Environment and Industry Outlook 2008

Abundant and affordable electricity is an essential part of our modern world. We all take for granted the ability to flip a switch and turn on the lights, power our computers, heat and cool our homes, and drive the machinery of commerce and industry.

In recent years, the electric utility industry has experienced increasing costs that have resulted in higher rates. Your local cooperative and its power supplier have been subject to these cost pressures as well.

Meanwhile, increasing concern about climate change is bringing pressure on governments to reduce greenhouse gases that many believe contribute to warming the earth’s temperatures. In the U.S., Congress has been debating legislation to limit carbon emissions ¬– including those from coal-fired power plants that produce more than half of the nation’s electricity.

Several factors have driven electricity costs higher:

• Increasing worldwide demand for power.
• Higher costs for coal, natural gas and other fuels used to generate power.
• New investment in the country’s electricity infrastructure to replace aging power plants and strengthen strained transmission systems.
• Fundamental changes in the way wholesale power markets operate.
• Increases in the costs of poles, transformers, wire and other materials necessary to provide electric services.

Factors such as these were cited in late December when the Purdue University-based Indiana Utility Forecasting Group released a report projecting that Indiana electricity rates for residential customers will increase about 22 percent by 2012.

The report also identifies the need for new generation resources to meet increasing electricity demand in the state.

The utility forecasting group’s projection takes into account new environmental regulations taking effect over the next few years, but does not include the potential added impact of carbon controls.

Utilities are already investing billions of dollars to meet new environmental regulations. And it appears likely that carbon emissions will be regulated too, although rules have not yet been determined. Carbon control technology – still unproven and very expensive – together with emissions taxes, could add 50 percent or more to consumers’ electric bills over the next five to 10 years. Carbon related increases would be in addition to other rate increases, and the industry will experience still higher costs as it builds new power plants to meet growing demand.

Environmentalists, advocacy groups and the news media often cite higher costs as beneficial in forcing Americans to reduce demand. But significant increases in what we pay for electricity will be painfully felt by millions of consumers and ripple through the nation’s economy.

Most observers agree that costly changes are coming in the electric industry. Consumers will ultimately pay these higher costs through rates. Meanwhile, electric cooperatives are working through their national association to make sure new environmental regulations result in meaningful emissions reductions and keep electricity affordable.

Electric cooperatives have been a part of national efforts to encourage more research and development of clean coal technology including carbon capture and storage. Many agree that more renewable energy will be beneficial to the environment. But limitations of wind, solar and hydropower are often overlooked. New ways to store intermittently produced energy are needed for these resources to become a reliable base of electricity supply.

The Electric Power Research Institute is a respected, non-profit organization that works with utilities to develop technology solutions. In looking at the challenges of increasing electricity demand and reducing carbon emissions, EPRI has developed a comprehensive plan that would cut emissions through multiple technological solutions.

The EPRI advanced portfolio of resources consists of seven areas targeting technology improvements.

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

EPRI suggests there is no single “silver bullet” solution to solving the nation’s energy problems. Instead, investments are needed in multiple technologies, aggressively developed – including clean coal generation – that together can provide a long-term solution.

The EPRI plan will also mean cost increases within its framework of workable solutions. The analysis forecasts a 40 percent increase in electricity prices over the next 20 years with its seven-part approach.

At the same time, it would cut carbon emissions by 45 percent by the year 2030. Research and development of electric power technology would be good investments for all of us.

Electric cooperatives have two primary responsibilities to members: providing reliable electric service and keeping rates affordable. Co-ops stand ready to do their part to help achieve greenhouse gas reductions as part of a balanced plan that considers consumer protections and the economy.

Your local electric cooperative is keenly aware that how much you pay for electricity makes a difference – whether it’s in your home or for businesses and industries. Balancing increasing costs and environmental benefits is a public policy challenge that we will be sharing for decades.

Your monthly electric bill includes a power cost tracker from Hoosier Energy, your cooperative-owned power supplier. The tracker is an additional charge for each kilowatt-hour that your co-op purchases from its power supplier. It is increased or decreased based on highly variable costs such as coal, other fuel and market power.

In addition to changes in the tracker for rising costs, Hoosier Energy has scheduled a moderate general rate increase to take effect in 2009.

Today, Hoosier Energy and electric cooperatives across Indiana and the nation are working together to ensure electricity supply, strengthen reliability and improve efficiency while developing cost effective renewable energy options.

The power supply co-op recently began operation of its first renewable energy plant, a landfill methane generating facility in Clark County. It is also investigating additional methane generating plants and planning five small-scale renewable energy projects for 2008.

In addition, Hoosier Energy and its southern Indiana electric co-ops are developing new residential energy efficiency programs that will help consumers reduce energy usage and manage costs.

For more than 55 years, your electric cooperative and Hoosier Energy have shared a commitment to provide reliable and affordable electricity to consumers. You can be assured that we will continue to fulfill this mission, today and in the decades ahead.