Stihl Dealer Days

Rural Missouri Magazine

The high price of cleaner air
Climate change legislation is one reason rates are on the rise

by Jim McCarty

Editor’s note: Across the state, electric rates are on the rise. This is the second in a series 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"

While debate continues on whether or not the world is getting warmer, one fact has emerged from the dialogue: Any attempt to lower the temperature will raise the price consumers pay for electricity.

In fact, it’s already taking place. Electric utilities across the country have made dramatic decreases in the greenhouse gas emissions coming from power plants. But this progress has come at great cost. And past costs are just the tip of the iceberg compared to what could be coming.

Each year, the Environmental Protection Agency looks at emissions that could affect health. Between 1970 and 2006, the six principal air pollutants the agency measures dropped by 54 percent. While this was happening, energy consumption increased 49 percent, the U.S. population increased 46 percent, vehicle miles traveled increased 177 percent and gross domestic product increased 203 percent.

Associated Electric Cooperative, which supplies wholesale power to electric co-ops in Missouri, Iowa and Oklahoma, mirrors the national trend.
At Associated’s power plants, the sulfur dioxide emissions rate dropped 90 percent since 1994 while nitrogen oxide (NOx) emissions rate was cut 77 percent. Additional NOx reductions will come by 2009 when equipment being added to the Thomas Hill plant is completed.

Those are impressive numbers. But so is the price tag.

• In the past 13 years, Associated alone has invested $650 million to reduce emissions at its coal-based power plants.

• In 2006, the cost to operate emissions equipment at the Thomas Hill and New Madrid plants totaled more than $12 million.

• Those costs will increase to $16 million when Associated begins meeting the new federal regulations starting in 2009.

• Operating costs in 2006 to remove NOx totaled about $10 million.

A construction worker is dwarfed by the metal framework of the emissions control equipment being added to the Thomas Hill Energy Center. When completed, the equipment will add to the tremendous progress being made to clean up the air by utilities across the country — but these improvements have a huge price tag.

• Associated will spend $468 million on additional environmental improvements. This includes $330 million to meet new standards passed by Congress.

• Depending on future political and regulatory decisions, especially regarding carbon control, these costs could be even higher.

“Make no mistake, there is substantial cost to be paid to reduce carbon emissions and that needs to be laid out on the political table,” says Glenn English, CEO of the National Rural Electric Cooperative Association. English and his staff have been tasked by the electric cooperatives they represent with making sure Congress considers the member at the end of the line during climate debate.

In their dialogue with members of Congress, English and his staff agree that carbon emissions must be reduced. But they draw a line in the sand when talk turns to raising rates to force consumers to use less energy.

“Co-ops find themselves facing some who believe America’s energy is too cheap, and that the way to fight global warming is to encourage conservation and efficiency through much higher energy prices,” English says. “Dollars derived from rate increases must result in significant gains worthy of the pain millions of our members will feel.”

Closer to home, the costs to add selective catalytic reduction equipment to the Thomas Hill plant will rival the original cost to build the plant. The $330 million price tag for that equipment is nearly three times the price of a similar system installed at New Madrid seven years ago. Driving that cost increase is global demand for steel and other materials due to massive construction projects in China and India.

Associated had to go to France to get the 6,000 tons of steel for the project. They also had to wait in line for the skilled workers, especially welders, to build it. All of these factors are driving up the costs to generate the electricity you use.

Emissions controls to be installed at the Thomas Hill Power Plant will cost nearly as much as construction of the plant itself.

What’s interesting to note is that in these days when demand for electricity is growing, none of these measures will add a single kilowatt-hour to the system. Instead, they cut efficiency and add to the price of energy coming out of the plant.

And these costs are ultimately passed on to consumers.

Electric cooperatives generate just 5 percent of the electricity used in the United States. So why are they so concerned about the cost of environmental compliance?

It’s because electric cooperatives depend more on coal for generation than the rest of the industry. Co-op generation equals about 80 percent coal, while investor-owned and municipal systems are about 50 percent coal.

So why not switch from coal to another fuel source? Coal is by far the lowest-priced fuel for generating electricity. The delivered cost to generate 1 megawatt hour from coal (fuel price plus transportation) is $13. The next cheapest source, natural gas, is roughly three times higher, at $47.

When energy costs go up, they hit the poorest Americans the hardest. Those living at the poverty level spend about 33 percent of their incomes on energy. Cooperatives tend to serve areas with income levels 16 percent lower than the national average.

Because they live and work in the areas they serve, electric cooperative employees and directors are especially sensitive to anything that will increase the price of electricity to the cooperative’s members.

The rail cars full of coal arriving at the New Madrid Power Plant each day provide Missouri electric cooperative members affordable, reliable power. But utilizing America's abundant coal resource will become increasingly more expensive due to environmental regulations.

It’s a double-edged sword: Electric cooperatives want to do their part to protect the environment. But they want to do it in a way that does not cripple the economy.

As Congress debates stricter measures designed to curb greenhouse gases, NRECA is urging lawmakers to be honest with consumers about the true costs of these measures. They aren’t the only voice speaking out.

In its July 6 edition, The New York Times ran an editorial citing what they call “an unpleasant and inescapable truth.”

“Any serious effort to fight warming will require everyone to pay more for energy,” the Times opined.

How much more is still to be determined in the halls of Congress.

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Association of Missouri Electric Cooperatives

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P.O. Box 1645 • Jefferson City, Mo. 65102
573-659-3423

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