January 18, 2007

Tri-County Cooperative Customers Being Prepared For Sticker Shock of Price Hike

Not many things have not gone up in price in the past 20 years. Tri-County Electric Cooperative will finally be succumbing to this economic trend.

General Manager David Ramsey told a gathering of customers at the Scotland County R-I High School on January 9th that the northeast Missouri electric provider will be implementing a price hike in March.

“I realize this isn’t the news people want to hear,” he said. “But I don’t look at it as paying the piper. Instead I know that we enjoyed an unprecedented period of low rates.”

Tri-County will be raising its rates on the April billing cycle, for the March power consumption of customers. It marks just the second price hike for the company since 1986.

The amount of the rate increase has not yet been determined. Ramsey stated the co-op had received results of a revenue requirements study performed by a consulting firm. The study indicated the company needs to increase revenue by 10.95 percent.

The co-op board is scheduled to meet January 22 to review the study as well as other information to determine the 2007 rate increase.

Ramsey stated customers would receive a new rate sheet as well as an explanation for the price hike in upcoming mailings.

Board president John Eggleston of Memphis said this would be the first in a series of price hikes for customers.

“I’m not sure how warmly our presentation will be received,” he told the gathering, “but this is inevitable. And this is not a single-year event. It is going to extend out for years.”

Ramsey said the cooperative is anticipating significant price increases in 2008 and again in 2009 with smaller price hikes predicted for 2010 and 2011.

The general manager explained the changing electricity market. Since 2004, the cost of electricity to the cooperative has risen from $3,218,013 to an estimated $3,941,000 to serve the roughly 6,400 meters maintained by the co-op.

Ramsey explained the rising electricity costs were caused by three main factors: increased environmental regulations, increased member demand and higher fuel and material costs.

The Missouri cooperative system will be spending an estimated $300 million this year to upgrade its power plants’ coal scrubbers to reduce pollution as required by federal law. Ramsey said the co-ops have already spent $750 million on such projects.

“Basically we have spent $1 billion and yet have done nothing to increase power production,” he said. “Actually the process decreases production slightly.”

Decreased production is not what the cooperatives need. The electric providers have seen customer demand double since 1980, with continued annual growth of 2.3 percent predicted.

“Each one of us is using more electricity than we did years ago,” Ramsey stated. “Demand is significantly higher across the nation. It is a supply and demand issue.”

The supply of electricity has itself become much more costly to produce. Fuel prices have risen significantly. In 2004 the coal base price was $16.72. That cost was projected to be $20.93 this year but has actually risen to $24.11 with the company expecting $28 prices soon.

“We use roughly 10 million ton of coal a year,” Ramsey said. “So the co-op is spending $70 million a year more on fuel.”

The coops natural gas fueled plants also have seen rising costs. The natural gas base price in 2004 was $6.54. In 2007 that cost is now $9.20.

Material costs have also hit the cooperatives like Tri-County hard.

Fuel costs for the fleet of vehicles maintained by the company has risen 37 percent in two years.

Steel prices have risen 20 to 30 percent making equipment cost more.

“We have to have decent equipment out there for the guys to do their jobs,” Ramsey said. “We have to have a good, working fleet to keep your lights on.”

Wire prices have more than doubled since 2003, going from $1.51 a foot to $3.07. Copper, used for grounding, has gone up 177 percent.

“It has gone up so much that our cooperative offices have been broken into twice with wire and copper being taken,” Ramsey said.

Material costs have risen so much that the state cooperatives’ plans for a new power plant have seen the price tag raise from $1 billion to $1.7 billion for a proposed 700 MW plant being planned near Richmond.

Ramsey said all of these factors have led to the impending price hikes. He added that the cooperative first has made cost-cutting measures and will continue to take hard looks at expenditures so that price hikes will be as small as possible.

He also noted that while Tri-County will be raising its rates the electricity costs for customers will still be favorable compared to the cooperative rates in the eight neighboring states. Ramsey said he was told that Ameren UE has a 35-percent price hike proposal in front of the Missouri Public Service Commission for consideration. Many Illinois customers will be experiencing 55 percent price hikes.

“No one likes a price increase, but I’d take a 10-percent spike over a 35-percent raise any day.”

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