If you’ve paid close attention to your electric bill lately, you’ve noticed the cost of wholesale power (the price Hancock-Wood pays for electricity) has increased. We wish we could tell you that electric power costs were going to stabilize in the near future, but we honestly can’t do that. There are several reasons for this.
Supply and demand
Throughout much of the 1980’s and 1990’s there was a surplus of electric generation capacity throughout the country and electric rates were fairly stable. Unfortunately, the surplus disappeared and now there is a shortage of generation capacity. The price of electricity, and all commodities, rises when the supply is less than the demand.
In the next few years many regions of the country will not have enough capacity to adequately supply the demand for electricity during peak periods of usage. In some cases there could be brown-outs or black-outs during peak times. We need more generation capacity to meet the energy demands of our growing population, but very few if any, new baseload power plants are being built today.
Environmental regulations
In 2010 Buckeye Power, the generation cooperative from which we purchase our power, will complete construction of the final stage of new environmental equipment at the Cardinal Generating Station. This equipment, which was mandated by the EPA, removes all but a tiny fraction of the fly ash, nitrous oxides, sulfur dioxides, mercury and other pollutants from the flue gases. When the project is finished, your power plant will be one of the cleanest coal-fired generating stations in the world. We are very proud of this, but all Ohio electric cooperative members are sharing the $1 billion cost of this environmental equipment through higher electric prices.
Climate change legislation and the EPA
One reason for the lack of movement in constructing new base-load power plants is the uncertainty over climate change legislation. Current proposals call for set standards of power generated by renewable sources.
Rulings that ban financing by the Rural Utilities Service (RUS) for new fossil fuel power plants and to pay for environmental upgrades at existing power plants makes it next to impossible for generation and transmission cooperatives to build new base-load generation.
Climate change legislation currently making its way through Congress has the potential to dwarf all other price increases. If current proposals are passed your electric bills could be double what they are today!
The Obama administration recently gave the EPA the authority to regulate greenhouse gases under the Clean Air Act. This move has prompted a bipartisan outcry from the Senate and, if not overturned, could drastically increase electricity prices in the future.
The developing world
In the past couple of years China, India and other developing nations have dramatically increased the demand for fuels (including coal), metals, construction materials and other commodities. This increased demand has driven up prices for almost everything around the world. Coal is one of the commodities that increased in price, along with limestone and other materials used to meet environmental requirements. These increased costs are passed on to your electric cooperative through higher wholesale power prices.
Power for the future
Based on forecasts of future energy needs, Buckeye Power recently took advantage of some “sale-priced bargains” and purchased additional generation capacity for Ohio’s electric cooperatives.
These purchases ensure that Ohio’s cooperative members will have plenty of electric power for many years to come. For the time being however, Buckeye has a surplus of power that it planned to sell to other utilities through the wholesale power market. Unfortunately, the economic recession reduced sales of this surplus power and Buckeye had to temporarily increase its wholesale rates to cover the cost of the investment in this new generation capacity.
For the next several months, all electric co-op members will pay a bit more for electricity because of Buckeye’s surplus power situation, but as the economy recovers and power sales increase, the temporary rate increase can be removed. In the long term, Ohio’s electric cooperatives will be in the enviable position of being able to supply their increasing power requirements from their own power plants, without having to purchase higher priced electricity from the power market.
The cost of doing business
The cost of everything Hancock-Wood uses for its operations has gone up. Wire, poles, switches, transformers, insulators, trucks, diesel fuel, insurance—all have increased. We understand that our area has been hit hard by the poor economy, and we are trying to reduce costs as much as possible, but there is only so much that can be done. We must have a supply of parts and equipment on hand and ready for use in an outage, and also to maintain and upgrade the distribution system. The higher cost of coal, parts, material, equipment, etc. is paid by the members through their electric bills.
We’re not alone
It’s small consolation, but we’re not alone. A recent article in the Wheeling Intelligencer detailed proposed rate increases from American Electric Power (AEP). The article stated AEP customers in Ohio and Marshall counties in West Virginia should expect to see their bills continually increase during the next few years, which started with a 7.4 percent hike on July 1, 2010. And these increases are in addition to the 17 percent base rate increase AEP requested the prior month. The article quoted an AEP spokesperson as saying there should be about another 8 percent increase next year, with another one the following year.
Even with the recent wholesale power cost increases, the price of power we receive from Buckeye Power remains one of the lowest in the State of Ohio.
In the past year, your board and management team has spent considerable time planning for the growth and future needs of your cooperative. It is a constant effort to balance the quality of service at an economical price. That challenge has increased over the past few years with the dramatic changes in the electric industry. The price to produce electricity is in a very volatile market which is being greatly influenced by the world market impact on fossil fuels, the research and development of green energy, the investment in equipment to meet environmental emission requirements, the increasing price of transmission, the purchase of additional generation facilitates to meet consumer demand and the proposed legislative climate change policies.
We continue to monitor these changes and events on a monthly basis. Our primary commitment remains to provide you with safe, reliable and affordable energy that is there whenever you need it.
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