WILLMAR -- Rising fuel and power costs are causing a sharp increase in expenses and a projected deficit in the 2006 budget approved Monday by the Willmar Municipal Utilities Commission.
Utilities General Manager Mike Nitchals said rising expenses are causing the apparent budget change in a short period of time.
"Bottom line, it's expenses,'' he said. "It's primarily the cost of power, the cost of the fuels we use -- coal, natural gas. Those are the things that are increasing the fastest.''
The Willmar power plant burns about 50,000 tons of coal per year to produce electricity and to produce hot water for the downtown district heating system. The plant generates from 15 percent to 20 percent of the city's power needs.
John Brinkman, manager of power supply and purchasing, said the cost of coal delivered to Willmar will rise 25 percent to 30 percent next year. The coal is delivered in odd lots of one to four rail cars at a time.
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He said the Burlington Northern Santa Fe Railway will not be negotiating an incentive rate for next year. He said the cost will increase from $29.38 per ton to $38.90 per ton.
Brinkman said the utilities had a two-year contract. "Our rates have been very good,'' he said. "We finally hit the wall. They know we have no place else to go. There is a very limited number of mines that handle odd lots like us.''
The cost of natural gas is running about $12 per 1,000 cubic feet, up from $2 to $4 per 1,000 cubic feet three to four years ago, according to Nitchals.
Because costs are rising, Nitchals said the staff has been urged to watch expenses. "While that message is always important all the time, it's doubly so when we're approaching times like this,'' he said.
Also, rate increases or adjustments may be needed next year. Any changes proposed by the commission would require City Council approval, after a public hearing is held.
"Looking at the results of our budget work thus far, it's pretty evident that we are going to enter a kind of a tough year here,'' he said.
"Whenever we have the apparent need for a rate increase or rate adjustments of some kind, we know it's not a pleasant time for all of us to deal with. But it's better that we go into these public meetings and hearing saying we've done everything we can to hold our costs down as low as possible.''
The budget combines revenue and expenses from the heating, water and electric divisions.
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Operating income -- the difference between operating revenue and expenses -- will fall from $2,006,400 in 2005 to $976,300 in 2006. Revenue in 2005 totaled $20,696,700 and expenses were $18,690,300. In 2006, revenue is budgeted at $22,141,200 and expenses at $21,164,900.
Net earnings, after other income and deductions are figured, will decline from $2,053,900 in 2005 to $1,236,200 in 2006.
Retained earnings -- the amount remaining after the intergovernmental transfer is paid to the city -- will fall from $441,600 in 2005 to a deficit of $408,400 in 2006.
The intergovernmental transfer, which is a payment in lieu of taxes, is based on a percentage of the utilities' net equity, which is the difference between assets and liabilities. The 4.8 percent rate is negotiated by the utilities and the city.
The transfer amounts to 8 percent of revenue, said Nitchals. Such transfers vary in other cities with municipal utilities. In Moorhead, the transfer amounts to 12 percent of revenue, he said.
The power plant has been burning low-sulfur western coal over the years to comply with emissions regulations. Nitchals said there are different grades of coal, and the grade that Willmar buys from Wyoming works for the city.
In other business, Nitchals told the commission the Western Area Power Administration will increase its winter and summer power supply rates by less than 1 percent beginning Jan. 1, 2006.
The winter rate will increase 0.216 percent and the summer rate will increase 0.164 percent.
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The city receives 6 megawatts of power, or about 10 percent of the total requirement, from WAPA's hydroelectric dam on the Missouri River. WAPA is the city's lowest cost source of power. Great River Energy is second and coal is third.
Also Monday, the commission approved an agreement with Local 160 members of the International Brotherhood of Electrical Workers to establish a health care savings plan. The plan lets retiring employees divert cash payments for unused personal days off into tax-free accounts to pay for health care costs.
In related business, the commission voted to place a similar plan in the personnel policy manual for non-union employees.
