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By Rebecca Dopp
Times-News Correspondent
Nephi City has operated an electric utility for almost 100 years. Two core functions of operating a utility is to generate or purchase electricity on a wholesale level and also to provide it to customers. Over time, Nephi City has generated its own electricity almost exclusively in the early years, and then they purchased on a wholesale basis.
In the 1980s, Nephi City joined with other cities to form a wholesale electric cooperative to secure for the future wholesale supplies of power for the member cities, which came to be known as Utah Municipal Power Agency (UMPA). As a cooperative agency, UMPA owns some generation resources and buys other power supply resources by contract.
UMPA has been successful over those years, since its formation, in acquiring a stable source of wholesale electricity and keeping the rates at which the city purchases that electricity stable. Nephi City has been notified by UMPA that those rates will be going up.
UMPA's general rate has not been adjusted since 1988. There have been minor adjustments from year to year, but the basic rate has been stable, said city administrator Randy McKnight.
"The total amount of money the city pays to purchase wholesale electricity depends on the combined usage patterns of all city utility customers," McKnight said. "In other words, we have to buy electricity to meet the needs of our customers and how they jointly consume electricity drives the actual cost of purchasing that electricity."
He said that over the years member cities have been hearing bad news about the costs of wholesale electricity, and this year it became apparent that the city had reached the end of their ability to maintain the current rate level.
According to McKnight, the need to increase the rate comes from several sources, most of which affect the entire electric utility industry. Those include required environmental upgrades at existing power generating facilities; increasing costs for fuels used at generating facilities, also related to environmental concerns; the general state of the economy, which reduces the price at which surplus electrical generation may be sold; and the significantly higher cost of new generation and transmission resources needed to replace older facilities and to meet long-term needs.
McKnight said that the new rates will change to a fairly significant degree. According to the electricity superintendent's estimate, there will be about a 10% increase in the cost of wholesale power. The actual costs to the community to purchase electricity will depend on the pattern of use.
"That same thing is going to be true as we adjust the rates that we charge Nephi City's residential, commercial and industrial customers," he said. "The usage patterns of those individual customers will vary, and so will the impact of the rate adjustments. More efficient use of electricity typically translates into lower per-unit prices, and that's true for both wholesale and retail."
He pointed out that the purchase of wholesale electricity is the major cost of running an electric utility, but is not the only cost. Other costs include personnel, supplies, and equipment and those costs have increased since 1986.
"Even though 10% appears to be the magnitude of current rate increase, how that gets reflected among the various cities remains to be seen," he said. "The council will have to accommodate the fact that the other costs that go into running an electric utility have also increased over time and will continue to increase."
"So how soon can the people of Nephi expect to see this rate increase pass on?" asked Donald Ball, resident.
McKnight said he could not predict the exact timing residents would see the change, but that sooner would be better than later. The city will have to pay the new rate by July 1st.
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