Wholesale Power Costs Rise
On behalf of the MVEA Board of Directors, staff and employees, I wish all of our members and their families a healthy and prosperous new year.
Last month, I informed you that Tri-State Generation and Transmission Association, Inc. (Tri-State), MVEA’s wholesale power supplier, approved at their September meeting an average 4.8 percent rate increase to its 44 member distribution systems effective January 1, 2012. This translates into a $2.5 million increase in MVEA’s cost of power.
The major cost drivers affecting the 2012 rate include, the cost of continuing regulatory compliance, an increase in coal and rail prices, up 6.6 percent or $16.1 million, an increase in scheduled maintenance outages for Craig and Escalante Power Plants, up 33 percent, an increase in long-term firm power supply contracts to Tri-State by 20 percent, a reduction in non-member sales, down 14 percent or $29 million and an increase in interest expense, up 2.2 percent or $2.6 million.
After a thorough review of the 2012 proposed budgets Tri-State’s Board of Directors, comprised of Directors representing all 44 member systems, approved the 2012 consolidated budget and rate schedules. The consolidated budget includes the operating budget, capital budget and cash flow projection. Ken Anderson, Executive Vice President and General Manager for Tri-State stated the budget is “all based on the cost to serve our member systems while providing an affordable and reliable source of electricity and maintaining a sound financial position for Tri-State.”
Tri-State capital expenditures for 2012 are budgeted at nearly $378 million, mostly directed to generation and transmission infrastructure projects targeted toward efficiency, reliability, load serving, regulatory compliance and technology improvements.
The Tri-State operating budget for next year is $1.27 billion. The single highest expense, consisting of nearly 40 percent of the operating budget, is allocated for power production, at $500 million. The other most significant expense categories include purchased power, at $306 million, transmission O&M and wheeling charges, at $135 million, and lease, depreciation and interest expenses, together totaling in excess of $289 million.
The Tri-State Board’s financial policies have also been strengthened to ensure Tri-State can maintain a strong financial position. Tri-State’s solid credit ratings support competitive market financing that will save consumers hundreds of millions of dollars over time. Tri-State’s Board has focused on cost containment efforts of controllable expenses such as general and administration expenses, interest expenses during construction, lease and rent expenses, depreciation and taxes.
Since wholesale energy costs account for approximately 65% of MVEA’s annual operating expense budget, we are not able to absorb a rate increase of this significance and therefore any increase in wholesale costs impact rates you pay. The last time MVEA had to pass on a rate increase from Tri-State was in January 2009.
MVEA’s Board of Directors approved, in a November special board meeting, an overall general rate increase of 2.7% to maintain our financial requirements and cover the majority of the association’s additional $2.5 million power cost for 2012. The rate increases will vary based on individual electric usage across our different rate classes as further detailed on page 9. As a member you can be assured that a rate adjustment is absolutely necessary to keep the cooperative financially stable and continue to provide safe, reliable electric power.
Back to News