Congress and the federal government are focused on prioritizing climate change policy. Any action taken to address the issue will increase the cost of electricity we use everyday.

Climate change proposals seek to reduce emissions of greenhouse gases, carbon dioxide in particular. Electric cooperatives are involved in cutting edge work to develop new technologies to reduce carbon dioxide emissions from power plants, but those options are limited, largely untested, and expensive. Yet potential legislation would rely on them to make significant carbon dioxide cuts nationwide.

A U.S. House of Representatives committee has announced plans to consider a climate change bill that may for the first time classify carbon dioxide as a pollutant and impose a cap-and-trade tax to limit carbon emissions. Cap-and-trade systems work by setting a specific limit on airborne emissions from sources like power plants, factories, and refineries, and require those sources to account for all emissions with issued allowances.

While cap-and-trade has been used to reduce emissions of sulfur dioxide and nitrogen oxides, new cap-and-trade tax proposals for carbon dioxide contain a new twist: pricey allowances.

Allowances would be auctioned off at undetermined prices, leading to huge cost burdens for any source of carbon dioxide emissions. In the case of power plants, those costs would ultimately be passed on to consumers using the power, in some cases adding $50 or more to electric bills each month. In late February, the Obama Administration pointed to such a system as a new, substantial source of revenue for the federal government – effectively muddying the initial environmental argument for regulating carbon dioxide.

Such a backdoor tax increase would force electric cooperatives to essentially become tax collectors for the federal government, and allow Wall Street investors to set allowance prices and determine how much you pay for electricity.

Because Indiana depends predominantly on carbon fuels for generation, Hoosiers will experience disproportionately higher costs associated with the transition to a carbon-restricted economy. Hoosier Energy Chief Executive Officer Steve Smith raised the issue in a March 9 letter to the Indiana Congressional delegation that was co-signed by Bruce Graham, CEO of Indiana Statewide Association of Electric Cooperatives, and Rick Coons, Wabash Valley Power CEO.

"The Administration’s proposed minimum carbon emission price could raise electricity rates for Indiana cooperative members between 30 and 40 percent and transfer that revenue through energy subsidies to other parts of the country. The negative economic ramifications of such increases will be devastating to families already struggling to make ends meet and threatens the viability of energy dependent manufacturers and other Indiana employers," the Indiana cooperatives’ letter read.

Cooperatives want to help Congress draft an energy solution that accomplishes environmental goals while taking affordability into account. But time may be tight: if Congress fails to act, the U.S. Environmental Protection Agency stands ready to step in, leaving decisions that affect consumers’ pocketbooks up to unelected bureaucrats.

Electric cooperatives seek an affordable and environmentally responsible approach. We’re ready to provide insight into how various policy proposals will impact consumers, and urge lawmakers to reach the right answers.

National energy and climate change policy must focus on reducing emissions, not on "revenue enhancement" for federal government. Money generated, through a cap-and-trade tax or otherwise, must be used wisely: devoted to developing related technology or returned to those who foot the bill. And Congress should take the lead on climate change, not regulators or Wall Street speculators.

In unity with 42 million other electric co-ops consumers around the country, urge your U.S. representative and senators to work with electric cooperatives to keep electric bills affordable. Get involved in this effort by participating in the Our Energy, Our Future grassroots campaign at www.ourenergy.coop.

 

The average price of a gallon of gasoline in the U.S. fell from $4.11 at its peak in July to $1.70 per gallon in December 2008. Prices for natural gas and residential heating oil have also fallen recently with the likelihood of a global economic downturn well into 2009.

Some consumers may be wondering, why aren’t my electricity rates going down as well?

While gasoline was rising more than 105 percent, Indiana electric cooperative rates rose about 10 percent during 2008. This increase was primarily due to cost increases from Hoosier Energy, the cooperative-owned power supplier for 17 co-ops in central and southern Indiana. For 2009, Hoosier Energy has implemented a 2.4 percent wholesale rate and first quarter tracker adjustments. Other electric utilities report similar rate adjustments and U.S. electricity prices in general haven’t followed the downward trend of energy commodities that are directly tied to crude oil costs.

According to the U.S. Energy Information Administration’s short-term energy outlook released in December, residential electricity prices nationally for 2008, which average about 12 cents per kilowatt-hour, were projected to rise about 6 percent with another 5 percent increase expected in 2009.

Current electricity prices continue to reflect cost increases over past years for fuel (coal and natural gas) costs and for commodities such as steel and copper. During that time power prices remained relatively stable with small increases compared to the dramatic price spikes in gasoline and natural gas.

