By BRIAN McGILLIVARY email@example.com
Traverse City Record-Eagle
---- — TRAVERSE CITY — Traverse City Light & Power officials will consider lifting a rate cap that could spike residential electric bills an average of 11 percent.
Staffers with the city utility recommended elimination of a two-year old cap on what’s known as a power recovery charge that fluctuates, based on what TCL&P pays to purchase electrical power.
The cap was instituted in mid-2011 and has saved ratepayers — and cost the utility — more than $5 million.
“We did this as a feel-good thing to give something back to the ratepayers ... but we can’t do it forever,” said Jim Carruthers, a city commissioner and utility board member. “Energy costs are going up, and while we are doing our best to keep costs down, it’s a challenge.”
The utility board members will consider implementing the increases beginning Oct. 1 when they meet Tuesday at 5:15 p.m. in the Governmental Center.
Utility officials rolled up a hefty fund balance over the years and decided to draw on that during the recession to avoid passing on higher energy costs. But to improve system reliability, the utility board approved two new substations and other capital improvements that will drop the fund balance from $19.1 million in 2012 to $2.5 million in 2014.
“Our residential rates are the second-lowest in the state and with no cap in place we’ll still be the sixth-lowest,” said Tim Arends, TCL&P executive director..
The utility board hasn’t increased the base rate since 2006, Arends said. The rate is designed to cover the cost of purchasing power, plus the cost of distributing it to 11,000 customers.
The power cost recovery charge is designed to fluctuate with the cost to purchase fuel such as coal or natural gas used to generate power. Data compiled by utility staff shows that since January 2012 the cost of power ranged from less than a penny to almost 8 cents more per kilowatt hour than what TCL&P charges customers in the base rate.
The cap is about a half-penny for residential customers per kilowatt hour and a full penny for commercial customers. Those pennies can add up.
Arends estimates eliminating the cap will boost residential electrical bills on average about $6 a month. Based on fluctuating fuel costs the extra charges could range as high as $12 more a month or as low as $2 for the average residential customer. Commercial customers can expect rate increases ranging from $15 to $112 more a month.
Arends said the utility will hire a company this fall to study their cost of delivering service and study rates. Board members will use those studies as they begin discussions at the start of 2014 about changes to the base rate.
Utility officials said they don’t expect those rates to fall.