How Could Hurricanes and Railroads Affect Your Electric Bill?
June is the beginning of another hurricane season in the western Atlantic and Caribbean Oceans and while we don’t have to worry about hurricanes damaging our home and business in Iowa, hurricanes certainly impact your cooperative and ultimately the rates you pay.
After last year’s hurricanes in the Louisiana and Texas areas, just like you, we felt the impact in higher fuel costs. We use about 40,000 gallons of fuel a year, the increased cost of fuel, ultimately impacts your rates. Many may not realize that about 20% of the natural gas and oil production in the Gulf of Mexico is still done from the damage of last years hurricanes.
Natural gas fuels our combined cycle and peaking power plants. On a typical summer day, when our load exceeds the output of our coal plants, we meet your energy needs by first running our combined cycle plants and then our peaking plants. The cost of the energy produced by these plants is determined by the cost of natural gas, the higher the cost of natural gas, the higher the cost of electricity.
Another issue that we are dealing with, which could potentially have a much bigger impact on energy costs, is the ability of railroads to deliver coal to our coal plants. Coal fuels over half of the generating plants in our country. If coal plants don’t run, it increases the use of natural gas for generating electricity. As I state earlier, using natural gas fired generation increases the cost of electricity.
Our coal plants, like many in the country, burn coal from Wyoming. Since early 2005, the railroads have been struggling to supply adequate amounts of coal to our nation’s power plants. Some plants have had to reduce their output to conserve their coal supplies. The coal inventories at our plants have been running below a thirty day supply, and have been as low as two weeks.
The railroads blame the problem on the loss of a section of track coming from the mines. While the loss of the track played a significant role, in my opinion, the problem is larger than a single section.
One part includes a failure by the railroads to invest in infrastructure to meet the demand for rail service. Today our coal is completing for trains and tracks with the flood of consumer goods coming in to the West Coast from Asia. Due to the demand for rail, the price has gone up. Wall Street would rather see profits as opposed to investment. One major utility in the South has filled a lawsuit claiming the railroad is manipulating coal deliveries to get higher rates.
Another major issue is the consolidation of the rail industry. There are only five major railroads in the country today, and only two serve the coal fields in Wyoming. It’s hard to call it competition when there are only two railroads providing service. While we are fortunate to have long term contracts at our plants, when they start to expire starting in the next several years we can expect them to go up. Cooperatives in Wisconsin and northeastern Iowa have seen their rates go up due to the increase in their rail contracts.
The vulnerability of our oil and natural gas supplies in the Gulf and the railroad’s ability to deliver coal to the nation power plants show the need for a national energy plan. Please continue to read my column each month for more information on all of these issues.