Petersburg Power and Light Superintendent Joe Nelson has recommended to borough officials an electric rate increase.

The recommendation comes after a revenue requirement study that shows an average operational loss of $266,000 a year since 2010.

John Heberling, D. Hittle& Associates engineer and consultant, began a revenue requirement study more than a year ago.

“The electric rates are insufficient right now to recover the necessary revenue requirement that you do have,” Heberling reported to the assembly. “The bottom line is that we’re going to be looking at a little bit of an increase in the process.”

Electric rates are currently set up in a declining block—meaning the more electricity a customer uses, the less they have to pay.

Nelson said the declining block rate was set up around 25 years ago to encourage power usage.

“Those good old days are coming to an end. We need to take a look at making very wise use of the energy that we do have,” Nelson said.

Annual revenues from energy sales, according to the study, were $4.9 million in 2011 and $5.2 million in 2012.

“Annual operating expenses, which totaled $5.1 million, excluding depreciation, in fiscal year 2012, continue to increase due to inflation and other factors and as a result, annual operating margins continue to decrease,” the study states.

Assembly member John Hoag and Borough Manager Steve Giesbrecht asked questions regarding expenses reflected in power and light’s budget after depreciation—the assumed cost of equipment and infrastructure that loses value over time. That cost is counted as an expense each year in a budget.

“The depreciation is the huge question we’re weighing in on,” Giesbrecht said. “How much is this infrastructure worth? How long is it going to last?”

Although power and light operates at a loss, its reserve fund continues to grow. The assembly wants to know, before a rate increase is approved, how much of that loss is reflected in depreciation.

Broken down between customer classes, the cost of service for residential service currently outweighs existing rates. It’s more or less equal for small and large commercial customers.

“We want these rates to produce a two percent increase the first year and another two percent the second year,” Heberling said. “The rate is set to be pretty much where it was. Any small consumers will not see any impact at all with this proposed adjustment.”

The new rate proposal will decrease the energy usage blocks— energy use thresholds and corresponding charges—from three to two.

Small to average residential consumers—those using around 1000 kilowatts per hour—would see an increase of about 10 cents in their monthly bill. Large residential customers—those using 3,000 kilowatts per hour—would see a $22.10 increase by the second year.

Power and light’s current reserve fund is $6 million. The assembly also wants to know what a typical power and light reserve fund looks like.

Wrangell’s utility service also has a declining, three-block rate with residential charges beginning at 12 cents and ending at 8 cents depending on usage.

Petersburg’s residential charges begin at 11 cents and end at 7 cents.