By taking an innovative approach to budgeting, Great River Energy plans to stabilize its wholesale power rates in the years ahead. Great River Energy’s board of directors approved a plan that establishes an average wholesale rate increase of 4 percent for 2013 and projects similar increases for each of the following two years.
“We have always worked with our member cooperatives to set the lowest wholesale rates possible,” said Great River Energy Chief Financial Officer Larry Schmid. “The intent of this plan is to also provide some certainty.”
The rate plan was approved by the Great River Energy board of directors during its November meeting. Wholesale rates can account for 60-75 percent of the expenses for Great River Energy’s distribution cooperatives, so rate decisions can have lasting effects.
In its 2013 budget, Great River Energy projects a revenue requirement of $916.3 million, up from a budget of $902.2 million for 2012. Although cost increases are relatively modest, the cooperative has experienced several years of flat or declining sales, which has put upward pressure on wholesale rates.
2013 cost increases are largely due to planned maintenance that will help ensure the reliability of Great River Energy’s Coal Creek Station and Stanton Station power plants.
Scheduled power plant maintenance outages are among Great River Energy’s largest expenses. Power plants require regular maintenance in order to ensure efficient, reliable operation. In addition, Great River Energy receives no revenue from electricity sales and must also purchase power from the electricity market while the power plants are being maintained.
“We schedule our maintenance so that it has the least possible impact to our members,” said Schmid. “Typically, that’s during the spring or fall months when electric demand is low and the market price of replacement power is relatively inexpensive.”
Utilities can incur significant costs when power plants are down for maintenance, but the latest budget plan introduces a method to spread out the costs over the period that the outage covers, typically three years, to minimize the rate impact.
The costs to maintain and operate Great River Energy’s transmission system also are increasing. Great River Energy is making significant investments in its transmission system in order to remain compliant with reliability and security standards established by the North American Electric Reliability Corporation.
Great River Energy found several other ways to reduce costs for 2013. For example, the company lowered its margin target for the year ahead, which was possible because Great River Energy is ahead of schedule on its equity goal. Employees also discovered dozens of efficiencies that will benefit Great River Energy in 2013 and beyond. Through a company business improvement program, Great River Energy employees contributed more than $6 million to the company’s bottom line in 2012 by implementing more cost-effective practices.
“Our member cooperatives asked for rate relief, and employees across the company found innovative ways to improve our operations and practices,” said Schmid.