Electric rate request high but not unprecedented

By Barbara Soderlin Journal staff | Monday, October 05, 2009

Black Hills Power's proposed rate increase would make the utility the state's most costly among investor-owned utilities for residential consumers under sample figures provided by the South Dakota Public Utility Commission.

But officials cautioned against comparing one utility to another in a given year because, over time, all utilities increase rates to meet demand and replace infrastructure.

The way utilities raise rates -- in increases that come every several years, rather than gradual amounts every year -- is called "lumpiness" and means that in any given year, one utility will be the most costly but that utilities essentially take turns having the highest rates over time.

"We work hard to avoid the frequency and amount of our rate increases, and each company's system and infrastructure and operating costs are different," said Chuck Loomis, vice president of operations for Black Hills Power.

Public Utilities Commissioner Dusty Johnson and his staff will use every available resource to study Black Hills Power's recent request to raise electric rates 26.6 percent starting in the spring of 2010, Johnson said.

"Any dollar that a family's got to pay for electricity is a dollar they can't spend on something else," he said. "My job is to make sure they're not paying any more than they should be."

Although Johnson is concerned about the impact of such a big increase, he said it isn't unprecedented in the state's history.

In the 1980s, some South Dakota utilities raised rates 30 percent and higher -- several more than 50 percent -- as they built their infrastructure base.

Since then, the state and nation have seen about 20 years of rate stability, Johnson said, as utilities and their customers enjoyed the fruits of those infrastructure investments.

But in the next five years, Johnson said, the state and nation may again see large rate increases as utilities build new wind facilities, power plants and transmission lines and invest in energy efficiency.

"Now we are reaching a new capital expenditure cycle where we are investing in infrastructure," Johnson said.

That cycle is the reason utility rates tend to grow in big steps instead of small annual increases. A utility can't bill for infrastructure much before it has been built.

Just as it's hard to compare among the investor-owned utilities, comparisons with electrical co-ops are unfair, Johnson said.

He hears people say co-ops are cheaper because they are nonprofit agencies and because bigger companies are "sticking it" to their customers, but also hears that co-ops are more expensive, so they must be mismanaged.

Neither is true, he said. Issues including customer base, geography, type of power supply and type of transmission system are often beyond the control of the utility provider and have a large impact on the price of electricity, Johnson said.

Rather than comparing Black Hills Power with other companies, the commission's job will be to study whether the rate request is merited based on the service area's needs, whether the utility is properly balancing service with price, and making wise decisions about investments in infrastructure.

Black Hills Power requested the increase in part because of costs associated with the construction of the new Wygen III power plant in Gillette, Wyo. Only 52 percent of the cost of the plant -- $128.5 million -- will be borne by Black Hills Power customers, as Montana Dakota Utilities bought 25 percent of the project and the City of Gillette buys power from the plant.

Higher rates also will cover maintenance and operations costs related to system reliability and customer growth, according to BHP filings with the commission.

The Public Utilities Commission has six months to study Black Hills Power's request, using its own staff as well as outside consultants.

"Black Hills Power doesn't get whatever it wants, "Johnson said. "Ultimately, the decision is going to have to be made by the commission based on the facts."

Contact Barbara Soderlin at 394-8417 or e-mail Barbara.soderlin@rapidcityjournal.com

This chart shows the monthly October electric bill for a residential customer using 750 KwH of power under current rates for South Dakota's six investor-owned utilities and two of its several cooperative electric providers.

Officials caution against comparing the rates, since each utility provider structures its rates differently, increases rates at different times, obtains power from a different resource mix and serves a different type of customer base.

Utility    Monthly bill Cost per KwH

Black Hills Power  $73.52  9.8 cents

Northern States Power Co. $57.25  7.6 cents

Montana-Dakota Utilities $75.62  10.1 cents

MidAmerican Energy  $60.70  8.1 cents

Otter Tail Power Co.   $70.78  9.4 cents

NorthWestern Energy  $71.66  9.5 cents

West River Electric  $87.85  11.7 cents

Black Hills Electric  $74.50  9.9 cents

Note: In June, the South Dakota average price for electricity was 9.2 cents per KwH; the national average was 11.9 cents.