Great growth means rising rates
Rapid growth on co-op lines is one reason
rates are on the rise

by Jim McCarty

Editor’s note: Across the state, electric rates are on the rise. This month Rural Missouri begins a series of articles explaining why this is taking place and what you can do to help manage your energy bill. • August 2007 — "Great growth means rising rates." • September 2007 — "The high costs of cleaner air." • October 2007 — "The need for more baseload." • November 2007 — "When time is money." • December 2007 — "Unconventional kilowatts." • January 2008 — "Spend now, save later." • February 2008 — "What about transmission?" • March 2008 — "The high price of fuel" • April 2008 — "Negawatts" • May 2008 — "The glass half full"

Speaking to members of United Electric Cooperative during their annual meeting, Jim Jura posed a question. Jura, the manager of Associated Electric Cooperative, wanted to know how many members had more than one TV in their homes.

Almost the entire audience raised their hands. They responded the same way when asked about refrigerators. Most, it seems, had replaced their inefficient refrigerators, only to move them to the garage or workshop where they continue to run keeping drinks cold.

Jura and the board at Associated, which supplies wholesale power to electric cooperatives in Missouri and parts of Oklahoma and Iowa, have been carefully watching the rapid load growth at electric cooperatives across the state. The same thing is happening at Citizens Electric, the only Missouri cooperative not on the Associated system. Manager Tony Campbell says Citizens has similar issues and is looking for more generation through its supplier, Wabash Valley Power Association.

Looking ahead, Associated’s planners predict the energy requirements of the cooperatives it serves will increase about 2 percent a year. That’s enough power to supply about 30,000 homes a year.

“The system is growing and it’s growing faster than we thought,” Jura says. “No matter what we do, the system is growing so fast we are going to need more generation.”

The number of electric cooperative members has increased nearly 90 percent since 1985. Through 2025, the total number of new members is forecast to grow another 45 percent.

One co-op that has seen tremendous growth is Platte-Clay Electric based north of Kansas City.

“It’s kind of slowed down now,” says Platte-Clay CEO Mike Torres. “We were seeing 850 new meters a year. Now this year we will probably add 350, maybe 380. That’s probably a good thing because the growth we were seeing, while manageable, was right on the edge of manageability. We are getting a little breather now.”

Cattle grazing in a pasture just outside Troy are surrounded by new homes. New home construction in this subdivision, served by Cuivre River Electric Cooperative, and other areas across the state is helping to drive demand for electricity to record levels. Photo by Karen Stockman.

Across the state at Cuivre River Electric Cooperative, membership grew from 46,000 in January 2006 to more than 48,000 a year later. Systems that serve near Lake of the Ozarks, Table Rock Lake and the Springfield area also saw huge growth in the past couple of years.

Not only are there more members, but those members are using more energy than ever before. Average use for residential, commercial and industrial customers has increased 35 percent since 1985 and is forecast to grow another 14 percent by 2025.

Driving that increase is a plethora of new appliances and gadgets. Virtually everything you buy these days — from cell phone chargers to iPods to computer peripherals — comes with a plug.

The number of electric cooperative members who owned a computer went from just 14 percent in 1993 to 60 percent in 2004, mirroring a national trend. The Environmental Protection Agency Energy Star program estimates that home electronics account for about 15 percent of all residential electricity consumed. That’s a 200 percent increase since 1980.

Air conditioner use also has skyrocketed. Today, 90 percent of new homes have air conditioning. And those units will be required to cool much larger homes.

According to the 2006 census, the average single-family home had 769 more square feet than it did in 1976. Thirty-nine percent have four or more bedrooms, double the rate of 20 years ago. And 26 percent have three or more bathrooms, almost three times the rate from 1986.

So not only are there more houses being served by electric co-ops, they are also larger and use more energy.

In board meetings across the state, this growth has caused concern among those responsible for planning to meet member needs. “There’s a lot of concern over capacity as we go forward and what steps should be taken to plan for it,” says Torres.

The good news: Your electric cooperative has plans in place to meet this tremendous increase in demand for electricity. The bad news: New sources of power will certainly cost more to build, and rates are expected to increase in the foreseeable future.

What’s driving current rate increases? For years, Associated had excess energy that could be sold on the open market. Margins made on these sales helped offset rates co-op members paid.

“When the system grows, the members use up the low-cost generation,” Jura says. “That’s fine, because these generation units were built for our members. But it does mean we will have to increase rates a little faster because we won’t have the margins from selling power off the system.”

Other factors that are driving rate increases include dramatic increases in the price of fuel — especially coal and natural gas — that are used to generate electricity. Another issue is the staggering cost of equipment that must be installed at power plants to meet strict new environmental standards.

In the short term, new gas-fired units have been brought on line that can add to the generation mix in times of high energy use, usually on the hottest and coldest days of the year. For example, Associated purchased a mothballed power plant in Dell, Ark., and completed construction on it this spring.

Associated also contracted to buy the entire output of the three wind projects being constructed in northwest Missouri. The first of these, Bluegrass Ridge, is already delivering some power to members.

But in the long term, Missouri cooperatives will need additional baseload generation which, unlike wind power, can be relied on whenever it is needed. A new coal-fired plant in the works for Norborne, Mo., is expected to cost $1.7 billion. That’s 70 percent more than estimates from two years ago.

The last large generation unit built by Missouri’s electric cooperatives came on line in 1982. Much has changed since that plant was built, and these factors are driving costs for new power plants through the roof.

“One way I try to put these cost increases into perspective,” says Torres, “is to compare it to the price of a new car. If you priced a new Chevy in 1985, it was probably $14,000. What would that same Chevy cost today? It’s probably double. So how can we expect it to be any different for a new power plant?”

Electric cooperatives are not the only utilities experiencing this combination of high growth and sticker shock over the cost of new generation. Utilities across the country are in the same boat.

But Missouri’s electric cooperatives today enjoy some of the lowest rates in the nation. And that is expected to be the case in the future, especially with a new emphasis on efficiency.

“It’s a given we are going to have rising rates,” Jura says. “Fuel and construction costs are going up. But if we can help members use energy more efficiently, it’s possible bills will levelize and not go up that much.”