The price of power

LANCE GRIFFIN

Published: September 20, 2008

Even before Hurricane Ike slammed into the Texas coast last weekend, nervous motorists pulled into local gas stations and filled their tanks.

Some brought additional gas cans. Others brought rarely-used secondary vehicles, fearing a prolonged supply shortage.

Prices spiked due to the panic buying as well as the temporary closing of several refineries in Texas and Louisiana, as well as the shuttering of several off-shore rigs.

The spike is only expected to be temporary. The price of oil continues to hover around $100 per barrel, far short of record prices just a few months ago. Analysts say gas supplies should level soon and prices should respond accordingly.

But consumers are experiencing rising energy costs away from the pump. Electric rates are increasing. Eye-popping fuel surcharges have caught many Dothan residents off guard. Alabama Power is asking the Public Service Commission to approve an unprecedented rate increase. Other providers, including Wiregrass Electric and the Tennessee Valley Authority, are also increasing rates.

And, according to one electric provider spokesperson, rates can be expected to increase again soon.
Analysts and providers say several factors are playing into the sharp rise in utility rates.

Demand

Brad Kimbro, spokesperson for Wiregrass Electric Cooperative, said local, regional and worldwide demand for energy all plays in to the increased cost.

Energy consumption in China and India has increased dramatically recently. Those countries and others are demanding a bigger chunk of the world’s resources, putting a squeeze on supply.

“There is no denying that what is happening in China is absolutely affecting our backyard today,” Kimbro said.
But usage among local residents has also increased.

“Just think back to when a lot of us were growing up. We had just one television, two at the most. We just didn’t have a lot of gadgets that took a lot of power,” Kimbro said. “Now, we have plasma televisions, maybe two or three. We have to charge cell phones. We have computers that some of us keep on all the time.”

Kimbro said the average Wiregrass Electric customer’s energy usage has increased from just below 1,260 kilowatt hours per month in 2003 to about 1,350 in 2008.

“And conservation is important,” Kimbro said. “We strongly encourage conservation. But the fact of the matter is you can exchange all those old lightbulbs with the brand new compact fluorescent bulbs, but if you go out and buy one plasma television then your bill is going to go up.”

Supply

While each provider’s mix of energy sources is slightly different, most get their energy from four areas: water, nuclear, coal and natural gas.

Linda Brannon, spokesperson for Alabama Power, said no single source can provide energy for all its customers. Therefore, it relies on a mix of the four.

Currently, Brannon said the majority of its power generation comes from the two sources which cost the most to generate power — coal and natural gas.

Brannon said about 51 percent of its power comes from coal. Natural gas supplies about 24 percent. The remaining percentage is split among the two cheapest sources, water and nuclear, at about 12 percent each.

“We are getting, out of Farley (Nuclear Plant), everything that we can get out of it at this point,” Brannon said.
Electricity providers not only must have enough power to supply to its customers, but it needs more than enough in case demand peaks. So, on extremely hot days, or during prolonged droughts, providers turn to natural gas to provide the extra needed energy.

Environmental concerns

Plants that produce cleaner emissions add to the cost of providing power, whether it is retro-fitting existing plants or constructing environmentally-friendly new ones.

New coal-fired plants and nuclear plants will cost billions to build. Many proposed plants are often tied up in court for years with costly lawsuits. Some consumer advocates believe greater environmental regulations are necessary for cleaner air, and will actually cost less in the long run than keeping regulations the same. Others believe restrictions go too far.

“Regardless of which side of the argument you come down on, it is clear that if environmental regulations continue to be placed on us, costs are going to go up and go up substantially,” Kimbro said.

Putting it all together

Increased demand, limited supply and additional costs of plant construction and retro-fitting all lead to bigger electric bills.

Kimbro said Wiregrass Electric’s wholesale power costs increased from $11 million in 1998 to $32 million this year. The cooperative recently raised rates 11.3 percent in July. Customers who receive their electricity from the City of Dothan often see large fuel surcharges added to their bill as opposed to rate increases.

The fuel surcharges on City of Dothan customers’ bills last month was .028, meaning an additional 2.8 cents times the number of kilowatt hours used was added to the bill. That rate varies each month and is dependent on any additional cost passed on to the city.

Next week, Alabama Power — the only power provider in Alabama that is regulated — will go in front of the Public Service Commission to make its case for a proposed 14.3 percent rate increase. Under current regulations, Alabama Power is not allowed to make a profit from the proposed increase, only recover lost costs of providing electricity. Brannon said Alabama Power has a documented loss of $239 million since the last increase.

“It should be noted that this is just the rising cost of doing business,” Brannon said. “We are required to document that the rate increase is needed to cover the fuel adjustment cost.”

The Public Service Commission has the power to reduce the size of the rate increase, and/or allow Alabama Power to recover lost costs over a longer period of time. If it does increase the amount of time Alabama Power can recover lost costs, Alabama Power can collect interest to compensate for the additional time designated.

Solutions?

Conserve.

Kimbro and Brannon said moving the thermostat up during the winter and down during the summer can result in significant savings. Alabama Power suggests a setting of 78 degrees in the summer and 68 degrees in the winter.

Other energy saving tips include:

Cleaning air filters once per month
Use dishwashers/washing machines only at full capacity
When buying a new refrigerator, consider a high-efficiency unit

Long-term proposals to dealing with rising energy costs fall along party lines. Republicans generally favor an aggressive plan that includes drilling in areas off the Gulf coast and in the Alaska National Wildlife Refuge, building new nuclear power plants and clean-coal plants and investing some money in alternative energy research. Democrats generally favor incentives for research into alternative fuels and incentives for conserving energy.

Congressional Democrats did recently introduce an offshore drilling plan that would open coastal waters 50 to 100 miles from shore along almost all of the country’s coastlines as long as states’ agree to the offshore drilling.

However, Republicans oppose the plan because the plan is tied to tax-cut rollbacks for oil companies as well as a requirement that utilities nationwide use at least 15 percent of their electricity from renewable sources such as wind and solar, according to the Associated Press. Republicans also say most of the available oil lies within the 50-mile coastal buffer in place in the Democrats’ plan.

Will rates level off anytime soon?

Doubtful.

Demand continues to surge worldwide. Supply remains limited. New power plants can’t be built fast enough to keep up with the demand here in the United States. Residents continue to use more electricity. And, Kimbro said, the Southeastern United States is expected to see a growth trend over the next 25 years, adding to the demand.

“We are going to look to the cheapest means to generate electricity first, and as demands increase, then we step out to the other sources that cost more,” Brannon said.