By Mark Fritsch, General Manager
At November’s Commission meeting the 2013 budget and rates were approved. The good news is that we will keep the gas and water rates the same as in 2012, and will only increase electric rates by 1%. This is an increase of $.75 per month for the average residential customer.
The total expense budget of $53.9 million is $4 million less than last year. This significant decrease is due to lower gas revenues and expenses based on historical trends, not filling open positions unless necessary, and the fact that in 2012 we spent $1.7 million repairing damage that occurred during the 2010 flood that we were being reimbursed for by FEMA.
Although a 1% increase is relatively small, we felt it was important to implement the increase to prevent the need to implement much larger increases in future years. The primary drivers for the electric rate increase are increased medical costs and the uncertainty surrounding the return to service of Sherco 3.
Sherco 3 is the largest turbine at the Sherburne County Generating Plant located near Becker, MN and it is jointly owned by Xcel Energy and SMMPA. Eighty-five percent of the electricity we receive from SMMPA is generated by this unit. Last year at this time Sherco 3 experienced a significant failure of the steam turbine and generator. Repairs have been on-going for over a year, and it is expected that the unit will return to service early next year. Fortunately, insurance will pay the $150 million estimated costs associated with the repairs. Replacement power has been at all-time lows, so we have been able to use SMMPA cash reserves to cover those costs at this time. However, there remains a chance that Sherco 3 will not come back on line early in 2013 as planned and that cost of replacement power could increase.
A $14 million power plant re-purposing project was also approved at November’s Commission meeting. FEMA approved $4.7 million towards this project so our cost will be a little over $9 million. This project will complete our recovery from the 2010 flood while preserving our iconic power plant building. The flood damaged the power generating units in the plant beyond repair, destroyed our meter shop and flooded our vehicle storage facility.
The Commission approved the project when it was shown that it was lower in cost than a new facility, met all our functional needs and can be funded without raising rates. Operational-wise it would be more efficient to build a new facility, but that would mean abandoning the power plant, locating the new facility outside the heart of the city, and having to raise rates to finance the additional costs.
One surprising outcome from the schematic design phase of the project was the realization that it makes the most sense to remove the south portion of the building. This is where we currently have our customer service and business offices. All of our office requirements can be met by the space within the power plant building. The cost of flood-proofing the basement and maintaining this un-needed space would be greater than the cost of tearing it down. Additionally, removing this portion provides space for additional parking which is badly needed.
Our next steps are to work on detailed design and cost estimates before moving forward with construction. Currently, removal of the boilers, generation equipment and hazardous materials will be completed by spring of 2013. If everything works out as planned, we expect the re-purposing of the power plant to be completed by summer of 2014. I am pleased that we have been able to find a cost-effective solution which preserves our historic building and meets our operational needs. I will continue to keep you informed as we progress.