TRAVERSE CITY — Electric rates will rise next month for Traverse City Light & Power customers after utility board members agreed to lift a two-year-old rate cap.
The cap saved ratepayers more than $5 million since it was implemented in June 2011. Lifting the cap will cost the average residential customer about 11 percent more beginning Oct. 1 in a move expected to generate about $1.3 million in revenue for the city-owned utility by the end June 2014.
City commissioner and utility board member Barbara Budros said this week the extra cost to customers should not be considered a rate increase.
“I believe it’s the end of a gift from Light & Power we can no longer provide,” Budros said.
The cap was on a fluctuating charge known as power cost recovery, and intended to reflect the ever-rising cost of buying power. The utility’s base rate, plus the capped power cost recovery rate, allowed TCL&P to charge residential customers less than 6 cents per kilowatt hour. The average cost to purchase the power in 2013 was almost 8 cents, said Tim Arends, TCL&P executive director.
“At some point you have to charge what it costs,” Arends said.
The utility is expected to run an operating deficit almost $1 million higher this year because of the cap and would completely exhaust its $ $2.5 million capital improvement fund by 2015 if the cap was left in place.
Another rate hike is “absolutely” expected in 2014 following a rate study and would be a much larger jump if the cap isn’t lifted now, Arends told board members.
Board members discussed phasing in the increase because there was little notice to customers, but ultimately decided they already waited too long.
“The worst outcome is we are going to surprise somebody, but the outcome will be worse if we wait longer,” said John Taylor, a utility board member.