U.P. power struggle

MARQUETTE – Though Upper Peninsula residents have been waiting for the weather to finally begin warming, climbing summer temperatures often mean people turn to fans and air conditioners and watch their electric bills rise.

In Marquette County, those bills could vary greatly depending on where a person lives.

For example, a city resident customer of the Marquette Board of Light and Power – which serves the city of Marquette and parts of nine surrounding townships – using 500 kilowatt hours of electricity in a month will pay $42.70. An Upper Peninsula Power Co. customer – UPPCO serves 10 U.P. counties – using that same amount of electricity would pay $104.35, according to data from the Michigan Public Service Commission.

Rates for other regional electric providers, including We Energies and the Alger Delta Cooperative Electric Association, are in between, but fall closer to the UPPCO rate.

There are a number of reasons the BLP rates are so much lower, according to BLP Executive Director Paul Kitti. He said the company is a city-owned non-profit that generates 85 percent to 90 percent of its daily power from its Shiras Steam Plant and a trio of hydroelectric generating units.

“Being a self-generator, we can control the costs a lot better,” Kitti said.

Power prices vary due to a number of factors, but fluctuate largely based on supply and demand. If the need for power is very high – during a large heat wave, for instance – or if the supply is decreased – perhaps due to major generating stations being taken offline for some reason – the cost in the market will rise drastically.

While self-generated power isn’t always cheaper than power bought off the grid, the generation capability does allow the BLP to much better predict future prices and to protect against cost fluctuations.

Rate volatility is an issue for all regional power suppliers, many of which don’t have generating capacity of their own.

“We’re what’s called a distribution cooperative,” said Tom Harrell, the general manager of Alger Delta. “We take power from the transmission system and then we just take it to the consumers’ homes, camps, farms.”

He added rate volatility “can be really difficult to deal with, especially on the wholesale side.”

To combat the volatility to an extent, Alger Delta has chosen to enter into long-term power supply contracts with Wisconsin’s WPPI Energy Inc. That organization aggregates the power supply requirements of a number of small power suppliers into a single portfolio, leveraging economies of scale to achieve better rates.

Harrell said Alger Delta also decided in 2010 to change its pricing structure. The company lowered its main energy rate, but increased its residential service charge from $12 per month to $25.

According to the Alger Delta website, the service charge helps to cover the fixed costs of supplying electricity, including “poles, wires, crossarms, transformers, hardware, trucks, vehicles, insurance, interest, and taxes.”

Though it was questioned by customers, Harrell said the price shift is “more reflective of how the costs are actually incurred.” He said most people on the system use a relatively small amount of energy, but are often rural, meaning the company has a number of associated fixed costs.

“When we took it up to $25 people were unhappy, because that’s like a $13 per month increase,” Harrell said. “But we told them, ‘Look. If you’re an average user on our system, your bill isn’t going to go up by $13, because the energy rate went down.’ “

Other suppliers charge flat rate fees, as well. UPPCO charges $11 per month, while We Energies charges a daily rate that equates to about $9.79 per month. The BLP charges a $5.50 to city residents and $9.50 to rural customers.

Harrell said customers often point out the drastic price difference between Alger Delta and the BLP, which he attributes largely to the BLP’s generating capability.

“BLP’s got a great rate and one of the reasons is that they’ve got a generation asset there,” he said. “For us, we’ve never had those kind of assets. There’s no way we could have invested in or afforded to build a power plant.”

We Energies – the Wisconsin-based company that owns the Presque Isle Power Plant and provides electricity to 10 U.P. counties, including parts of Marquette, has also faced generation-based limitations.

With somewhat limited generating capabilities, the company was often forced to buy power from the grid at market prices, according to We Energies spokesman Brian Manthey.

“To meet the demand, we had to buy power at the worst possible times, in terms of the cost,” he said.

A few years ago, the company kicked off a effort to increase its generation capacity. We Energies hiked its capacity by 50 percent, according to Manthey. The front-end costs associated with a number of major construction projects have been factored into customer bills, where they will remain.

“They remain in rates, but those facilities are available now for years and decades to come,” Manthey said. “That’s where you’ll see that (rate increase) over the last few years. We have bolstered the system. Certainly prior to that, there were some severe reliability concerns.”

Manthey said municipal utilities with generating capabilities – like the local BLP – are in a good position, at least in the short term.

“As long as they don’t have to replace that generation,” he said. “Obviously, if they have to replace that generation – if that lifecycle comes to an end or if they have to make a major investment – they have the same situation. They’ll have to cover those costs in some manner.”

Kitti said the BLP, which serves 16,500 customers, has refrained from increasing rates for the last two years due a struggling economy.

The BLP, however, will likely explore rate changes in the future.

“We’re in a cost-of-service study right now,” Kitti said. “We’re looking at rates, and we’ll be coming out with something now that may be some rate adjustments that will take place over the next three years.

“It’s adjustments that reflect our cost of doing business, the cost of equipment, the cost of the system.”

But Kitti said he is sensitive to the difference in the rates provided by the BLP and other local power providers and to what that means to consumers and to the city.

“The difference between our rates and their rates – you can take your son or daughter downtown and buy them a new pair of shoes. Every month,” he said. “Or you and your wife can go out to dinner you can go out and enjoy those extra things and you’re putting more money back in the economy.”

Kyle Whitney can be reached at 906-228-2500, ext. 250. His email address is kwhitney@miningjournal.net