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Short: Lots of power rate pressure

Power rates aren’t as high as they were expected to be a year ago, but the need to increase capacity, a weak dollar, and a proposed carbon tax will continue to put upward pressure on rates.

That’s the message Covington Electric Coop manager Ed Short delivered to the hundreds who attended CEC’s annual meeting at the Kiwanis Center last night.

Short said CEC experienced a mid-year wholesale power increase of approximately 30 percent in 2008 as a result of problems PowerSouth had with a coal contract.

“PowerSouth had to go on the open market to purchase coal for the Lowman generating plant,” Short explained. “With this open market purchase PowerSouth had to pay whatever the price for this open market purchase.

“At that time (the summer of 2008) in an effort to stabilize prices the decision was made by the PowerSouth board to spread this unexpected cost increase over 12 months.

“This resulted in a rate increase in the summer of 2008, a second in January 2009 and a third was projected for July of 2009,” he said. “But as usual, with the passage of time things changed—the economy slowed—the coal that was not delivered in the summer of 2008 began to be delivered at the old contract price in 2009. These events helped to stabilize the cost of wholesale power.”

He said the third increase originally scheduled for July 2009 was not needed.

“Wholesale rates are, at this point in time, projected to be more stable for 2010,” he said.

However, he said, prices will continue to rise, in part because CEC’s wholesale power supplier, PowerSouth, must increase its capacity.

“Projections call for PowerSouth to have access to another 500 MW of capacity for base load needs in the 2016 time frame,” Short said. “In addition to the projected 500 MW base load needs in 2016 some 300 MW of peaking power are under construction at this time and will be ready for service in January 2011.

“Instead of making this huge investment in a single unit in the 500 MW range PowerSouth has put together a portfolio to provide this projected 500 MW need for 2016,” Short said. “This is being done by extending contracts, contracting for a block of power from a wind farm in Kansas, contracting for

a portion of the output from a nuclear plant and a biomass plant, both to be constructed in Georgia. PowerSouth has completed the installation of additional equipment for emissions controls at the Jackson plant at a cost of

about $350 million dollars.

“This new capacity and emissions controls will put upward pressure on

electric rates,” he said.

More upward pressure will be put on electric rates by increased costs for fuels and the weak dollar, he said.

“A weak U.S. dollar in the world market does not help us as we look at present and future needs in the power industry,” Short said. “Something that is of great concern along with the availability and cost for the materials to support the future power needs is the unknown when it comes to real or perceived global warming issues.”

Short said a proposed carbon tax on plants that burn coal will result in higher energy costs for everyone.

“Some say solar, hydro, bio-fuels and other renewables are the answer,” he said.

“All of these have their place, but for a 24/7 firm power supply; coal, gas, nuclear and some hydro are the dependable ones at this point in time.

It will be expensive up front but some of us believe nuclear should be a large part of the solution for future power needs.”