By: Roger Warehime, General Manager, Owatonna Public Utilities
In our August newsletter, I warned about increased utility costs coming this heating season. I said
your natural gas prices could be 50% higher than last year and electricity prices would be higher
as well because we were anticipating a rate increase from our wholesale provider, Southern
Minnesota Municipal Power Agency, SMMPA.
The rate increase from SMMPA did in fact go into effect this month. Although OPU has not yet raised
its rates to follow SMMPA, you will still be feeling the impact this month because the cost
increase will be passed through to you in the Energy Acquisition Adjustment (EAA). The EAA is a
line item which appears on your bill each month and it can be positive or negative because it is
the difference between the actual cost of electricity and the cost which is assumed in our rates.
Historically, this charge/credit has been very small because our electric costs have remained
fairly consistent throughout the year. This year has been different.
On the natural gas front, things are looking a little bit better than they did back in August.
Rather than a 50% increase, we are now projecting between 20% and 40%. The change in outlook has
been due to warmer-than-normal temperatures through October, both in the United States and Europe. You may recall what I said in my August memo
about the ex- porting of natural gas to Europe and other parts of the world affecting our prices
stateside. Because the price of natural gas is so much higher in other parts of the world, natural
gas producers can make much more money exporting natural gas than they can selling it domestically;
therefore, they will ship as much as they can, reducing the supply available for us. When the
supply is reduced relative to demand, the price goes up.
Another factor which affects supply and demand, and thus pricing, is the amount of gas which is
injected into storage reservoirs throughout the non-heating season in anticipation of needing to
pull gas out of storage during the heating season. The market closely watches how much gas is in
storage throughout the year. Back in August, we were “behind schedule” in getting the reservoirs
filled because so much natural gas was being used to produce electricity. The warmer-than-normal
temperatures in October helped get the amount of gas in storage back up to more normal levels.
Europe’s storage has actually improved to the point that they cannot inject any more gas into
storage.
While the good news is that things may turn out to be better than we were predicting back in
August, the bad news is we are still looking at rate increases. Although our budgets and rates for
2023 have not yet been approved by our commission, I can provide you a fairly good estimate of
what the increases will be. Our electric rates will increase approximately 13-14%, our water rates
will increase approximately 5%, and our natural gas, as I mentioned above, will be in the range of
20 to 40 percent. For the average residential customer, this translates to a monthly increase of
between $20 and $35.
Although we can never be certain of what the future holds, there are factors in the wholesale
markets that indicate we should see prices go back down to more normal levels after this winter.
If/when that happens, you will see a reduction on your utility bill through our energy adjustment
factors.
This issue of our newsletter includes some tips for conserving energy. Also, we are promoting our
bonus double rebates for purchasing equipment and other measures which conserve natural gas.
I plan to provide another update about rates in January. In the meantime, I am hoping for continued
warm temperatures in November and December because warm temperatures will cause natural gas
prices to continue falling.
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