Time for Straight Talk
Demand for energy is increasing worldwide and so are prices

Glenn English Chief Executive Officer
National Rural Electric Cooperatives Associatione

While the late 1990s were a period of level or even occasionally declining rates for electric utilities, the power industry now has entered a period of dramatically increasing costs. Despite the increases in electricity prices, the fact is electricity price increases have been substantially less than those seen for crude oil, natural gas, propane and other forms of energy. In addition, as a member of an electric cooperative, you have further assurance that any rate adjustments you see will go toward covering the base costs of providing power to you. Co-ops by definition are not-for-profit.

Reasons for the recent trend of rising costs include:

Energy demand around the world is nearly equal to the available energy supply. An increasingly global economy creates additional competition for energy supplies. For example, China is building a new coal-fired plant a week. Prices for coal, natural gas and other fuels that generate electric power have increased substantially because of worldwide demand.

New environmental regulations have resulted in increased operating costs for electric utilities –especially for coal-fired generating plants. However, electric utilities are producing 20 percent more power today with 50 percent fewer emissions than 10 years ago. Environmental controls account for about 25 percent of the capital cost for power plants. New regulations will require even more investment.produce most of the nation’s electricity. These plants are aging, and maintenance costs are increasing. Most of the generating resources that have been added in recent years are designed to only meet peak demand and are fueled by natural gas. Increasing natural gas prices drive wholesale electricity prices higher.

Major U.S. utilities are preparing for substantial expenditures to increase the capacity of the high voltage transmission grid to meet the growing needs of the wholesale power market. This needs to happen within the next decade and will require billions of dollars of investment.

Congress deregulated wholesale power markets in 1992, resulting in volatile power market prices – and a blurring of who is responsible for planning and paying for investments in new transmission facilities. Wholesale power prices increased from 50 to 200 percent during 2000-2005. And other fundamental changes are occurring in power grid management in the central U.S. These new energy market system operators dispatch power to locations based on energy supplier’s offers into the market.

When the electric industry in Illinois was deregulated in 1997, the rates of investor-owned utilities (IOUs) were “frozen” for a period of time. When the rate freeze ended and the power auction increases were added, rates skyrocketed for Ameren and ComEd consumers. Fortunately, Illinois legislators understood that, as not-for-profits owned by the consumers themselves, co-ops and municipal systems were different from IOUs. For co-ops, authority on rate-setting and other decisions relating to entry into a deregulated market was left with the members, through their local member-elected and controlled boards of directors.

Rate increases never are desirable, especially for cooperatives and their boards of directors who represent the interests of their fellow members. But it is their responsibility to provide safe, reliable power in the most cost effective way possible. When faced with difficult issues like rising energy costs, it is also the responsibility of co-op board of directors and management to shoot straight with you the member.

In the next decade we will need a 50 percent increase in the amount of power we have available today. This will be the most expensive generation built in history. While some energy companies may have lost sight of the responsibility to adequately serve and honestly inform customers, your electric cooperative is committed to meeting your needs and keeping you informed.


More Information

Glenn English is Chief Executive Officer of the National Rural Electric Cooperatives Association, the national service organization representing the nation’s more than 900 private, not-for-profit consumer-owned electric cooperatives, which provide electric service to 37 million people in 47 states.