Another RPU Rate Increase?!
Rochester Public Utilities (RPU) recently announced an 8.5% rate increase effective April 4, 2006. Many of you may have already heard about this because it was reported by KAAL, KTTC, and the Post-Bulletin (pay subscription to be able to read the P-B article).
I thought all these stories covered the facts accurately, but not in as much detail as I would have liked. What does KTTC mean when it reports that RPU is “responding to a nearly 17 percent increase by its wholesale power provider”? Bob Freund of the Post-Bulletin provides a nice, short answer. “The city-owned utility is reacting to a jump in its own electric bill.”
But for the RPU customer who just wants to make sense of this—who wants to understand the causes and effects leading up to the rate increase—I have yet to read anything that ties it all together.
That’s what I intend to do. I encourage you to leave comments at the bottom of this post—let me know how I did.
As a matter of disclosure, I work for RPU. No, I’m not some public relations person trying to sugar-coat this stuff for you. And I’m not being told what to write here, either. It’s important to remember that RPU is owned by the citizens of Rochester. Employees are encouraged to talk with our neighbors, answer their questions, help people understand where the utility is going. I’m just an average joe who would like to share what I know.
I will report the facts as I understand them, and as accurately as possible. But this post does not represent any official statement from RPU or any other organization. Any opinions expressed are my own and will be clearly labeled as such. Your mileage may vary.
Now that we have all that out of the way, let’s start with some basics.
SMMPA, 101
Southern Minnesota Municipal Power Agency (SMMPA) is a non-profit agency that generates and sells electricity wholesale to its members. Its members are made up of eighteen municipally-owned power companies spread throughout southern Minnesota, of which RPU is one of the founding members. SMMPA’s primary source of electricity is 41% of the big 884 megawatt (MW) Sherco 3 coal plant near Becker, Minnesota. SMMPA also relies on the generating capabilities of its member utilities, including RPU.
So is SMMPA a good thing or a bad thing for RPU’s customers? In my opinion, the short answer is, “SMMPA is a good thing.”
Let’s put it this way…If all of the generators at RPU’s Silver Lake coal plant were generating as much electricity as they possibly could, it still wouldn’t be half the electricity Rochester uses on a hot summer day. Rochester has simply outgrown the ability for the Sliver Lake plant to provide all of the electricity needed. That extra electricity has to come from somewhere. If it were not for SMMPA providing relatively affordable electricity to Rochester for almost 30 years, RPU would have either had to buy all that extra electricity on the open market (cha-ching), or they would have had to build enough generation to keep up with the city’s growth (cha-ching). Either option would have been expensive for RPU’s customers.
Didn’t we just have a rate hike in January?
The short answer is, “yes.”
During the summer of 2005, and based on the most current information available at the time, SMMPA was putting together their financial forecasts for 2006. In September 2005, SMMPA announced a 5% increase in wholesale electric rates, breaking a 13-year decline in the average cost of electricity that the agency sells to its members. They cited an increase in the cost of coal and natural gas, as well as new investments to comply with state and federal regulations, as the reasons for the rate hike. Raymond Hayward, Executive Director & CEO had stated, “We have done all that is reasonable and prudent to postpone and minimize rate increases. But to remain reliable, and to comply with state and federal mandates, costs will have to go up.”
SMMPA’s new rate would take effect January 1, 2006.
In November 2005, RPU laid out its own budget for 2006. Based on rising operating costs including the SMMPA rate increase, employee healthcare, facility maintenance, and fuel costs, RPU recommended a 5% rate increase to its customers.
The new rate was approved by the RPU Utility Board and by the Rochester City Council, and would also take effect January 1, 2006.
So what’s with the new rate hike in April?
In a nutshell, SMMPA added a second rate increase for 2006, citing higher industry-wide costs and some unforeseen circumstances. RPU responded by cutting its own spending budget, however some of SMMPA’s rate increase had to be passed to RPU customers in order to balance the budget.
Huh?
Because natural gas is often used to generate electricity during hours of high demand, wholesale electric prices follow natural gas prices. SMMPA states, “Sherco 3, SMMPA’s main power plant, was off-line from October through the first week of December for long-planned and necessary scheduled maintenance. During this same time period, natural gas prices remained at all-time highs—at times more than double the price earlier in the year—due to hurricanes in the Gulf.”
SMMPA goes on to say, “The early December cold snap and ice storms in the Dakota’s negatively impacted the transmission system used to deliver electricity, thereby further increasing wholesale power costs. The electricity Sherco 3 would have produced had to be replaced with what became very high-priced market power.”
Remember, this period is after they finalized their 2006 budget.
In January 2006, SMMPA announced a second rate increase of 16.9% to be effective May 1, 2006.
In an effort to minimize the effect that SMMPA’s rate increase would have on RPU customers, RPU aggressively slashed its own budget. Larry Koshire, General Manager for RPU, said, “We felt we needed to be proactive in taking these actions because of our wholesale power cost going up. The approximate $5 million that we adjusted on our 2006 budget was a substantial adjustment, but it will not compromise our customer service focus or our service reliability.”
In March 2006, despite budget cuts and employees’ ongoing efforts to find ways to save money, RPU announced an 8.5% rate increase to be effective April 4, 2006.
Well, that’s where we are and that’s how we got here.
That’s fine and dandy, but what can I do to reduce my electric bill?
Good question.
The news is full of stories about the higher cost of energy these days. Gasoline, diesel, jet fuel, natural gas, coal…if it’s a fossil fuel, the price is going up and there is no indication that prices will be coming down soon, if ever. I hate to be the bearer of bad news, but if recent trends are any indication, you better plan for energy costs to continue to rise for years to come.
The good news is that there are simple steps you can take to minimize the impact on your budget.
One easy way to save money is by using less electricity. (Thank you Captain Obvious.) Seriously though, turn off lights when you leave a room, turn off your television and computer when you’re not using them, raise your thermostat a bit during the summer, etc. A nickel here and a nickel there will add up.
Another easy step is to change standard incandescent light bulbs with compact fluorescent light bulbs (CFL). According to the ENERGY STAR website, “ENERGY STAR qualified CFLs use 66% less energy than a standard incandescent bulb and last up to 10 times longer. Replacing a 100-watt incandescent with a 32-watt CFL can save you at least $30 in energy costs over the life of the bulb.”
If you happen to be in the market for new appliances, purchasing ENERGY STAR qualified appliances is another way to save on energy costs. “ENERGY STAR qualified appliances incorporate advanced technologies that use 10-50% less energy and water than standard models. The money you save on your utility bills can more than make up for the cost of a more expensive but more efficient ENERGY STAR model,” according to the ENERGY STAR website.
You may also find special rebates available on ENERGY STAR qualified appliances, and there are also tax credits available for making good energy efficiency choices for home improvements.
If you are not sure where to start, you can sign up for an energy audit that will help you identify where improvements can be made to make your home more energy efficient. For $25 a certified energy auditor will analyze your home efficiency and will point out areas where the efficiency can be improved. You can sign up for an energy audit on the RPU website or at the RPU service center, but there at the time of this writing there is a three week waiting list.
