Lake Country Power Cooperative - with more than 9,100 customers in Carlton County - says it needs to raise rates soon or face a huge financial deficit, but first the cooperative is asking members exactly how and where they'd prefer to see those rates increased.
The co-op will hold a series of informational meeting over the next three weeks in advance of mailing out a ballot for members to pick among three rate increase options in an advisory referendum. The vote will be tallied at the co-op's annual meeting June 9 in Cromwell, and the board of directors is expected to make its decision later that month.
Co-op officials note there are high and increasing costs just to maintain the system that delivers electricity, even to seasonal cabins, deer shacks and little-used second homes. Not only is the cost of electricity the co-op buys going up, but the cost to keep it running is rising.
"We need to make up $1.5 million (for 2012) however we decide to do it,'' said Jack Huhta of Biwabik, president of the co-op's board of directors. "What we're trying to do this time is a rate restructuring, to really change how we account for the cost of delivering electricity."
The co-op serves areas generally outside cities, and its customers are often far apart and far off the main lines. Lake Country Power serves an average of six consumers per mile of line compared to investor-owned utilities (such Minnesota Power) which average 38 customers per mile and city-owned public utilities (such Hibbing and Virginia) which average 48 customers per mile of line.
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At the heart of the issue is how Lake Country Power's rate increase should be determined. One school of thought puts more of the increase based on actual electricity used, and that's generally what's been done in the past. But another option increases the fixed cost every customer must pay each month whether they use electricity or not.
Last year the co-op sent out 55,000 monthly bills that showed zero electricity used. But the co-op still has to keep electricity flowing to those properties at all times even if the lights aren't on.
The co-op's annual cost to maintain each mile of line is $4,000, and, with nearly 8,200 miles of lines, that breaks down to about $56 per month divided evenly among all customers. The co-op currently is charging less than half that cost, only $22.50 per month, as a fixed charge. The rest is billed based on electricity used.
"That puts a huge burden on the people who are using electricity every month and having to make up the difference," said Mike Birkeland, a Lake Country Power spokesman.
The effort, Birkeland said, is to make the system more fair.
Members who vote in the advisory ballot will see three choices. Option One increases the $22.50 fixed monthly fee to $42 but brings the cost of electricity down. That's the option the board is recommending, Huhta said.
"Our average customer uses between 750 and 800 kilowatt hours each month, and under the first option they would actually see no change in their bill at all," Huhta said.
Property owners who use little or no electricity during many months would see monthly bills go up.
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Option Two calls for a fixed fee of $32 per month with a slight decrease in electricity rates. Option 3 raises the fixed fee to only $27.50 and also would see electricity rates increase.
Whenever raising the fixed rate has been raised in the past the issue has pitted seasonal property owners against year-round residents. Past boards have been reluctant to take on the politics of changing the rate structure, Huhta said.
"We've been kicking it down the road. But now we have to make a change," he said. "Either way, costs are going up. But as we've explained it to people, even at meetings in the Twin Cities (with seasonal property owners) people who take the time to listen have been pretty supportive."
