ELECTRIC POWER COST ON THE RISE; INCREASES IN THE COST OF GENERATOR FUEL (NATURAL GAS & COAL) ARE PRIMARY REASONS
by Lance Adkins
As consumers watched the cost of natural gas and propane increase through the end of 2000 and into 2001, many also wondered when the increases would show up in the cost of electricity. At Farmers' Electric, we purchase the bulk of our wholesale power needs from Southwestern Public Service Company (SPS), and we also receive a small allocation of hydroelectric power from power dams operated by Western Area Power Administration (WAPA), a division within the Federal Government. SPS actually takes delivery of the hydropower and credits the energy against fuel they would have burned in their power plants for our members. Most of the time the fuel offset saves the members of Farmers' Electric some amount of money, depending on the actual cost of fuel SPS incurs in the generation process. Throughout 1999 and early 2000, the cost of fuel for generation was very low and the credit for hydropower was also low.
As natural gas prices increased, the value of our hydropower allocation became more apparent in recent months, as the benefit to Farmers' Electric members was a savings of over $78,000 on our February wholesale power-bill alone! These savings were credited to the members on the monthly electric bill through the fuel cost adjustment line item.
The fuel cost adjustment factor on monthly billing statements reflects the change in the cost of fuel for wholesale power. Farmers' Electric has a stated base power cost in all retail rate schedules of $0.041265 per kilowatt-hour (kWh). Anytime wholesale power costs are below or above the base power cost, the difference is credited or charged to consumers through the fuel cost adjustment factor on monthly billing statements. For readers who purchase power from another electric utility, the fuel cost adjustment factor may be somewhat different depending on what base cost of power is in your utility's retail rate schedules. This factor has been negative, or a credit to members of Farmers' Electric for the past two years. It now appears the recent increases in fuel will cause our fuel cost adjustment factor to increase above our base wholesale power cost beginning this month.
Another factor contributing to increased fuel costs is related to scheduled maintenance of SPS's coal-fired power plants, and at least one unscheduled shut down (outage) of another coal-fired power plant. As the coal-plants are the most efficient and least-cost generating facilities on the SPS system, the loss of a coal-plant in the generation mix combined with the high cost of natural gas pushed wholesale power costs even higher.
In a recent meeting with SPS representatives, we learned their plans are to have all scheduled maintenance completed before the summer season, and all plants available for generation through the peak summer season. In addition, they are projecting stable, although higher than last year, fuel costs through the remainder of this year.
I was encouraged by President Bush's recent announcement, dropping immediate plans to further regulate carbon dioxide (CO2) emissions from coal-fired power plants. Carbon dioxide, not to be confused with carbon monoxide, is not considered to be a pollutant, but is considered by some in the scientific community to be a contributor to global warming. One primary concern is that further, mandatory CO2 reductions at this time would significantly increase the cost of power produced from coal-fired power plants, at a time when the costs of other energy resources have skyrocketed. In the United States, between 50 and 60 percent of electric generation is from coal-fired power plants. For the members of Farmers' Electric and consumers of other utilities who purchase wholesale power from SPS, costs have remained relatively low and very stable for a number of years due in large part to SPS's ability to build and operate low-cost coal-fired generation.
Another interesting thought, over 90 percent of new generation being constructed in the United States today, and planned for construction over the next five years will be fueled by natural gas. This added growth in natural gas consumption may certainly affect the cost of gas for several years to come. Electricity was once considered a luxury; it is now considered a necessity. It is imperative that the United States continues to develop a national energy policy that recognizes the importance of a reliable supply of reasonably priced energy, produced in an environmentally responsible manner. Our economic future depends on it!
Lance Adkins is the General Manager of Farmers' Electric Cooperative in Clovis, New Mexico, providing electrical service to approximately 10,500 meters in New Mexico.
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