As energy prices fluctuate, we try to make sense of the questions people ask us. To learn more about the issues facing our consumers, click one of the topics below.
Team Up To Save effort can help manage rising electricity prices
There are forces driving up the cost of power, and they don't appear to be slowing down. In response, your electric cooperative is encouraging members to "Team Up To Save" in a joint effort to save energy and money. Participants are asked to become more informed about why costs are increasing and then consider changes in how and when they use electricity.
Coal and fuel oil prices are expected to jump 50 percent in the next two years. The cost to deliver power through the regional grid increased 10 percent in five years and could increase 75 percent in the next two years.
While the overall effect on rates is not yet clear, the fact that power costs are going up is.
As a cooperative, owned by the people we serve, our priority is offering solutions to the challenge of holding down the cost of electricity. That's why we're asking folks to join us in Team Up To Save.
In-depth information on what people can do to change the way they use energy may be found at Facebook.com/TeamUpToSave. Easy-to-follow energy tips and videos are available there, as well as details about why power costs are on the rise. Through the co-op's partnership with Touchstone Energy, the website TogetherWeSave.com also offers easy-to-understand, energy-saving resources.
All of us need to do our part to keep the cost of electricity as low as possible. By teaming up with us, we can win in the effort to keep the cost of electricity as low as possible.
Taking Stewardship Seriously
As a cooperative owned by the people we serve, one of our priorities is to offer solutions for holding down the cost of electricity. With increasing pressure on the cost of generating and distributing electricity, it's a challenge to keep electric rates stable.
Our rates are set to cover the cost of doing business – providing affordable, safe, and reliable electricity – rather than to create profits. We take stewardship seriously, and we're asking you to, as well. That's why we continue to communicate information about why power costs are going up and what you can do to better manage your energy use.
There are many factors driving up the cost of power. Prices for coal, fuel oil, utility poles, trucks, and power distribution equipment are rising. And regulations are having an impact, too. Hoosier Energy has recently invested $900 million, primarily to comply with environmental requirements.
While many factors that affect the cost of power are out of your hands, there are some things you can control. That's why we're asking you to “Team Up” and become a steward of your resources.
Boost your energy stewardship by taking energy-efficiency steps, like replacing traditional light bulbs with LEDs, and shift the time when you run dishwashers, clothes washers and dryers to later at night before you go to bed. These actions will help you use energy more efficiently, reduce overall demand for power, and have a positive impact on the environment. Most of all, these steps will help delay the time when new, expensive power plants are needed.
To view energy-saving programs available log onto TeamUpToSave.com.
Perfecting our Renewable Energy recipe
To bake a moist, delicious cake, you've got to add the right amount of each ingredient. For example, if you put too many eggs in the batter, it could be too thick. Not enough eggs could make the cake too dry.
It's the same way with power generation sources. We have to use a good mix to provide reliable electricity, take care of the environment, and keep costs as low as possible.
Renewable resources can be important supplemental energy sources, but they can be expensive and less reliable than traditional sources of electricity. That's why our power supplier follows a strategy of adding competitively priced renewable energy projects.
Currently, nearly 3 percent of our power comes from renewable resources like wind, hydroelectric and landfill methane generation facilities. There are additional projects planned and under construction that will increase the level of renewable energy to nearly 6 percent in the next few years.
In addition, consumer information on the performance of small-scale renewable energy facilities is available online at Hoosier Energty's website. Equipment and construction costs, and production information is available from southern Indiana sites where residential and commercial scale facilities are operating.
Another way you can help is by participating in the Team Up To Save effort. You’ll be encouraged to use energy more efficiently, while learning more about the cost pressures our industry faces. The first step is to join at Facebook.com/TeamUpToSave for ongoing tips, resources and other information.
In addition to having a positive effect on the environment, your involvement should help keep rates stable and, depending on your actions, reduce your monthly power bills.
