Coal Price Hike May Jolt Electricity Rates

March 25, 2002
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GRAND HAVEN — The higher price for coal will force the city’s municipal utility to take a harder look at electric rates this year when it begins formulating a new budget.

While the 13.3 percent increase in coal costs won’t generate any immediate rate adjustment, the Grand Haven Board of Light and Power isn’t ruling out that possibility for its next fiscal year, which starts July 1, although it’s far too early to tell whether higher rates will actually result from the higher coal prices.

A rate review is a routine part of the utility’s annual planning and budget process. That review will take on a heightened importance this year after coal costs for the 2002 shipping season rose from $5.3 million to $6 million, BLP Administrative Services Manager Jon Hoffman said.

“It has to be looked at as part of our long-term business planning,” Hoffman said. “This year it will be done with more rigor, perhaps more attention, given the changes.”

Pushing the BLP to take that closer look was a rise in coal prices over last year in the wake of higher supply and lower demand nationwide, combined with a decrease in electric sales, largely to its large commercial and industrial customers, stemming from the recession. The BLP’s sales to its largest business customers are down 6 percent on the year, Hoffman said.

Coal costs account for more than a quarter of the utility’s annual $20 million operating budget.

The BLP was anticipating an increase in coal costs for the coming shipping season, just not as large as what actually occurred. The increase would have been even larger if the BLP had not done some “creative and innovative” bidding procedures that cut the size of the increase by more than half, from 28 percent to 13.3.

“The good news is that 13 percent is less than 28 percent. The bad news is that it’s still an increase,” Hoffman said.

The BLP serves 12,400 residential, commercial and industrial customers in the Grand Haven area and burns about 154,100 tons of coal a year at its Sims III power plant.

Coal costs also are rising sharply this year for the Holland Board of Public Works, although the general manager there doubts it will result in a rate adjustment.

A preliminary view of bids for the 2002 shipping season reflect a 13 percent increase in coal prices, BPW General Manager Tim Morawski said.

Morawski expects that lower natural gas costs and wholesale electric prices will help to offset the rise in coal costs for the BPW electric business unit.

“Right now, from the numbers we’re looking at, we’re not expecting any rate change,” he said.

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