of enacting new rates would probably take 2Β½ to 3 months. The commission would propose rates and hold a public hearing. The proposal would be forwarded to the City Council, which would introduce an ordinance, hold a public hearing, and either approve or modify the proposal, Nitchals said.

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