Future Changes in Off-Peak Heating

November 2005

If you are one of the 40% of our members who heat their homes using an off-peak system, you will be interested in this article. If you are one of the other 60% of our members who are considering options to heat their home in view of high fuel oil and propane costs, you may also be interested in this article.

The good news to report is that the near-term outlook for Nodak’s electric rates is very good. We are having a good year in 2005 and do not foresee the need for a general rate increase at least through the end of 2006. We do not need an increase in our Off-Peak Rate, and we wouldn’t even be talking about the rate except options exist which can reduce the hours of total load control during the winter heating season.

To understand where we are going with our Off-Peak Program, it is necessary to recall the fundamental purpose of having the option in the first place. Our power supplier, Minnkota Power Cooperative, offers the Off-Peak Rate incentive for the “privilege” of shedding load during times when they exceed their economical generation capability.

An alternative to load control is to buy power from the regional power market. When power is available at a reasonable price, Minnkota will do that. Prior to about four years ago, there was very often cheap power available, and consequently, very little load control was necessary. In recent years, this supply of cheap power from the market has “dried up,” and as a result, the hours of load control have increased substantially.

With the high price of fuel for backup systems, most members want us to keep the total hours of load control at an absolute minimum. As we analyze the market, it appears there are times when it would be better to have Minnkota buy power from the market and add the extra cost to the Off-Peak Rate than to have you burn fuel in your backup system. It gets to be a tradeoff between paying just a little more for your Off-Peak Rate and in turn buying a little less fuel oil or propane for your backup system.

This winter heating season, we are going to move in the direction described above. We have requested that Minnkota purchase power from the market up to a given level if the added purchase means less off-peak control. In rough numbers, they will probably spend between $1 million and $1.5 million, and the added cost will probably increase our Off-Peak Rate by two to three mills. A three mill increase would mean our Off-Peak Rate would need to be increased from 3.1¢ to 3.4¢. We need to qualify this decision as somewhat of an experimental attempt to reduce the overall amount of winter load control hours. The actual amount of the rate increase and the timing of the increase will be announced some time after the start of the new year.

The amount of hours that can be reduced is uncertain and depends partly on the day-to-day price of power available from the market. Based on recent history, we feel we can eliminate 150-200 hours of control with the level of spending that has been set. If we are successful in reducing the number of hours of load control by 150 hours or more, and if the price of alternative fuels remains at the present level, this plan will prove to be a good move for the homeowner. The amount saved in backup fuel will be greater than the added cost of a two to three mill increase in the Off-Peak Rate. If any of the variables are different than expected, we then need to re-evaluate the plan to determine if it is worth continuing.

As always, we are interested in your feedback. Please let us know by mail, by e-mail, or in person how you feel about the concept of a slightly higher Off-Peak Rate in exchange for reduced hours of load control.