The glass half full
Despite rising rates, outlook is good for Missouri co-op members
By now most people know that the price for electricity is on the rise. The reasons why have been the topic of this series for the past nine months. In a nutshell, this is what is causing those rising rates:
• Tremendous growth — the equivalent of 30,000 homes per year — has eaten up all of the lowest-cost energy, curbed off-system sales that offset the price co-op members pay and prompted the need for additional, more expensive sources of electricity.
• Restrictions on emissions from power plants have dramatically improved air quality, but at a staggering cost. Associated Electric Cooperative, which generates electricity for Missouri’s electric co-ops, spent $650 million in the past 13 years on emissions-control equipment. Associated is now building a $385 million project and forecasts spending an aditional $550 million in the next 10 years.
• A new baseload power plant is needed. But shortages of material and labor for such a project are causing costs to skyrocket, forcing Associated to postpone indefinitely plans for a new coal-fired power plant at Norborne.
• Maintenance costs for Missouri’s aging electric co-op power plants are adding millions in expenses. When plants are off line for maintenance issues, it can cost as much as $500,000 a day to replace this energy.
• Transmission line upgrades necessary to ensure reliability added more expense. In 2007, Associated invested $70 million in transmission upgrades.
• Increases in the cost of fuel for generating electricity — coal and natural gas — make the price consumers pay at the pump look cheap.
All of these factors driving up the cost of power are playing out against a backdrop of uncertainty as lawmakers in Washington, D.C., grapple with the climate change issue. It’s enough to make directors and managers of electric co-ops want to throw up their hands in despair.
Instead, electric cooperatives across the country are working hard to protect their members from rate shock. “No one on any co-op board likes to have rate increases,” says O.B. Clark, a member of Co-Mo Electric Co-op and the president of the Associated board. “We all love cheap rates. But we have to have a reliable system. That’s our responsibility on the board. To do that, we have to have a strong financial position.”
Despite rising costs, the outlook isn’t all bad, Clark says.
Because their boards include end users, suppliers of wholesale power for electric cooperatives have a vested interest in keeping rates low and reliability as high as possible.
Electric co-ops have no incentive to set rates any higher than is absolutely necessary to stay in business and supply reliable power. Because co-ops have no profit motive, any margins beyond the cost of doing business are returned to the members.
Missouri’s electric cooperatives and their member/owners continue to have a big competitive advantage when it comes to the rest of the country. “We are starting from a much better position than a lot of utilities,” Clark says. “Certainly the co-ops surrounding us, whether they are in Arkansas, Kansas, Iowa or Illinois — we’re way below them.”
Missouri currently ranks ninth nationally in average price for electricity. Rates began rising for the rest of the country much earlier. Associated Electric Cooperative, for example, implemented its first wholesale rate increase in 2006. That was its first increase in 20 years. Prior to that, wholesale rates actually decreased.
Sometimes challenges turn into opportunities. The need for more power led Missouri’s electric co-ops to wind developers who needed buyers for their proposed wind energy in northwest Missouri. By agreeing to buy the entire output of the state’s first three wind farms, the cooperatives made these projects a reality. Today, giant wind generators join old water pumpers on the landscape.
“Now we’ve gotten to where there is no excess capacity,” Clark says. “Now we’ve got to build new plants. It’s caught up with us.”
While future rate increases are likely, rates are expected to remain well below those paid by other Americans.
Those investments in new emissions-control equipment are paying off with cleaner air. Today’s coal plants are 70 percent cleaner than in the 1990s. The Environmental Protection Agency says emissions dropped 54 percent at the same time energy consumption increased 49 percent.
At power plants owned by Missouri’s electric cooperatives, the sulfur dioxide emission rate dropped 90 percent since 1994 while nitrogen oxide was cut 77 percent. Additional reductions will come in 2009 when equipment being added to the Thomas Hill plant is completed.
Sometimes, challenges turn into opportunities. The need for more energy led to Associated Electric becoming the only utility to have Missouri-produced wind power. The state’s first wind farm, Bluegrass Ridge, produced 10,858 megawatt-hours in January. The Cow Branch project is also on-line now, and the Conception wind project should follow soon.
Every megawatt-hour these wind farms produce will replace more costly electricity generated from natural gas.
The wind farms were made possible by the strong transmission facilities owned by the state’s electric cooperatives. And the hefty investment being made to improve transmission ensures reliability isn’t an issue for electric cooperative members.
Many systems experienced weather-related outages this past winter. But we have not seen the systemwide blackouts and brownouts that have plagued other parts of the country.
That’s because those member-owners on the board at Associated have had the common sense to insist on wise spending for the things that ensure reliability. The board also has a policy that it will keep reserves equal to the largest generator on hand in case of an emergency.
The good news continues: Lakes that supply low-cost hydropower are full thanks to the heavy spring rains. Drought conditions across southern Missouri in the past couple of years drastically reduced the availability of this power.
Finally, an ambitious energy-efficiency program backed by $31.1 million will have the dual effect of lowering member bills while reducing the need for 1.9 million megawatt-hours of electricity.
“As the distribution co-ops embrace this program, some of this money will be used to show how with a small investment, they can save some real dollars. We should never waste electricity. If we can find a better way to do it, we should,” Clark says.
While these are difficult times for Missouri’s electric co-ops, members can rest assured their cooperative is working for their best interests by ensuring reliable and competitive wholesale power. Says Clark, “In this business you have to be looking 10 years into the future. We’ve got to pull together and work together.”