MID 2004 Annual Report and Consolidated Financial Statements

Softening Rate Increases

To serve our growing customer base, MID is undergoing a period of increased capital spending for new electric infrastructure. This has happened several times in the past as the communities we serve underwent growth spurts.

A Financial Snapshot

When growth tapers off, so will spending. In the meantime, MID will be ready to provide eliable, reasonably priced electric service when customers need it.

Chart showing Power Supply Costs Rising Faster Than Electric RatesOver the last 10 years, MID’s power supply costs have increased an average of 5.7 percent a year. MID has raised residential electric rates an average of only 3.6 percent a year. MID achieved this by using our reserve fund for rate stabilization.

Facing a predicted shortfall of $16 million in 2004, MID cut expenses by $4 million in the second half of the year. Despite this, reserve funds were drawn down by $10 million. A 2005 budget of $359 million was adopted along with an electric rate increase package. It may be necessary to tap reserves again in 2005.

The wind will soon shift to a more favorable direction. MID is on track to reach an important financial goal by 2007—a 1.5 debt coverage ratio. After 2006, reserve levels will begin to climb. We are optimistic about reaching our $200 million reserve fund target by 2011.

Managing Costs In A Challenging Environment

Only 16-17 percent of MID’s budget consists of operating expenses we can fully control. MID has done a good job managing costs despite customer growth, sharply rising fuel prices, and regulatory uncertainty in the wholesale energy markets. Power supply costs have held steady at 75-80 percent of total operations and maintenance costs for the last 10 years. While the number of customers MID serves has grown almost two percent a year during the decade, the number of employees has grown only 1.5 percent a year.

Power supply dwarfs all other MID expenses and is the primary driver of budget and rates. It’s also an expense over which a utility has limited control. For every $1 rise in the price of natural gas, MID’s power supply costs increase by $4 million. A .ve percent increase in power supply costs increases MID’s expenses by $8 million, the equivalent of a three to four percent rise in electric rates.



Produced by the MID Public Affairs Department. To order a printed copy of the MID Annual Report, contact the MID Finance & General Services Division at (209) 526-7473.

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