LES to propose 9 percent rate jump

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BY ALGIS J. LAUKAITIS / Lincoln Journal Star

Lincoln Electric System users could pay more for power beginning in August, but first the utility must convince the Lincoln City Council it needs a 9 percent rate hike. And that could be a tough sell.

City Council Chairman Terry Werner said Tuesday he was "shocked" by the proposed increase, which would add about $4 to a typical residential customer's monthly electric bill. The council approved a 3 percent increase last year and anticipated another 3 percent request this year from LES. Rate hikes: A history

"People are stretched these days," Werner said.

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(LJS File)

(LJS File)

Councilwoman Annette McRoy also was caught off guard by the planned request.

"It's a dramatic increase. Historically, I don't think we've approved any rate increases at that level," she said. "It's almost double digits."

LES Administrator Terry Bundy plans to ask his board to approve a systemwide rate increase of 9 percent. The hike would cover rising costs of power production and maintain the utility's "sound financial profile."

The utility's AA bond rating allows it to obtain loans at low interest rates, Bundy said. And LES plans to borrow $50 million to $100 million in the next two years to pay for its share of a coal plant under construction near Council Bluffs, Iowa.

LES needs the rate increase to maintain its high bond rating, he said.

Bundy plans to work closely with City Council members to explain the situation and help convince them the increase is "necessary and appropriate."

LES customers will receive information on the proposed increase with their May bills.

Not all users would pay 9 percent more. Increases could vary from 6 percent to 12 percent depending on the customer's rate class, Bundy said.

A 9 percent systemwide increase would generate about $15.2 million annually, LES spokesman Russ Reno said.

The increase must be approved by the LES Administrative Board and the City Council. The utility plans to hold a public hearing in June. The rate increase would take effect Aug. 1.

Bundy said the hike is needed to cover the rising costs of generating electricity. The utility is paying about $3.6 million more for natural gas than it anticipated, he said, and coal costs also have increased.

Bundy blamed a big part of the problem on the Burlington Northern Santa Fe Railway. The utility was caught off guard last year when the railroad began charging LES and its partners twice as much to haul coal to Wyoming's Laramie River Station. LES owns about 10.5 percent of the power plant.

LES and others are appealing the rates charged by the railroad to the federal Surface Transportation Board, but it could be two or three years before LES gets any relief, Bundy said.

"Fuel and freight have added $3.7 million over what we projected last year," Bundy said.

The continuing drought is also driving up the cost of producing electricity, Bundy said.

LES and its partners in Laramie River Station were forced to buy water rights from irrigators to provide half of the cooling water for the coal-fired plant, he said. Also, the Nebraska Public Power District has had to drill dozens of wells to ensure enough water to cool its Gerald Gentleman Station near Sutherland. The cost of federal hydropower has increased due to the drought.

Based on a recent financial forecast, LES management initially believed the utility would need to ask for a 12 percent systemwide increase, Bundy said.

But managers decided to ask the LES board to use $5 million of the $12 million in the utility's rate stabilization fund to lower the request to  9 percent, he said.

The fund, established in 1998, was designed to cover a number of contingencies, including storm damage, paying for high-cost replacement power and the loss of a power plant.

Reach Algis J. Laukaitis at 473-7243 or alaukaitis@journalstar.com.

What's proposed: Lincoln Electric System wants to raise its rates by 9 percent systemwide.

What it means: Not everybody would pay 9 percent more for electricity. A typical residential customer would pay about $4 more per month.

What's next: The utility's board and the City Council must approve the increase; it would take effect Aug. 1.