 

Hoosier Energy’s power cost tracker is used to recover highly variable costs that are not fixed or predictable. To level or smooth the impact of wide swings in fuel and other costs, the tracker recovers and spreads those costs over a 12-month period. As well, Hoosier Energy “hedges” prices on certain commodities such as natural gas and fuel oil to lessen market risks. Hedging takes place through advance purchasing of products to help avoid price volatility.

Recent tracker increases are driven primarily by increasing costs for coal and purchased power. Hoosier Energy uses 4 million tons of coal annually at two baseload southern Indiana power stations.

U.S. coal markets have been impacted by demand from China, India and other countries and a shift from surface mining to more costly underground mines. While most of Hoosier Energy’s coal supply has been secured under long-term contracts at favorable prices, the power supplier’s coal costs for 2008 were still 31 percent higher than in 2004.

Because of mining and transportation issues, fuel oil is a component of coal costs for power plants. During 2008, the price of fuel oil was more than three times what it was in 2004. That price is projected to decline in 2009 and 2010, but is expected to be more than double the 2004 price.

Several coal contracts are nearing expiration and future coal costs are projected to be even higher. Higher coal costs are expected to add about $40 million per year to Hoosier Energy operating costs by 2010.

Hoosier Energy is adding a third natural gas-fired generating station to its power production resources in early 2009. Natural gas units provide flexibility, especially in times of fluctuating or peak demand. The cost of natural gas to fuel those plants is lower now than it was at its peak, but is still 17 percent higher than in 2004.

Hoosier Energy also purchases power for members in the wholesale market during periods when demand may be very high or power plants are experiencing outages. Average purchased power prices in 2008 were 63 percent higher than 2004 prices. Addition of the new power plant will help to mitigate future purchased power costs.

As well, a cost-based purchased power contract rose about 23 percent in 2008 over 2007 and will increase further in 2009, reflecting overall cost pressures experienced in the wholesale power markets.

The power cost tracker also includes environmental compliance costs. Since 2005, Hoosier Energy has spent more than $80 million to produce cleaner electric power.

The demand for electricity has been increasing steadily until the current recession. Meanwhile the U.S. is looking to build many power plants to meet future demand. One way of minimizing the huge costs of new power plants with their associated fuel and environmental costs is to reduce consumer usage through demand management and energy efficiency measures. Local electric cooperatives are launching new programs in 2009 to help consumers improve efficiency and better manage rising electric costs.

Hoosier Energy and its Indiana member electric cooperatives are aggressively pursuing initiatives to reduce and manage costs and operate more efficiently as we cooperatively produce and deliver power for you. Although electric rates have not increased or fallen like the cost of filling your gas tank, electricity remains a good value in today’s energy market.

 

Demand for electricity nationally will increase by 40 percent during the next 22 years, according to the U.S. Department of Energy (DOE). Yet even with an optimistic projection of a 9 percent reduction in electricity consumption due to increased efficiency and an increase in renewable power sources, our nation will soon run out of excess generating capacity and needs to build more power plants and transmission lines to keep the lights on.

Will there be light?This raises a catch-22 situation. Unless significantly more power plants are placed into service soon, there’s a good chance consumers could experience brownouts and even rolling blackouts in the not-too-distant future. But this generation will be the most expensive in history, coming at a time when prices for fuels to produce electricity and construction materials like steel, copper, and concrete are skyrocketing.

On top of it all, local, state, and federal lawmakers are considering additional costs on power plants to reduce greenhouse gas emissions, notably carbon dioxide, blamed for contributing to global climate change.

For electric co-ops, experiencing 2.6 percent overall growth (twice the national average), we take our responsibility of maintaining a safe, reliable, and affordable supply of power seriously. We also have an obligation to serve, and a special responsibility to protect you, our consumer-members, against dramatic and potentially crippling increases in electricity costs.

When it comes to meeting our nation’s energy challenges, including climate change, electric co-ops believe answers can be found in a diversified mix of advancements in energy efficiency and technology; renewable, nuclear, and natural gas generation; and advanced coal generation. No magic “silver bullet” exists.