Electric cooperatives are constantly evaluating the available technologies in the electric utility industry, and using the ones that achieve the right balance for providing reliable, affordable power. Like good bakers, we're always tweaking our recipe for perfection.
Power cost tracker provides price stability
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.
The power cost tracker also includes environmental compliance costs. Since 2005, Hoosier Energy has spent more than $400 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 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 have launched new programs in 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. Electricity remains a good value in today's energy market.
Industry Change Rate Changes
All across the country, electric cooperatives are changing their rates to give consumers more control in managing their electricity usage and costs.
From 1993 to 2003, cooperatives enjoyed a period of rate stability. In recent years, costs and rates have been rising and it appears these increases are part of a long-term trend.
Environmental and regulatory pressures, higher costs for new power sources, renewable energy, volatile fuel costs and wholesale market prices, and pending federal climate legislation are all factors that are forecasted to impact your power costs over the next several years.
As a member-owned cooperative, your electric cooperative is in business to provide you reliable electric service at the lowest possible cost while providing consumer services. While we don’t operate to generate profits for investors, we must recover costs and maintain sound business practices.
An effective way to afford consumers more control over rising costs is through a new rate structure. Rates are being changed to send clear price signals to consumers to change their patterns of using electricity. The right rate signals encourage changes that help consumers and their cooperative manage electricity demand and costs.
Your cooperative has a seven-decade tradition of helping consumers to be more energy efficient.
The cooperative offer rebates for efficient heating, cooling and water heating equipment. Together, Hoosier Energy co-ops distributed more than 500,000 compact fluorescent lights in 2009, saving consumers millions of kilowatt-hours and dollars. We offer you the Together We Save Web site with energy audits, energy efficiency tips and other energy saving information. And we work with builders to encourage energy efficient Touchstone Energy homes that provide long-term savings.
Additional programs are being planned to help consumers use electricity efficiently and save you money. These programs also will reduce the need for our power supplier to build costly new generating facilities or buy more power in the volatile wholesale markets.
Your electric cooperative’s power costs include charges for both consumption [kilowatt-hours], and demand [the maximum amount of power used in a billing period]. Even though that maximum amount of power may be used only a short time, the utility must have generation, transmission and distribution capabilities to provide it.
Utilities use demand charges to recover fixed costs. Demand charges typically have not been a separate component of residential electric bills. Usually demand has been averaged into a set charge per kilowatt-hour used.
Demand for electricity is higher in the summer months of June, July and August, and in the winter months of December, January and February. It’s more expensive to provide electricity during these months.
A new wholesale rate structure will enable your cooperative to offer residential energy management programs that better reflect the true costs of providing energy. Reducing peak loads in high demand months will help your electric cooperative reduce costs and consumers to save money.
Load management programs
Load management programs encourage customers to modify patterns of electricity usage. By participating, consumers are helping conserve energy, reduce the need to build new power plants, preserve the environment, and lessen the impact of rate increases.
Here's how a load management program works. The cooperative installs load management switches on electric water heaters or air conditioners. The switch allows automatic operation of the equipment during peak demand periods. Peak periods usually occur only a few days each month and for only a few hours.
Cycling water heaters or air conditioners during critical periods reduces overall demand while allowing consumers to have the hot water and air conditioning they need. A water heater continues to store hot water even when the load management system is operating. Air conditioners are cycled for brief periods while circulation fans continue to operate. Consumers typically notice little difference in hot water or air conditioning comfort.
The long-term produces long-term value. Reducing energy requirements during peak periods helps your cooperative control the cost of electricity and pass those savings on to you.
Saving now and in the future
The rate changes and load management programs ahead are major steps in helping you better control your monthly electricity costs. By working together we all save. It will make a difference to you and your cooperative by controlling costs, helping the environment and lessening the impact of rate increases.
About the Hoosier Energy Wholesale power cost tracker
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.
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 cost.
How is the tracker 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.