Rochester, MN (KROC-AM News) - Get ready for electric and water rates in Rochester to rise faster than they have in recent years beginning next year.

The Rochester Public Utilities Board was recently presented with a budget recommendation that reflects hundreds of millions of dollars in borrowing costs, largely associated with plans to replace electrical power purchased from the Rochester-based Southern Minnesota Municipal Power Agency will when RPU's decade-long contract with SMMPA ends in 2030. The RPU Board last week was given a presentation that highlighted the multiple factors that have made the shift away from SMMPA much more costly than previously estimated.

RPU and the City of Rochester previously adopted a policy to meet a net-zero energy goal by 2030, which calls for reducing greenhouse gas emissions by 50% through the use of wind and solar power generation and large battery storage facilities. That's 10 years ahead of the goal set by the State of Minnesota for meeting a net-zero energy standard.

A consultant hired by Rochester Public Utilities recently told the RPU Board that the price tag for meeting that goal has risen dramatically. The report listed a number of contributing factors, including the phasing out of clean energy tax credits that were part of the "Big Beautiful Bill" approved by the Republican-controlled Congress and signed into law by President Trump.

The consultant report stated that other factors contributing to the cost increases include the impact of tariffs on the costs of raw materials and significant inflationary pressures driven by demand for both renewable and combustible energy sources, such as gas turbines. The consultant indicated that the push to build large data centers for artificial intelligence projects has greatly increased the demand for power generation units because of the power-hungry nature of the huge supercomputer facilities.

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On top of that, RPU needs to replace the power generation capacity lost when a recently destroyed gas turbine electric plant went offline. A fire on June 2 at the Cascade Creek Substation in northwest Rochester took out 30 MW of power generation capacity, and RPU officials were told it could cost as much as $60 million for a new gas turbine, although insurance would likely cover a portion of that expense.

READ MORE: Rochester Fire Department Responds to Fire in Building Containing RPU Gas Turbine Power Plant

Part of the presentation to the RPU Board involved comparisons of different scenarios for implementing the 2030 net-zero energy plan. It also looked at how much less it would cost if the city were to shift away from that goal and adopt the statewide 2040 standard. Looking at what was termed a "levelized retail rate" per kilowatt-hour, delaying the net-zero energy goal until 2040 is estimated to lower that cost by as much as 19%.

As it stands now, the RPU staff budget recommendation includes a little over $240 million in borrowing to meet the 2030 net-zero energy goal and establish a portfolio of power sources to meet the city's energy needs after the SMMPA contract ends. The report recommends increasing RPU electric service rates by 6% in each of the next five years to cover those debt service costs and the utility's other expenses. RPU's electric rate increased 4% this year. It's estimated that the proposed 6% hike next year would add just under $6 a month to the bills paid by the average RPU electric customer.

The budget recommendation also calls for a large increase in RPU's water service rates starting next year. The proposal would raise the rate by 9% in 2026 and 2027, followed by 7% increases in 2028 and 2029, before dropping to a 5% rate hike in 2030. RPU water rate increased 5.5% this year. RPU estimates the proposed 9% increase would boost the average residential bill by about $2 a month.

A final decision on the electric and water rate increases for next year is expected to be made in October.