On the climate change front, electric co-ops believe recommendations developed by the Electric Power Research Institute (EPRI), a non-profit utility-sponsored consortium based in Palo Alto, Calif., whose members include electric co-ops, offer a workable framework for starting debate on solutions. EPRI has spelled out how U.S. electric utilities can slash carbon dioxide emissions below 1990 levels by 2030 (roughly 45 percent)–even as they take on about 40 percent more load through aggressive steps in seven principal areas: boosting energy efficiency, investing in renewable energy, expanding nuclear power capacity, capturing carbon produced by coal-fired power plants and storing it deep underground, improving the operating efficiency of coal-fired power plants, adding distributed generation resources, and putting plug-in hybrid electric vehicles on the road.

Consumer-owned electric co-ops have a great story to tell in how we’re already tackling each of these ambitious goals, which provide the additional bonus of helping reduce the need to build as much new generation. Today, more than 80 percent of co-ops supply electricity produced by wind, solar, hydro, biomass (including landfill gas, livestock waste, timber byproducts, and crop residue), and other renewable power sources.

Electric co-ops are also recognized industry leaders in promoting energy efficiency and wise energy use. Nearly half provide financial incentives–such as low- or no-interest loans for household improvements, leases on efficiency-related equipment, and ownership or maintenance of standby generators to reduce power use when consumption spikes–or include interactive energy use calculators on their Web sites. More than 40 percent offer efficiency and weatherization services, including selling and installing high-efficiency lighting systems, electric water heaters, geothermal and air-source heat pumps, insulation, and Energy Star appliances. And an electric co-op in North Dakota operates the only large-scale plant in the nation that captures carbon dioxide gas before it goes up a smokestack, compresses it, and then pumps it down into spent oil reservoirs for permanent storage.

Of course, implementing many of EPRI’s ideas on a large scale will require a massive investment of government resources–similar to putting a man on the moon–and mobilization of every sector of the economy. But as consumer advocates and industry leaders, electric co-ops know what works. Tapping our varied resources, we can provide elected officials with expertise on what programs are feasible technologically and can be sustained economically–and politically.

When it comes to energy, electric co-ops recognize that consumers ultimately pay the freight for whatever decisions are made. As our commitment to you, we will work to ensure that folks in positions of power understand this fact as well and seek out practical, long-term remedies based on new technology that will allow us to continue providing safe, reliable, and affordable power in an environmentally responsible fashion. Through it all, the co-op drumbeat will be loud and clear: “we’re putting consumers first.”

Source: U.S. Department of Energy, U.S. Energy Information Administration, and Arlington, Va.-based National Rural Electric Cooperative Association, the service arm of the nation’s 900-plus not-for-profit, consumer-owned electric co-ops.

 

As the nation contemplates dealing with climate change and improving energy efficiency, it remains an inescapable truth that cost pressures continue to affect the energy industry.

The reality of rising costs faced by your electric cooperative and other utilities is reflected in a recent report by Purdue University’s State Utility Forecasting Group. Entitled “Indiana Electricity Projection: The 2007 Forecast,” the report forecasts that Indiana electricity rates will increase about 20 percent over the next five years because of new federal air-quality standards coupled with increasing construction, fuel, labor and other costs.

“The demand for electricity is going to increase, and the prices are going to increase considerably during the early years of the forecasting period,” said Douglas Gotham, director of the forecasting group, a state-funded panel of Purdue University-based researchers. “Part of the increase will come from expenses associated with new emissions standards, and the costs of construction materials have gone up dramatically in the last couple of years, in some cases doubling.”

Higher costs for coal, natural gas and other fuels used to generate electricity are another factor. A thriving industrial sector is projected to increase demand later in the 20-year forecasting period.

The report predicts that residential electric rates will increase by 22 percent by 2012 with overall rates for residential, commercial and industrial sectors averaging 20 percent higher. Increases are expected to rise at slower rates after 2012.

Demand for electricity to increase 40% from 2005 to 2030

Indiana electricity use is expected to increase 11 percent during the next five years and to rise about 2.46 percent each year over the next 20 years – an overall 55 percent increase by 2025. A robust economic forecast contributes to the higher demand projections.

The panel used sophisticated mathematical models to predict future trends for residential, commercial and industrial power usage. Increased demand could be met by building new plants, purchasing power from other sources or increasing conservation efforts, Gotham said.

Indiana will need about 3,220 megawatts (mw) of additional electricity by 2012 including 1,290 mw of baseload power capacity. Environmental Protection Agency regulations require Indiana utilities to reduce emissions of sulfur dioxide, mercury and nitrogen oxide from coal burning power plants.

Average power plant approval / construction time

Implications of carbon regulation
In late February, the Purdue University-based SUFG released another report that assesses the projected additional impacts of carbon dioxide emissions reduction legislation on Indiana power prices.

