The reality of rising costs faced by your electric cooperative and other utilities is reflected in a recent report by Purdue University’s State Utility Forecasting Group. Entitled “Indiana Electricity Projection: The 2007 Forecast,” the report forecasts that Indiana electricity rates will increase about 20 percent over the next five years because of new federal air-quality standards coupled with increasing construction, fuel, labor and other costs.

“The demand for electricity is going to increase, and the prices are going to increase considerably during the early years of the forecasting period,” said Douglas Gotham, director of the forecasting group, a state-funded panel of Purdue University-based researchers. “Part of the increase will come from expenses associated with new emissions standards, and the costs of construction materials have gone up dramatically in the last couple of years, in some cases doubling.”

Higher costs for coal, natural gas and other fuels used to generate electricity are another factor. A thriving industrial sector is projected to increase demand later in the 20-year forecasting period.

The report predicts that residential electric rates will increase by 22 percent by 2012 with overall rates for residential, commercial and industrial sectors averaging 20 percent higher. Increases are expected to rise at slower rates after 2012.

Indiana electricity use is expected to increase 11 percent during the next five years and to rise about 2.46 percent each year over the next 20 years – an overall 55 percent increase by 2025. A robust economic forecast contributes to the higher demand projections.

The panel used sophisticated mathematical models to predict future trends for residential, commercial and industrial power usage. Increased demand could be met by building new plants, purchasing power from other sources or increasing conservation efforts, Gotham said.

Indiana will need about 3,220 megawatts (mw) of additional electricity by 2012 including 1,290 mw of baseload power capacity. Environmental Protection Agency regulations require Indiana utilities to reduce emissions of sulfur dioxide, mercury and nitrogen oxide from coal burning power plants.

Implications of carbon regulation
In late February, the Purdue University-based SUFG released another report that assesses the projected additional impacts of carbon dioxide emissions reduction legislation on Indiana power prices.

The SUFG analysis is based on the Lieberman-Warner Climate Security Act, which creates a cap-and-trade program for greenhouse gas emissions including carbon dioxide. The February report projects an additional 21 percent increase in average Indiana rates by 2015, growing to a 45 percent increase by 2025.

Combined, the forecasting group’s reports indicate that Indiana consumers could experience rate increases of more than 60 percent in real terms over the next 17 years. Although actual rate increases are uncertain, projections by the forecasting group and others support the expectation that rates will increase regularly and substantially over the next decade.

The SUFG report notes that Indiana, which currently has relatively low rates based on national comparisons, is expected to experience larger price increases than those projected on a national level due to carbon legislation. More than 90 percent of the power consumed in Indiana is generated by coal.

EPRI provides a solution pathway
An analysis by the Electric Power Research Institute, a respected industry research and development group, foresees a 260 percent increase in real electricity prices by 2050 unless a comprehensive plan to meet carbon constraints with new technology is adopted.

EPRI believes that electricity rate increases can be held to about 45 percent over those 42 years if the U.S. unites behind an advanced technology portfolio for:

• End-use energy efficiency.
• Renewable energy.
• Advanced nuclear energy.
• Advanced clean coal power plants.
• Carbon capture and storage.
• Plug-in hybrid electric vehicles.
• Distributed energy sources.

Obviously, we are talking about significant increases in what we pay for electricity. We know that rising energy bills are not what you and thousands of other cooperative consumers want to see.

When it comes to energy, electric co-ops recognize that consumers ultimately pay the freight for whatever public policy decisions are made. As our commitment to you, we will work to ensure that folks in positions of power understand this fact as well, and advocate practical, affordable, long-term remedies based on new technology. Through it all, the co-op drumbeat will be loud and clear: “We’re looking out for you.”