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Higher rates coming up -- DL utilities hit with higher power costs

A combination of factors has conspired to cause higher electricity rates next year in Detroit Lakes.

"It looks like locally we will have to raise our rates overall about 12 percent," said Detroit Lakes Utilities Superintendent Curt Punt. That percentage will vary based on the type of customer -- industrial or residential -- and amount of power used, he added.

Higher power costs from suppliers will take effect in a few months. "It will hit us Jan. 1," Punt said. "I don't think we even have a choice -- if we want to provide the electricity, we have to do it."

Punt said the projected rate hike has doubled since June.

"In May, June, July we were looking at a 4 mill per kilowatt hour increase in wholesale power cost. In early August we took a new look at this and saw we'd have to have 7 mills just to break even. As recently as this morning, I figured out it will have to be 8 ½ mills," Punt said.

A 12 percent rate hike would raise about $1.4 million a year.

But it doesn't stop there.

New conservation requirements passed by the Legislature this year will likely require another $1 million a year or more from city ratepayers.

Utilities will have to reduce their kilowatt production by 1 ½ percent each year through conservation measures such as rebates.

"We're already spending about $200,000 a year for energy conservation -- a lot of it goes to rebates of some kind or another," Punt said.

Next year the utility department will spend $400,000 on energy conservation and Punt said, "we may well spend $1 million or more in 2010," when the program takes full effect.

That money will have to come from ratepayers, in the form of higher rates, over and above the 12 percent hike projected for next year.

The city's existing conservation program has never reduced usage by more than .8 percent, usually about half that, and that was by giving rebates for high-efficiency electric water heaters (which don't qualify anymore) and by counting power savings over the life of the appliance -- 10 years for a water heater, for example.

The new law requires 1 ½ percent in new savings every year. No more counting the lifetime of the appliance or furnace. That's going to be difficult to do, and expensive, Punt said.

"That is their way of getting those prices driven up so high you will be forced to save energy," he said of legislators who pushed the conservation law.

There is a core group of lawmakers who believe power is too cheap in Minnesota, and higher rates are the best way to force conservation, Punt said.

"They do it under the guise that they're going to save the world from global warming," he said. "It's just wrong -- the first people affected will be the elderly on a fixed income who are already pushed to the limit, and young families who need every dollar for food and clothes."

So why the need for next year's rate hike?

Detroit Lakes benefits from relatively cheap power from hydroelectric dams on the Missouri River through the Western Area Power Administration.

Hydro provides 36 percent of the city's power needs, yet accounts for just 18 percent of its costs.

But power from the Western Area Power Administration will cost 21 percent more next year, Punt said.

That's because a lingering drought in the Missouri River Basin has forced the federal government to buy more power on the open market to meet its contractual obligations -- and those costs get passed along to the utilities that purchase the power.

"They have had to pick up more and more on the expensive open market," he said. On the bright side, the Missouri River Basin saw normal snowfall last winter, and if that continues for a year or two, it will fill up low reservoirs and allow more hydro power to be produced again.

The city gets the remaining 64 percent of its power from the coal-fired Laramie River plant in Wyoming.

Located 11 miles east of Laramie River Station, the Grayrocks Reservoir is the principal water source for the plant. Along with other groundwater sources, it provides up to 23,250 acre-feet of water annually for steam production and cooling at the plant.

"The draught has affected the operation quite drastically in Wyoming," Punt said. "They have had to buy water rights and put wells down for cooling."

Also, railroads have doubled their fees for hauling coal over the past 4-5 years, and the plant is due for routine maintenance for about a month, something that occurs every two or three years.

"During that month, all that power must be purchased on the open market," Punt said.

The creation of the Midwest Independent Transmission System Operator (MISO) in 2001, which manages flow through the electrical grid in 15 states and Manitoba, has also added to power costs, Punt said.

"It was formed with the idea of improving reliability and has developed into a marketing organization," he added.

The Federal Energy Regulatory Commission "has kind of accepted this -- they're hoping higher costs will encourage utilities to build transmission (lines). If you have a state like Minnesota that won't let you build transmission, it just keeps getting more expensive."

The price of power on the open market "has gone up tremendously, and MISO has not helped it," Punt said.