The SUFG analysis is based on the Lieberman-Warner Climate Security Act, which creates a cap-and-trade program for greenhouse gas emissions including carbon dioxide. The February report projects an additional 21 percent increase in average Indiana rates by 2015, growing to a 45 percent increase by 2025.

Combined, the forecasting group’s reports indicate that Indiana consumers could experience rate increases of more than 60 percent in real terms over the next 17 years. Although actual rate increases are uncertain, projections by the forecasting group and others support the expectation that rates will increase regularly and substantially over the next decade.

The SUFG report notes that Indiana, which currently has relatively low rates based on national comparisons, is expected to experience larger price increases than those projected on a national level due to carbon legislation. More than 90 percent of the power consumed in Indiana is generated by coal.

EPRI provides a solution pathway
An analysis by the Electric Power Research Institute, a respected industry research and development group, foresees a 260 percent increase in real electricity prices by 2050 unless a comprehensive plan to meet carbon constraints with new technology is adopted.

EPRI believes that electricity rate increases can be held to about 45 percent over those 42 years if the U.S. unites behind an advanced technology portfolio for:

* End-use energy efficiency.
* Renewable energy.
* Advanced nuclear energy.
* Advanced clean coal power plants.
* Carbon capture and storage.
* Plug-in hybrid electric vehicles.
* Distributed energy sources.

Obviously, we are talking about significant increases in what we pay for electricity. We know that rising energy bills are not what you and thousands of other cooperative consumers want to see.

When it comes to energy, electric co-ops recognize that consumers ultimately pay the freight for whatever public policy decisions are made. As our commitment to you, we will work to ensure that folks in positions of power understand this fact as well, and advocate practical, affordable, long-term remedies based on new technology. Through it all, the co-op drumbeat will be loud and clear: “We’re looking out for you.”

 

 

What is a tracker?
A tracker is a mechanism that follows or “tracks” certain costs that a utility might incur in providing service to consumers. Trackers are used to capture the difference between cost levels assumed in base rates and actual power production and delivery costs that are highly variable.

What are these costs?
Utilities use trackers for various unanticipated, unpredictable and highly variable costs including fuel, environmental expenses and purchased power above estimated projected levels for a given period. You may be familiar with fuel adjustment clauses used by natural gas utilities to recover their costs for purchasing gas during volatile market conditions. Trackers are also called power cost adjustments or automatic cost recovery mechanisms.

Variable production costs subject to Hoosier Energy’s tracker are:

* Purchased power.
* Coal, fuel oil and natural gas.
* Environmental costs including emission allowances and environmental equipment fixed costs.
* Variable power plant operations and maintenance costs.
* Transmission costs through the Midwest Independent System Operator, including regional market expenses, reliability planning and standards development services.
* Beginning in 2009, certain costs for consumer energy efficiency and demand management programs will become part of the tracker.

Coal costs have risen 75 percent in the last six years. Natural gas prices have doubled since 2002. Power market off-peak prices are up more than 8 percent compared to one year ago. Fuel oil prices have increased 76 percent in that period. These increases are in addition to skyrocketing prices for copper, iron, steel, and other materials that are part of the costs to provide electric service.

Why aren’t these costs included in the base rate?
These are basic costs of operations that cannot be accurately forecasted. For instance, you may recall the extreme jumps in gasoline prices immediately after hurricanes in the Gulf Coast region this year and in recent years. Similar factors affect the wholesale power market. Market price fluctuations are due to circumstances that can’t be predicted and create highly variable power costs. Periodically, cost of service studies are performed and base rates are re-adjusted.

When are wholesale market power purchases necessary?
One example is when a utility experiences an unplanned outage of a generating unit and is required to purchase power in the market. Power market purchases are also necessary when power plants are taken out of services for extended scheduled maintenance of seven weeks or more. High prices of natural gas used to generate electricity have led to higher costs for purchases in the power market. About 20 percent of U.S. electricity generation now depends on natural gas for fuel.

Is the REMC/REC the only utility using a tracker?
No. All other Indiana electric utilities use tracker-type cost recovery methods as part of their rate structures. For many years, central and southern Indiana’s electric cooperatives enjoyed the position of not having a variable component or tracker in rates. When Congress deregulated the electric wholesale power supply business, the industry became subject to increased volatility and uncertainty, and our power supplier, Hoosier Energy, experienced a need to implement a cost tracking mechanism. The tracker became part of your electric bill beginning in 2001.

