Electrical co-ops raising rates

By Andrea J. Cook, Journal staff | Monday, October 29, 2007

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Increasing demands on power plants, coupled with seven years of drought in the upper Great Plains is pushing up rates for electrical cooperatives.

Butte Electric Cooperative at Newell alerted its members to a looming rate increase at the   co-ops' annual meeting Oct. 27, according to general manager Ken Wetz.

After almost two decades without an increase, Custer's Black Hills Electric Cooperative boosted electricity rates about nine percent in July.

At its October annual meeting, West River Electric Association, headquartered in Wall, told members their electric bills will go up between 4 percent and 8 percent in January when the cooperative passes on rate increases coming from its power suppliers.

"For each 1,000 kilowatt hours used the increase is going to be $4.56," according to general manager Jim Pahl.

Last year, West River Electric made its first rate increase in 14 years when the cooperative's 10,000-plus members saw their bills hike an average of 8.3 percent, Pahl said. The raise was implemented to cover operations costs.

The latest increases are necessary to compensate for the escalating wholesale cost of the power the cooperatives buy,  according to cooperative managers.

Under the umbrella of Rushmore Electric Power Cooperative, eight cooperatives in north central and western South Dakota buy their power from the Western Area Power Authority and Basin Electric Power Cooperative in Bismarck, N.D.

In addition to Black Hills, Butte and West River member cooperatives are Cam Wal Electric, Selby; Cherry-Todd Electric, Mission; Lacreek Electric, Martin, Moreau-Grand, Timber Lake, and West Central Electric, Murdo.

Rushmore Electric is the wholesale distributor of power generated by WAPA's Missouri River hydro-electric dams and Basin Electric's power plants.

"We're the middle man," Vic Simmons of Rapid City, general manager of Rushmore Electric, said. "We buy from two and sell to eight."

Rushmore Electric is raising its rates 13.2 percent next year from 3.19 cents per kilowatt hour to 3.61 cents.

Rushmore Electric is a member-owner of Basin Electric along with eight other member systems representing cooperatives in Colorado, eastern South Dakota, Minnesota, Montana, Nebraska, New Mexico and North Dakota.

About 82 percent of Rushmore's power comes from Basin Electric and 18 percent from WAPA.

The wholesale price of power from both sources is climbing.

After seven years of drought, power generated by WAPA's dams has declined because there is less water flowing through the dams, Simmons said.

The hydro-electric plants are generating about 50 percent of the power they normally generate, he said.

Cooperative suppliers such as Rushmore contract with WAPA for power. When the dams fail to produce enough power, WAPA meets its contract obligations by buying power from other suppliers.

"Right now, the market price is about five cents (per kilowatt hour) and they're selling it for (approximately) two cents," Simmons said. "Basically, that doesn't work."

Over the past seven years, WAPA has spent $650 million buying power, according to Simmons.

In January, WAPA will increase its rates 26.8 percent, boosting the per kilowatt-hour cost to 2.5 cents.

Over the next 10 years, that half-cent will allow WAPA to repay loans from the federal government used to buy electricity the dams could not generate.

At the same time, WAPA's hydro-electric production has fallen demands on Basin Electric's power plants are escalating and operation costs have climbed.

"We've seen a lot of growth," Simmons said.

Across Basin Electric's membership oil exploration, coal mining, natural gas development and ethanol plants are "using all the resources we had," Simmons said.

And, individual cooperatives are also experiencing their own growth.

Butte Electric has gained about 200 new members each year as new housing developments sprout in its Northern Black Hills service area.

Growth for Black Hills Electric has averaged 5 percent for each of the past 10-15 years, Hutt said.

West River Electric, the largest of Rushmore's eight cooperatives with approximately 14,400 residential and commercial meters, budgets annually for a 3 percent to 4 percent growth rate, according to Pahl.

Utilities grow in cycles that reflect changes in the demand for power, according to Simmons.

Wholesale power costs remained relatively stable through the 1950s and 1960s when electricity all generated by inexpensive hydro-electric plants.

There was plenty of water and fewer users who were not as dependent upon electricity as we are now.

Basin Electric responded to growing popularity of electricity by building coal-fired power plants in the 1970s. Wholesale rates went up to help cover the expense of adding the power plants.

 "At the same time we had to build these resources, we had the oil embargo," Simmons said. "People in general conserved more."

The result was a surplus of power that allowed the cooperatives to keep rates stable and even absorb some increases in costs.

Most local cooperatives have not had a rate increase since the mid-1990s, according to Simmons.

But, Basin Electric's power resources are close to capacity, which means the company needs more power plants.

"We're in a building cycle again," Simmons said, which means wholesale costs are going to go up.

At the same time, costs of producing power and delivering power have also increased. Transportation costs on coal alone have doubled in the past year, Simmons said.

And, like WAPA, to meet the needs of its customers until it can build more power plants, Basin Electric will have to go to the market to buy power.

"There isn't a lot available from certain sources so the price has gotten high, which will affect us until we get some resources built," Simmons said.

Cooperative managers said their members have reacted well to the pending rate changes.

"It was expected," Hutt said.

Cooperatives will likely pass the rate increase along as a kilowatt hour increase or through an add-on power cost adjustment that reflects their increased cost of buying power.

The power cost adjustment also allows for more flexible billing because it can move up or down, according to cooperative managers.

Simmons said the rate increase Rushmore Electric is making next year is just the beginning.

"We'll see some pretty significant increases over the next while," he said. "We'll go from a little over three cents to just under five cents."