Black Hills Corp. (NYSE:BKH) subsidiary Black Hills Power today announced that the South Dakota Public Utilities Commission has approved a settlement between the company, Commission Staff, and intervening parties that will increase electric rates by 6.4 percent, or a revenue increase of $8.8 million per year, on Oct. 1, 2013.
Black Hills Power filed a request in December 2012 to increase rates by 9.94 percent, and was allowed to implement that adjustment on an interim basis beginning June 16 of this year. Since the PUC approved increase is less than the interim increase, actual billed rates to customers will be reduced effective October 1, 2013. The company will recalculate charges for service between June 16 and Sept. 30 at the approved rate, and refund the difference, with interest, by crediting customer bills beginning in November.
“Our customers depend on safe and reliable electric service,” said Vance Crocker, vice president of operations for Black Hills Power. “Since our last rate filing in 2009, we have invested more than $50 million to extend service to new customers, replace and upgrade our distribution and transmission systems, install advanced metering systems, and ensure environmental compliance.”
The approved settlement also includes a mechanism for recovering financing costs for Black Hills Power’s share of the new Cheyenne Prairie Generating Station, a 132-megawatt, natural-gas-fired power plant located in Cheyenne, Wyo., expected to go online in the fourth quarter of 2014.
“Our customers shared their preference for smaller, incremental rate adjustments rather than infrequent and larger increases,” Crocker said. “Customers will save money because the more gradual, quarterly rate adjustments will enable the company to recover financing costs during construction, reducing the total capital cost of the plant.”
The utility received interim approval from the PUC in April to begin recovering the finance costs for the plant by increasing rates approximately one percent per quarter until the plant is completed in late 2014. The quarterly adjustments for Black Hills Power customers began in April 2013. Black Hills Power will seek, through a separate future rate filing, a return on the actual capital investment and recovery of plant operating costs.
The new power plant will be jointly owned by Black Hills Power and its affiliate, Cheyenne Light, Fuel and Power. Black Hills Power’s 55-megawatt share of the Cheyenne plant will replace the company’s Osage plant in Wyo., the Ben French plant in Rapid City, and the Neil Simpson I plant near Gillette, Wyo.
All of these coal-fired plants will be retired in 2014 to comply with new Environmental Protection Agency emissions regulations. It is more cost-effective to replace the company’s three oldest power plants rather than retrofit them to comply with the new regulations. Joint ownership and operation of the Cheyenne Prairie Generating Station will reduce capital cost and expenses, thereby keeping customer bills lower.
Rate requests are extensively reviewed by the South Dakota PUC and its staff, a process that considers public comments and includes testimony from utility representatives and intervenors in the case. Under terms of the settlement, return on equity and capital structure details will remain confidential. Additional information and the latest news on Black Hills Power’s new rates are available at www.reliablebhp.com. The site also offers ways to save energy to better control utility bills.