From the Manager on Rates

I recently had the opportunity to hear some reports from the management team of Associated Electric Cooperative, Inc. (AECI), our generation power cooperative. At the meeting, we received some not so good news and some sort of good news. The not so good news is that we are anticipating an increase in our wholesale power costs in 2012.
 
There are several reasons for this increase in wholesale power costs. One of the main drivers is the completion of Chouteau 2, our newest natural gas power plant which is coming online later this summer. Once the plant is operational, it’s $420 million cost of construction will be fully included in our rates.  There will also be costs to operate the plant. 
 
There are two other main issues that will add to our wholesale power costs. Both of our coal supply and rail contracts to deliver the coal to our power plants were expiring. Obviously, these new contracts will be at a higher cost than the old ones.
 
At this time, I am anticipating an increase in our wholesale power costs of about 10%, but I am not expecting to have actual numbers until early fall.  Any increases  will not impact your bill until April 2012.
 
We did receive some potentially good news at the meeting. Under proposed new rules by the Environmental Protection Agency (EPA), some emissions from our coal plants will be much easier to comply with regulations than we originally anticipated. This was a very pleasant surprise. If the new rules can withstand challenges from environmentalists, it may not be necessary to install scrubbers on our existing coal plants. If it is possible to comply with these regulations without the addition of scrubbers it could potentially save us over $1 billion. It would also make it possible for us to operate our coal plants longer than we had anticipated. While this won’t have any impact on the increase we are planning for next year, it would definitely help us stabilize rates in the future.
 
If history tells us anything, it shows that it will be several years before these proposed new rules are finalized, as they are typically litigated for several years after the rules are issued. It is going to be critical that we share the impacts of regulation, both good and bad, with our elected officials if we are going to keep rates affordable.