What is Driving the Cost of Rates?
Rising costs, growing load prompts
need for higher rates at many Missouri co-ops
What do iPods, computers, big screen TVs and cell phones have in common? They all use electricity and they are all responsible in part for the dramatic increase in energy use among electric cooperative members in Missouri.
This increased demand for electricity, in turn, is helping drive wholesale power costs to record levels, prompting for some cooperative members their first rate increases in nearly two decades.
But increased demand for electricity is just one culprit in a complicated web of factors that could eventually show up on your monthly electric bill.
All of the Missouri electric cooperatives, with the exception of Citizens Electric, receive their power from Associated Electric Cooperative. Associated was formed in the early 1960s to generate electricity for co-op members. Associated sells wholesale power to six transmission cooperatives, which in turn sell it to 51 distribution cooperatives in Missouri, southeast Iowa and northeast Oklahoma.
Wholesale rates from Associated are among the lowest in the country and have been partly responsible for the low and stable rates enjoyed by Associated members.
Over the past few years, rate increases have trickled down from the transmission cooperatives to the local distribution level where decisions have to be made that determine whether your local system raises its rates and how much that increase will be.
So what is driving this need for additional revenue? Here are some of the issues that are making rate increases necessary.
Demand for Electricity
Imagine that the state of Missouri was adding a new city with 30,000 homes every year. That is the number of homes that could be powered by the increase in demand electric cooperatives are seeing annually. This dramatic increase is expected to continue at least for the next 10 years.
To longtime co-op members and employees, rate increases bring up reminders of the 1980s, when wholesale power costs went up after Thomas Hill Unit 3 began operation.
In some ways what is happening today is similar. But many other factors not around in the 1980s have co-op employees looking for ways to cut costs as much as possible.
Generation Fuel Costs Rise
One of the key drivers of rising energy costs is the price of fuel used to generate power. Today, fuel costs are nearly 35 percent of total expenses. Just 10 years ago, that figure was 25 percent.
The cost for fuel, that Associated pays, per unit of generation increased 81 percent between 1996 and 2005.
Topping the list of fuel increases is natural gas, which was 49 percent higher in 2005 than in 2004.
In its 2004 long-range financial forecast, Associated projected gas to be nearly $7 per million Btu by December 2005. Instead, natural gas prices got up to $15.40 per million Btu on Dec. 14 and averaged $12.98 per million Btu in December 2005. Since then, however, the price of natural gas has steadily decreased in price.
While coal is still the best value for generating electricity, the price of coal also is on the rise. This is in large part due to increases in shipping coal to Missouri from Wyoming, where it is mined. Also nationwide demand for low-sulfur Wyoming coal is driving prices higher.
Associated expects coal price increases totaling 25 percent by 2011 and annual increases of 3 percent per year from 2011 to 2025. It also expects railroad contracts for delivery of coal to increase when current contracts expire.
The Cost of Compliance
Yet another factor is driving wholesale power costs higher. Associated has reduced air emissions from its power plants dramatically over the last 10 years. Gone are the days when black smoke came from power plant smokestacks. Drive by a power plant today and you will be hard pressed to tell whether it is in operation.
These environmental improvements have not been inexpensive. Future improvements will also carry a hefty price tag. Total capital costs through 2018 for additional environmental controls are estimated at $468 million, with operating costs increasing by $31 million per year.
Even with the increases in wholesale power costs, Associated will remain one of the lowest-cost wholesale power suppliers in the nation. By forming their own generation cooperative, Missouri electric cooperatives have been able to control their own destiny when it comes to rates. Your electric bill would be much higher if your electric co-op had to depend on others to meet its energy needs.
What can you do?
So what can you, as a cooperative member, do to help keep rate increases to a minimum?
Use energy wisely. Since increased demand is in part responsible for higher rates, turning off unneeded lights and keeping thermostats at reasonable levels make sense.
Avoid using appliances when demand for electricity is at its highest, usually on the hottest or coldest days of the year and during the early morning and late afternoon hours. Dishwashers, for example, can be set to run after bedtime or after the morning rush is over.
Replace aging appliances with new ones. Nearly all appliances sold today operate more efficiently than ones even five or 10 years old. Look for the Energy Star rating for the highest efficiency.