Rural Missouri Magazine
What's up with rates?
Rising costs, growing load prompt need for higher rates at many
Missouri co-ops

by Jim McCarty

The cost of producing electricity at Missouri's power plants — such as the Thomas Hill plant near Moberly — is going up, due to rising fuel and transportation costs, among other factors. Electric cooperative member/consumers can anticipate higher energy bills over the course of the next few years.

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 Missouri’s electric cooperative members.

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 Missouri’s electric cooperatives, with the exception of Citizens Electric, receive their power from Associated Electric Cooperative. Associated was formed in the early ’60s 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.
Associated’s wholesale rates are among the lowest in the country and have been partly responsible for the low and stable rates enjoyed by Associated members.

In April, Associated’s board, made up of managers and directors from its six member generation and transmission systems, implemented the tough decision to raise wholesale rates. That increase was Associated’s first since 1985.

As the increase trickles down from the transmission cooperatives to the local level, decisions will be made that determine whether your local system raises its rates and how much that increase will be.

Increases in the price of coal, combined with higher rail shipping costs from the Powder River Basin in Wyoming where it is mined, are in part responsible for the increase in wholesale power costs to your electric cooperative.

So what’s driving this need for additional revenue? Here are some of the issues that are making the increase necessary.

Demand for electricity

Imagine that the state of Missouri was adding a new city with 30,000 homes every year. That’s 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 keep up with the demand for power, Associated Electric Cooperative is adding new generation to ensure there will be adequate supplies in the future. Associated’s forecasts show its members will require an additional 100 megawatts each year.

Since costs for building materials and labor have increased dramatically since Associated’s last large-scale power plant was built in 1982, it’s logical to anticipate that electricity from the new plant will cost more per kilowatt-hour.

On the drawing board is a new 660-megawatt power plant proposed for Carroll County in northwest Missouri. This plant offers the most economical option to meet members’ long-range energy needs.

The plant, slated to come online in 2013, is expected to cost $1.3 billion. That amount is 30 percent higher than it would have cost just two years ago. Worldwide demand for power plants is in part responsible for this increase. China, for example, has ordered 60 similar new plants.

To longtime co-op members and employees, today’s 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

In 2002, Power magazine recognized AECI's St. Francis Power Plant as one of the top 20 combined-cycle generating plants in the country, noting its low emissions and efficient performance. But rising natural gas costs at plants such as this contribute to pressure on electric rates.

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.

Associated’s cost for fuel per unit of generation has 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. In 2007, alone, increases will add $30 million in costs for Associated.

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.

The rising cost of shipping coal from Wyoming to Missouri power plants, like the New Madrid facility pictured here, will add to the need for increased electricty prices in coming years.

These environmental improvements have not been inexpensive. And 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 nation’s lowest-cost wholesale power suppliers. By forming their own generation cooperative, Missouri’s 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.

• Take advantage of any load-shedding programs your cooperative offers. These may include letting the cooperative install a control on your water heater that shuts it down for a brief, unnoticeable period to avoid setting new peaks. Due to the way rates are set, higher peaks can cause your cooperative to pay higher wholesale power rates for years to come..

Rural Missouri | June 2020 Issue

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