Brainerd Public Utilities (BPU) customers will likely pay more on their bills next year.
At a Brainerd Public Utilities (BPU) Commission meeting Tuesday, the group unanimously approved moving forward with an overall 2.5 percent rate increase in 2015.
The increase isn't official until the commission hears more details and votes on specific class increases at its October meeting.
Just how the likely increase will affect each class of customer - from residential to big business - is still up in the air.
Each class will likely see a 0.5 percent to 4.5 percent rate increase, said Todd Wicklund, BPU finance director.
ADVERTISEMENT
If approved, it will take effect Jan. 1, 2015.
At Tuesday's meeting, Wicklund detailed a report by Utility Financial Solutions (UFS), which did a long-term financial projection to determine BPU's revenue needs for 2015.
The projections are for the 2015-19 period, and include adjustments for: power costs from Minnesota Power, the purchase of the hydrodam, and capital improvements over the next five years.
The 2.5 percent increase for 2015 is needed to meet a minimum debt service ratio required by current bond covenants, the study said.
The UFS study also showed that some customer classes are paying above or below the cost of service. That's why the increase won't be the same for every class.
"Everyone will get some adjustment, but there are still more pieces before the exact rates are ready," Wicklund said.
"How it will shake out for each individual is still down the road," he said.
Officials from UFS will speak to the BPU Commission at its October meeting to go further into detail on what a rate adjustment would look like for each class of customer.
ADVERTISEMENT
The BPU Commission can either accept the new rates or tweak them.
They will likely vote on the increase at that meeting, making the rate increase official if approved, Wicklund said.
The driving force behind the rate increase is the raising rates from Minnesota Power to the city, Wicklund said.
For the last eight years, the average rate increase from Minnesota Power has been 8 percent. In June, BPU learned the rate increase for the current fiscal year is 8.7 percent.
That's an extra $1.1 million in power costs this year, Wicklund said.
For the last several years, BPU hasn't passed on the full impact of Minnesota Power's increases to its customers, Wicklund said. Instead, they took money out of cash reserves to ease the blow to residents.
But with cash reserves running low, that's not always possible.
"We got to the point where we don't have more reserves to use for rate subsidies," Wicklund said. "This is the first step in replenishing our reserves."
ADVERTISEMENT
The purchase of the hydrodam will start to level raising customer rates in 2016, Wicklund said.
Since the hydrodam was just purchased this summer, the effects of saving on energy costs won't be felt until next year, which will reflect on the 2016 rates, Wicklund said.
"Next year at this time, we hope to see costs down from Minnesota Power," he said.
Included in UFS's recommendation is also a 1.8 percent rate increase for each of the following years through 2019, but that will be reviewed each year by the BPU Commission and voted on separately, depending on how the financial situation is for BPU, Wicklund said.
