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CO - OP LIVI NG Managing Costs

Issues largely outside the direct control of your local cooperative will impact electric bills in coming years

By Magen Howard

als are driving up expenses. These higher prices likely will affect electric bills over the long term.

A “Electric cooperatives have an obligation to keep the lights on and electric bills

affordable at a time when costs for components needed to construct generation, upgrade existing power plants, expand transmission facilities, and modernize dis- tribution systems are steadily rising,” acknowledges Glenn English, CEO of the National Rural Electric Cooperative Association (NRECA). “Combined with the costs of complying with new regulations, these pressures that will affect electric bills in years to come—all are largely beyond the control of local co-ops.”

Keeping the lights on The North American Electric Reliability Corporation, the nation’s bulk power grid watchdog, estimates the United States will need to build 135,000 MW (megawatt) of new generation by 2017 to meet demand. Facilities on the drawing board, though, will only deliver 77,000 MW. Electric cooperatives— experiencing average annual load growth well above levels of other electric utilities—estimate they will need to bring ap- proximately 12,000 MW of new generation online over the next decade. “However, this generation will be the most expensive in history, coming at a time when construction materials like steel, copper, and concrete are shooting upward,” English remarks. The past 20 years have seen nations in Asia, Eastern Europe and the Middle East

transform themselves from backwater provinces into economic “tigers,” particu- larly in the areas of manufacturing, tourism, information technology and finan- cial services. Flush with cash, these countries have embarked on unprec edented construction binges, erecting thousands of power plants, factories, residential high-rises and offi ce towers.

Projects of this scope commandeer vast amounts of basic resources along with engineering and skilled labor expertise, pushing up prices for items like oil, timber, steel, nickel and concrete. After a brief downturn due to the global recession, worldwide commodity prices

have rebounded: steel soared 42 percent between 2009 and 2010, while copper, used for wire and to ground electrical equipment, topped record highs of $4.50 per pound earlier this year. For new coal-fi red and nuclear power plants, overall costs jumped 25 percent and 37 percent, respectively, compared to the year before, according to the U.S. Energy Information Administration (EIA). Capital costs for a pulverized coal plant now average more than $2,800 per kilowatt (kW), while a nuclear plant runs about $5,300 per kW.

Wind-generation capital costs increased as well—about 21 percent, to $2,400 per

kW for land-based wind farms, and 50 percent, to $5,975 per kW, for turbines placed offshore. Geothermal power plants also leaped 50 percent, to $4,140 per kW.

On the other hand, costs for solar power dropped. The cost to build photovol-

taic arrays, which convert sunlight directly to electricity, decreased 25 percent, to roughly $4,755 per kW. But for both wind and solar, backup power from coal or natural gas must be built to be available when wind isn’t blowing and the sun isn’t shining. Natural gas–fi red power plants—both peaking units, which operate only when electric consumption crests, and baseload (full-time) facilities—currently boast the most stable costs. Because combustion turbines and other natural gas–generation equipment is manufactured in a factory and then assembled on-site—rather than being built from the ground up, like a coal or nuclear plant—total costs (and time needed to get a plant operating) are generally much lower. The bottom line? A portfolio of power plants that cost $100 billion to erect in 2000 would cost about $215 billion today.


Construction worker Troy Mitchell places rebar in what will be the turbine pedestal at Basin Electric’s Deer Creek Station, under construction in east central South Dakota. The 300-megawatt combined cycle power plant is scheduled to go online in 2012.

Hometown effects For most local electric cooperatives, the biggest expense involves buying power. Wholesale power purchases can account for as much as 75 percent of your co-op’s budget, meaning pressures on generation costs impacts electric rates as well. Then there are basic operations—everything from replacing poles and wire to

maintaining rights-of-way and fueling line trucks. Costs for these activities con- tinue to escalate. Between 1990 and 2010 in the north-central part of the nation, for example, prices for utility poles, towers and fi xtures skyrocketed 98 percent, while transformers spiked 154 percent.

Regulations on a roll Looming government regulations also pose a threat. The U.S. Environmental Pro- tection Agency (EPA) is considering four major rules—on cooling water intake, coal-ash disposal, interstate transport of air pollutants, and using the best avail- able technology to curb emissions from power plants—that could become game- changers for electric utilities.

modifi ed large stationary sources, including coal and natural-gas power plants, under the federal Clean Air Act.

In addition, the agency has begun regulating greenhouse gases from new and Continued on Page 29

The fi nal turbine for the Crow Lake Wind Project in South Dakota was topped out on Feb. 9, 2011. At 150 megawatts, the project—owned by Basin Electric subsidiary PrairieWinds SD 1—is the largest wind project owned solely by a cooperative in the United States. It began operation Feb. 27.

fter two years of declines, the price tag for building power plants and pur- chasing utility equipment has begun climbing once again. An improving world economy and hikes in costs for skilled labor, fuel and raw materi-

Photo courtesy of Basin Electric

Photo courtesy of Basin Electric

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