HOULTON — The Houlton Water Co., which supplies electricity to all of Houlton and parts of Hodgdon, has proposed an increase in its electric rates of about 8.5 percent for a total annual increase $488,683.

According to a company newsletter that will be available to customers by the end of this week, the purchased-power and fuel-adjustment portions of local electric bills have fluctuated during past years to cover the company’s costs for purchasing wholesale power on a dollar-for-dollar basis from Maine Public Service Co. The base rates for customer classes have not changed since 1983, however.

Base rates pay for internal costs such as wages, insurances, debt and plant improvements, as well as dividends to the town of Houlton, the sole owner of the company.

Revenue from the existing rates has not allowed the company to keep up with the internal costs. As a result, during the first eight months of 1990, the company suffered a loss of $31,796, excluding plant improvements, new equipment and debt principal.

Under the new rate proposal submitted to the Maine Public Utilities Commission for approval, residential rates would increase by 8.57 percent; commercial rates, 8.25 percent; street lights, 8.81 percent; small power users, 8.4 percent; large power users, 9.03 percent; and outdoor lighting, 8.12 percent.

The proposed rate increase will be partially offset by a new entitlement agreement with Maine Yankee Atomic Power Co. which will allow Houlton Water Co. to purchase power from the Wiscasset utility. The actual rate of increase to customers will only be about 4.7 percent.

As of Oct. 1, the water company began receiving 3.5 megawatts of power an hour directly from Maine Yankee. That figure represents about 27 percent of the company’s needs that were supplied previously by Maine Public Service Co.

The power purchased from Maine Yankee is expected to save about $300,000 a year in purchased-power costs. The saving ultimately will be passed on to customers through adjustments in the purchased-power portion of their electric bills.

For the average residential customer, the rate increase would be about $2.25 a month based on 560 kilowatts used.

Without the power purchased from Maine Yankee, the company estimated that the requested rate increase could have been at least 15 percent.

A public hearing on the proposed rate increase has been scheduled for 7 p.m. Tuesday, Nov. 20, at the Houlton Town Office. At that time, customers will have the opportunity to ask questions, make comments and suggestions, and get additional information about the rate increase.