UPPCO seeks rate hike

MARQUETTE – An electric rate increase being sought by the Upper Peninsula Power Co. would fund necessary infrastructure upgrades and safety improvements, according to company officials.

UPPCO filed a request in June with the Michigan Public Service Commission seeking an 8.1 percent rate increase, roughly one-third of which will go toward infrastructure improvement projects at the utility’s hydroelectric operations.

“Our first objective is safety – public safety, employee safety,” said Keith Moyle, UPPCO’s vice president and general manager. “Hydro is a big part of that and it costs money.”

As federal safety regulations have become more stringent, Moyle said company officials have been forced to make tough decisions. UPPCO did an economic analysis of its holdings, deciding to sell a pair of dams rather than invest in them.

Still, the utility, which services about 52,000 customers throughout the Upper Peninsula, has invested an estimated $50 million in hydro in the last decade, he said.

In at least one way, customers have likely noticed. In recent years, UPPCO has made frequent trips to the MPSC seeking rate increases – the company sought a rate hikes in 2002, 2006, 2009, 2010 and 2011.

In each of the four most recent cases, the MPSC approved modified, reduced rate increases for UPPCO, in amounts ranging from 53 percent to 58 percent of the utility’s original requests.

Still, the end result for UPPCO’s “average consumer” – a term the company uses to describe a residential customer using 500 kilowatt-hours of electricity per month – is clear.

From 2006 to 2011, the average customer’s monthly bill rose $27.70. The 8.1 percent hike UPPCO is currently seeking would increase that monthly bill by another $10.15, according to the company.

But those customer costs aren’t simply for construction, according to Moyle. In addition to the front-end costs, such work has resulted in increased property tax bills for the company. Roughly 5 percent of a customer’s bill can be attributed to property taxes, he said.

While UPPCO officials would make no promises, they said the days of the company seeking large annual rate increases may be nearing a close.

Work on a handful of dams, including the McClure Dam on the Dead River, has wrapped up recently or will conclude soon. That, combined with beneficially low prices for natural gas, could mean that customer rates will stabilize to some degree.

Spokesman Kerry Spees said that it’s safe to say it would be “favorable for customers” if market prices for power stayed low.

“Most of the improvements to the infrastructure, for the dams anyway, will be completed,” he said. “It would seem that it would be reasonable to say that the impacts wouldn’t be as great in the future.”

This year’s suggested rate increase – if approved by the MPSC, UPPCO’s new rates will take effect Jan. 1 – also factors in general reliability improvements to the electric system and takes into account general inflation. About 10 percent of the requested increase would go toward tree trimming in an attempt to reduce weather-related outages.

According to company officials, the increase is in addition to a number of cost-saving measures implemented in recent years. Moyle said the company has benefited from health care changes, alterations to building systems and gasoline savings through better fleet management. Additionally, UPPCO staff has been reduced about 10 percent since 2009, he said.

Moyle said UPPCO rates are already higher than some regional competitors, largely due to the rural nature of the system. As the number of customers per mile of line decreases, the utility’s basic infrastructure costs per customer increase.

Statewide, utilities are moving toward rate structures in which different classes of customers pay rates reflective of the cost required to service them. This has resulted in residential rates climbing much more rapidly than commercial or industrial rates, according to Moyle.

Depending on the rate class, the impact of UPPCO’s requested increase will range from 5 percent to 9 percent, he said.

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