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DL residents may pay 10% more for power

The cost of electricity in Detroit Lakes is headed up -- perhaps by 10 percent next year for residential customers -- due to a weather-related double whammy that has hit the city's energy suppliers.

"A big ice storm the first of the year came through Nebraska and that region, and literally took out all of our transmission lines that bring us our service out of the Laramie River Station (a coal-fired power plant in Wheatland, Wyo.)," said Detroit Lakes Utilities Superintendent Curt Punt.

Detroit Lakes gets 60 percent of its power from there, and with the power lines down, it had to purchase a good share of its power on the open market through MISO, the Midwest Independent System Operator, which runs the electrical grid in a multi-state region of the U.S. heartland.

"The markets just really shot up then," Punt said. "That's what happens these days if you need to purchase power off the grid. There's a new market setup there, and it can get very costly."

Missouri River Energy Services, which runs the Laramie River plant, has had to spend about $10 million since Jan. 1 to buy power on the open market, and it passed those costs along to its membership, which includes Detroit Lakes.

The plant is now transmitting energy at 75 or 80 percent of pre-storm capacity, and will be up to 100 percent this summer, but a month or so ago it was down to 50 percent, Punt said.

To recoup some of that big expense, Missouri River Energy Services is imposing a 4.8 percent price hike for its power, as of July 1. And it will raise its rates another 4.8 percent Jan. 1, Punt said.

Detroit Lakes Utilities will pay for the first rate hike out of reserves. It's expected to cost about $130,000, a relatively low impact, since it comes during the busy summer months.

The second hike will be more expensive, since it covers the entire year. It's estimated to cost the city more than $500,000 for 2008.

On top of that, an eight-year drought continues to lower the amount of hydropower produced by federal plants on the Missouri River.

Detroit Lakes gets 40 percent of its power that way, but since the river is low and the dams aren't producing anywhere near full capacity, the federal government has had to buy a good percentage of its power on the open market, and will now pass those costs along to cities like Detroit Lakes.

"Their rates will increase 25 percent as of Jan. 1, 2008," Punt said. That will cost the city an additional $300,000 next year.

"That's a huge increase," Punt said. "The only bright side is hydro is generally less expensive, and we only get 40 percent of our power from them."

The drought out West is hurting Detroit Lakes in other ways, too.

"A plant on the Laramie River in Wyoming has had to buy water rights from ranchers and farmers to get enough water to cool the plant -- that's a new, ongoing cost," Punt said.

When all is said and done, the city will pay more than $800,000 more for power next year than it is paying this year.

"Which means that, and as a local utility we hate to do it -- we have already had rate increases that last several years -- we anticipate that we'll have to raise rates for all customers an average of 7.4 percent," Punt said.

Because big industrial customers buy power from the city on a two-tier system based on peak capacity and actual power used, their rate increases will likely be smaller.

Residential customers and smaller businesses simply buy power based on how much they use, and residential rates will likely increase 10 percent or more, Punt said.

A rate study will be done and approved by the Utilities Commission before new rates are implemented.

Cash reserves for the city's electrical utilities stood at $5.7 million at the end of last year.

"It would be great to always keep them about the same as annual sales, that would be in the $10 million range," Punt said. "But if we can keep them at $5 million or $6 million, that's probably sufficient," he said. "It's very important to our bondholders to keep those reserves up -- it ultimately effects your bond ratings."

The Detroit Lakes electrical utility raised rates last year and this year, which increased revenues to an estimated $11.2 million this year from $9.8 million.

The electrical utility has helped the city keep property taxes down. For the past several years it has contributed $475,000 to the city's general fund.

The utility last year also transferred more than $100,000 to the city to offset other city costs, including street lights and the city attorney's budget.