It's the latest of a string of wholesale rate hikes by the Maple Grove-based electric power producer that supplies 28 local power cooperatives in Minnesota.
For the seventh straight year, Great River Energy, Minnesota's second-largest electricity producer, plans to raise wholesale rates to local power cooperatives serving 645,000 customers.
The board of directors of the Maple Grove-based cooperative voted Thursday to boost 2013 wholesale rates by 4 percent on average. The increase will be passed on to 28 local co-ops, which largely pass it on to customers.
Although the effect will vary at each utility, co-op officials said it generally will work out to a $2 to $3 per month increase for a typical residential customer. That's slightly more than the past two years, but down from the dramatic price jumps late in the last decade.
The affected local cooperatives serve a vast region in Minnesota from the Arrowhead to the Iowa border and include Connexus Energy, the largest local co-op, covering the Twin Cities' northern ring, and Dakota Electric Association, the second largest, in Dakota County.
Larry Schmid, chief financial officer for Great River Energy, said the main factor behind the 2013 increase is the estimated $30 million in costs associated with maintenance at two of the cooperative's coal-fired power plants in North Dakota.
But the drop in power demand, which was cited by the state's largest utility, Xcel Energy Inc., in its request last week for 2013 rate hike, also is affecting Great River Energy, Schmid and other co-op officials said.
"In our business, if you sell a couple percent less, you still have the same number of line workers, you still have the same power plants, the same people running the power plants, you have this enormous capital investment in transmission lines and poles and wires and transformers. ... All of those expenses don't change," said Mike Bash, chief financial officer of Connexus Energy, a cooperative that serves 126,000 customers from Anoka County to Washington County.
Bash said that power purchased from Great River Energy makes up about 75 percent of Connexus customers' bills. He said that the utility has been able to moderate the pass-through increases in the past but that it has gotten more difficult after the string of rate increases.
At Dakota Electric Association, which serves 102,000 customers, the Great River Energy price increase will show up as an adjustment on customers bills starting in January, said Doug Larson, vice president of regulatory services. The exact pass-through increase for each co-op will be decided by each utility's board, which is elected by the member owners.
Rate increases since 2006
A string of rate increases has boosted Great River's wholesale rates 52 percent from 2006 to 2012.
The biggest factor, Schmid said, is that the cooperative built three power plants in the 2000s at a time when power demand was growing, Schmid said. That includes the mothballed coal-burning plant in Spiritwood, N.D., completed last year.
Schmid said 2013 power sales are forecast to be less than 2007's.
"We built them assuming we would have more kilowatt-hour sales," Schmid said, but the cooperative still must pay about $50 million a year on debt service.
Yet another big factor, Schmid said, is that wind power, which the cooperative purchases under contract, adds an extra $40 million in costs.
Other rate-boosting factors in recent years, Schmid added, have been the cooperative's nearly $300 million investment in a coal-drying technology, which boosts efficiency and reduces pollution at generating stations, and the utility's transmission line investments.
Coal also is costing more at the co-op's large coal-burning power plant near a lignite mine near Underwood, Minn. After decades of mining coal closest to the plant, "what is happening is that the coal is getting deeper in the ground and farther from the plant, so to mine it is more expensive," Schmid said.
Great River's board, which is made up of representatives of the 28 cooperatives that own it, is hoping to stabilize rate increases at 4 percent a year for 2014 and 2015, he said.
Unlike investor-owned utilities such as Minneapolis-based Xcel Energy, the cooperative does not need regulatory approval to raise rates.
Xcel says it is under similar cost pressures. Last week, it asked the state Public Utilities Commission to approve a 10.7 percent rate hike for its 1.2 million Minnesota customers.
David Shaffer 612-673-7090 Twitter: @ShafferStrib