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Skip Navigation LinksThe Cost of Doing Business Continues To Rise

Gasoline prices have been fluctuating wildly. Heating oil and natural gas prices have risen. Coal costs are skyrocketing. The last thing consumers want to hear is more bad news about their energy costs. But, despite the best efforts of electric utilities to hold the line, monthly electric bills are on the way up for many Americans.

The good news for co-op members is that the increases they may experience, on average, shouldn’t be as severe as those at the pump. The bad news is we could see several years of upward pressure on electric rates.

That’s because a complicated set of factors – everything from increased demand for power to dramatic increases in fuel costs in the United States, to long-term economic growth in the Far East – seems to be combining to increase the cost of generating and delivering electricity.

A large part of the problem is simply that the world faces a new era of increased global competition for limited energy and other resources.

"We have reaped the benefits of living in a global economy for years," says South River EMC CEO Buddy G. Creed. "Now we are going to be negatively impacted as fuel resources decline and demand continues to increase."

The new reality starts with much higher costs for natural gas and coal, which will make it more costly not only to stay warm in the winter, but also more expensive in some parts of the nation to generate electricity. Coal is used to produce 51.7% of the nation’s power, while natural gas is the fuel used to generate more than 17 percent of electricity in the United States.

Almost all of the new power plants built during the last decade in the United States burn natural gas to generate electricity. The reason is simple: when the plans for those plants were on the drawing board, natural gas was one of the great energy bargains. But in 2005, natural gas spiked as high as $14 per million Btu. Analysts project that prices will stay at least in the $6 to $8 range, an increase of as much as 400 percent in only a few years.

The problem is the fuel that seemed to be a bargain was always subject to the basic laws of supply and demand. The United States and Canada now use all the natural gas they can produce and more, leaving no reserves in the system. With such a tight market, any change in supply or demand, or any significant weather event can make a difference.

Last year’s devastating hurricanes will dampen the outlook for oil and gas production well into 2006. In a tight market, that can send prices skyrocketing. Many utilities, including South River EMC, have already been using fuel cost adjustments to overcome unexpected price fluctuations.

To make up for shortfalls in domestic supply, the United States has imported natural gas from both Canada and Mexico, as well as a small amount of liquefied natural gas. Several nations that used to export natural gas have started importing as their needs have grown.

Countries such as India, China and Brazil are rapidly industrializing, and their needs are growing. World energy consumption is projected to increase by 57 percent by 2025, according to the Energy Information Administration, or EIA.

Worldwide electricity use is expected to grow even faster. It could nearly double in the next two decades, the EIA projects in its study, International Energy Outlook 2005.

Leading this charge is China, which is experiencing sharp economic growth above 9 percent annually. The Chinese economic boom means more competition for everything from oil to the steel and cement used to build power plants.

Here in the United States, which still uses more power than any nation in the world, the demand for electricity is growing more modestly. If fuel prices aren’t enough, another problem remains. The nation’s high-voltage electricity transmission network needs updating.

Many analysts agree that state and federal attempts to deregulate the electric industry contributed to the reluctance to invest in transmission. To complicate matters, power plant construction in the last two decades and new players in the power market have resulted in more than a 100-fold increase in activity on the transmission grid.

In the past decade, there has been significant reduction in utility investment in transmission. Therefore, utilities are going to have to invest in updating their transmission as new generation comes on line.

Part of that generation will have to come from electric cooperatives, which will have to invest heavily in new capacity over the next 10 years – some $28 billon worth.

The bottom line is, even with increased conservation and the pursuit of alternative sources of power, the price of electricity is still going up for most Americans. The EIA’s forecast shows energy costs falling back from last year’s highs, but not to previous lows, and then increasing more slowly over several years.

For most consumers the big question is, "how much are my rates going to go up?" The answer varies even by community, because the cost of generating and delivering power varies across the country. In some parts of Texas and California, power companies are requesting increases in the 17 to 20 percent range to cover fuel costs.

Like other utilities, South River EMC has been impacted by these factors in our industry. We are completing a cost of service study, which will help us to determine how much of a rate increase we must incur to continue to meet our current and anticipated expenses. The final numbers will be available soon and we will announce them to you as soon as possible.

"We realize that a rate increase is not easy, but we have held off a long time from implementing a change in our rates," said Creed. "The last time we had a rate increase was in April of 1993 and we have decreased rates 8½ percent since that time. We will continue to take measures to operate as efficiently as possible to reduce the impact on our membership."

Watch the April 2006 South River EMC newsletter and the annual report for more concrete rate increase numbers. This increase takes effect on the first billing period in May.