Rate hike planned at Lake Region Electric
Area News | Published on January 11, 2023 at 3:29pm CST | Author: Louis Hoglund0
By Louis Hoglund
A rate increase in 2023, with a second hike possible in five years, is expected for more than 25,000 Lake Region Electric Cooperative members.
The monthly “facility charge” will increase from $24 to $39. Essentially a base fee to each Lake Region connection, the revenue is earmarked in large part for capital costs like equipment, transmission infrastructure, and technology.
Lake Region’s rates have been stable for a decade, but factors ranging from inflation, to increased wholesale natural gas costs, to global uncertainty have led to the LREC board’s decision.
Russia’s invasion of Ukraine is also an indirect factor locally, in terms of the global scheme of energy production, cost, and delivery.
Separate from the base monthly facility charge is the charge for electricity consumption. Smaller users, of 500 kilowatts per hour (kWh), will see a slight increase. But for larger users, of 1,000 kWh or more, the usage rate will decrease—which will take some sting out of the rate hikes for small business, commercial-industrial users, and farm operators.
Rate increases were presented at three district meetings, including the Jan. 5 session held at St. Mary’s Catholic Church near Pelican Lake. About 60 attended the church session.
Outlining the rate increase and annual report to members was Tim Thompson, chef executive officer at Lake Region.
The average increase per member was estimated at 5 percent, said Thompson. The rate hike will be in effect Sept. 1, 2023.
Dual Fuel consumers will see a $14 monthly increase, from November to March.
Rising natural gas prices a factor
One of the biggest drivers of energy costs is the escalating cost of natural gas, said Thompson. Cheap natural gas, only $2.39 gallon in 2020, has kept a lid on energy costs for consumers. Today, the price is $5.66 per gallon—a 100 percent increase, noted Thompson.
Natural gas is expected to remain volatile.
Other rising energy cost factors outlined by Thompson:
- Wholesale prices from Great River Energy are expected to rise 5 percent.
- Equipment costs are climbing. For example, linemen bucket trucks are now topping $200,000.
- The cost of transformers, at $1,109 in 2020, is up 94 percent, to $2,148 each.
- Lake Region has invested $22 million in substation upgrades over the past four years, a cost that will be recovered in part by the rate hike.
- The Lake Eunice substation alone underwent $3 million in improvements in 2021, improving service to more than 2,100 members—and to date, outages went from four in previous years to zero, said Thompson.
- The cost of overhead and underground wires range from $59,000 to $106,000 per mile.
Wind-solar energy playing role, but still has limits
Alternative energy remains a goal, and Lake Region is moving toward its objective of 10 percent renewable.
But solar and wind sources remain “intermittent,” said Thompson
“We still need a base load to back up (renewable energy sources),” he added. Further, battery technology and energy storage need to improve with the advancement of alternative energy.
Coal remains a stable source, and comparatively low cost—but federal and state policymakers are continuing the path toward alternative energy.
“We’re good with renewable energy, but it needs to be done strategically,” said Thompson. “We have to be careful about how fast we move to alternative energy.”
Reliability has been a cornerstone for Lake Region
There is upbeat news for Lake Region members, as the cooperative enters its 86th year.
“Reliability is king,” said Thompson. Minimizing power outrages has been a high priority, and there has been a 57 percent reduction in outages since 2004.
Based on a survey of nearly 1,300 members, the satisfaction rate is 90 percent, noted Thompson.
With a territory of about 3,200 square miles, stretching from Barnesville to New York Mills, and covering much of the Otter Tail-Becker rural and lake areas, Lake Region covers a lot of ground. And on that ground, trees are everywhere. Trees are the cause of 23 percent of power outages, and Lake Region has launched a satellite-based technology to monitor trouble spots for tree removal.
Rural electrification has always been challenged by a lack of density. With as few as five connections per mile, the revenue per mile formula drops to about $195. Comparatively, Xcel energy serves cities and more densely developed areas. At 46 connections per mile, the revenues are $368 per mile.
Private utilities, serving developed areas, can hold the base fee to as little as $8 a month. When Lake Region’s base monthly charge, or “facility charge,” rises to $39—it will still be among the lower priced for rural utilities.
Tree removal alone has cost as much as $2 million a year. For this reason, Lake Region bought Carr’s Tree Service several years ago, making it a division of the cooperative and bringing tree removal in-house.
All totaled, Lake Region recorded about $53 million in revenue in 2022. Though the year-end financial reports aren’t yet complete, a margin of about $3.3 million is anticipated, said Thompson.