News

7/2/2009

Fall 2009 Electric Rate Increase

The good news: Midwest Electric has not increased its distribution retail portion of electric rates since 2006. The bad news: The cost of wholesale power generation and transmission through Buckeye Power (our power supply cooperative) will increase by .0085 cents per kilowatt hour (8.5 mills) this fall. This equates to $8.50 more per month for a member who uses 1,000 kWh.

Much of this rate increase is related to capital investments at our power plants to comply with the government's Clean Air Act standards.

The rate adjustment was expected and forecasted. The wholesale price is increasing due to: rising cost of fuel; environmental investments in our coal plants; Buckeye's recent purchases of new generating capacity; general capital investment to keep our existing power plants reliable; and to a lesser degree, transmission related costs from the regional transmission organizations.

Buckeye Power's board of trustees - made up of cooperative representatives - approved a plan of small cost-of-power adjustments every year throughout a 10-year forecast period to pay for these costs.

Rising Fuel Costs
Buckeye Power buys millions of tons of coal per year to fire boilers at its power plants; more than 90 percent of our electricity is generated from coal. Coal is inexpensive and abundant; however global demand for coal has been volatile and the cost of Appalachian coal has nearly doubled in the last couple of years.

Environmental Regulations
Since 2000, we have invested $900 million in environmental controls and upgrades at our power plants in recent years, making them among the cleanest in the world for removal of sulfur dioxide, nitrogen oxides, mercury and other byproducts.

Consumer Demand
Although the recession has dampened consumer demand for electricity, Ohio's electric cooperatives have steadily grown over the years. Our members' lifestyles are changing and your appetite for energy is increasing over time. Large-screen TVs and computers were once a luxury but now are found in many homes. Modern appliances use electricity even when they are turned off.

Buckeye Power has added new generating plants in recent years. Owning and controlling our generation assets means we avoid the risk of paying market prices for electricity when it is in short supply.

Although Buckeye Power's rates are increasing, they are the lowest in Ohio. As a not-for-profit, member-owned cooperative, we sell power to you at our cost, plus a small margin to cover operating expenses.

Wholesale prices could grow substantially higher if "climate change" legislation is enacted.

The trend of increasing electricity prices is directly related to fuel: what it costs to purchase and transport coal for supplying the power plants, and the environmental technology needed to meet ever-stricter federal clean air regulation.

Supply and demand affects the price of fuel. Remember when natural gas prices spiked a few years ago? How about last summer's $4-per-gallon gasoline pump prices? On the wholesale power generation level, there's a new wrinkle. Industrializing Asian nations, led by China and India, in recent years have exerted additional demand pressure on the coal market. China alone is building hundreds of coal-burning power plants, and the Chinese appetite for new fuel sources is predicted to become even greater.

In 2008 before the economic recession set in full force, domestic coal prices had doubled. The cost of other inputs related to the burning of fossil fuel also spiked. China continues to buy and stockpile foreign coal, as does India. The recession has had some effect on competition for coal supplies, but not much. It is becoming more difficult to negotiate long-term coal contracts because of the market's volatility.

While our political leaders in Washington, D.C., dither about climate change legislation and want to eventually abandon coal as a fuel source, other nations are hungry for this resource found so abundantly in the U.S. They plan to continue burning coal to produce electricity to fuel their economies. Overseas demand is certainly one of the cost drivers of rising electric bills.

Added to the cost of fuel for conventional steam-turbine power plants are the technological additions needed to scrub, filter, and neutralize byproducts of the coal combustion process: sulfur dioxide, nitrogen oxide, mercury, particulate matter. Buckeye Power's Cardinal Station units and the Ohio Valley Electric Corporation capacity soon will be equipped with the latest environmental controls. The price tag at Cardinal alone is nearing $900 million - and in the future it appears technology to capture and store carbon dioxide will need to be added. No one knows what this will cost.

The power generation industry is anxiously awaiting finalization of climate change and energy policy before deciding on future output and investment options. One thing seems certain, though. The price of energy will continue to go up. How much it will rise remains to be seen. Rest assured that your cooperative is doing every thing it can to keep rates affordable and your power supply reliable. These are trying and uncertain times, but our greatest strength is in our difference. We keep our members and owners in mind at all times. We are, first and foremost, consumer organizations. You deserve to know why rates are rising and what we are doing about it. Stay tuned for more information, and never hesitate to call us with a question or comment.

Back to News