How do my REMC’s/REC’s rates compare to those of other utilities?
Your co-op’s rates and the wholesale rates from our power supplier compare favorably to those of other electric utilities in the state, which are facing the same kinds of cost pressures. Yet overall electricity continues to be an excellent value compared to other types of energy.

How does the tracker work?
Through its wholesale power rate to the REMC/REC, Hoosier Energy has included and is recovering a projected level of costs based on historic generating unit performance, power market forecasts, fuel costs, and other factors. The tracker is used to recover unanticipated costs. The wholesale power tracker is adjusted quarterly. It’s important to recognize that the tracker amount can decrease as well as increase depending fuel, market power prices and other variable costs.

How much will the tracker affect my bill?
The tracker in place beginning Oct. 1, 2008, added about $8 to the monthly bill of a typical consumer using 1,000 kilowatt-hours a month. In recent months, the tracker has been impacted by higher coal, fuel oil and electricity market prices, transmission charges, plant maintenance and other variable production costs as well as environmental compliance costs. Meanwhile, record spring and summer rains across the Midwest saturated coal stockpiles and forced production cutbacks at power plants.

How is that amount determined?
The tracking mechanism recovers variable production costs (fuel including coal natural gas, wholesale power market purchases, operations and maintenance, and emissions allowances) incurred by our power supplier Hoosier Energy during a specific period. The tracker is adjusted quarterly and the amount you pay will vary depending on your monthly electricity usage.

How do Hoosier Energy’s wholesale power costs compare to those of other electric power suppliers?
Hoosier Energy has been among the lowest cost wholesale power suppliers in Indiana for several years. Hoosier Energy’s rates continue to be competitive with other Indiana and regional power suppliers, which also include environmental and purchased power costs on consumer bills through a cost tracker mechanism.

What are other reasons for the tracker?
Electric cooperatives are consumer-owned, but like other businesses must operate in a financially responsible manner to provide reliable service and maintain competitive rates. The tracker helps your electric cooperative manage risks associated with wholesale power costs, maintain financial stability, and avoid large increases in customer bills.

Why are energy prices in general rising?
Although a worldwide economic slowdown is having an impact on energy, prices remain high around the world, in the U.S. and in Indiana. Among the major reasons for rises in energy costs are:

* Domestic energy demand has increased.
* Utilities are making major investments in aging power plants.
* Emerging economies such as China and India are using more energy and commodities, increasing worldwide demand.
* Fuel costs (natural gas, oil, coal) are increasing substantially.
* Shipping costs for coal are increasing.
* The nation’s transmission grid requires billions of dollars of investment to meet increased demand and continue to operate reliability.
* Environmental regulations and other government and public policy requirements are adding to costs.

What is my electric cooperative doing about costs?
Cooperatives by their business structure are consumer-focused utilities that provide members with electricity at competitive rates. We too are concerned about rising costs and have taken steps to improve efficiencies in our operations.

A few things to remember:

* We are committed to delivering electricity at the lowest possible cost.
* We work to minimize the impact of necessary price increases.
* We are accountable to member-consumers not outside investors.
* We operate at cost and investments stay in our community.
* We work in partnership with our power supplier to bring jobs and improve the quality of life in our community.

What can I do to better manage my electricity usage?
We recognize that cost increases have an impact on your household budget. As a consumer focused utility, we can help you stretch your energy dollars. Your cooperative has energy efficiency information on lighting, weatherization, cooling, heating and water heating that can help you manage your energy usage. Energy efficiency and conservation measures are more important than ever. And we recommend that you first look at insulation, caulking and similar low-cost measures that can save energy. For example, replacing five 100-watt incandescent light bulbs with compact fluorescent bulbs can save an estimated $60 a year. Visit your REMC's/REC's Web site for an energy calculator and hundreds of energy saving ideas. Other Web sites with energy efficiency information include: www.TouchstoneEnergySavers.com and www.energystar.gov.

I’m concerned about rising energy costs. What else can I do?
It has been our ongoing mission to provide you with reliable and affordable electricity. To ensure that we can continue to meet your energy needs, we have joined with other electric co-ops across the country in a grassroots campaign called “Our Energy, Our Future: A Dialogue With America.” This campaign asks for your help to ask policymakers critical energy questions such as how to balance growing electricity needs and environmental goals, and how much will climate change regulations increase electric bills. Please visit www.ourenergy.coop to get the conversation started with public policymakers.