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
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
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
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
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
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.