Power Cost Tracker
- What is a tracker?
A tracker is a mechanism that follows or “tracks” certain costs that a utility might incur in providing service to consumers. Trackers are used to capture the difference between cost levels assumed in base rates and actual power production and delivery costs that are highly variable.
- What are these costs?
Utilities use trackers for various unanticipated, unpredictable and highly variable costs including fuel, environmental expenses and purchased power above estimated projected levels for a given period. You may be familiar with fuel adjustment clauses used by natural gas utilities to recover their costs for purchasing gas during volatile market conditions. Trackers are also called power cost adjustments or automatic cost recovery mechanisms.
Variable production costs subject to Hoosier Energy’s tracker are:
- Purchased power.Coal, fuel oil and natural gas.Environmental costs including emission allowances and environmental equipment fixed costs.Variable power plant operations and maintenance costs.Transmission costs through the Midwest Independent System Operator, including regional market expenses, reliability planning and standards development services.
- Certain costs for consumer energy efficiency and demand management programs.
- Why aren’t these costs included in the base rate?
These are basic costs of operations that cannot be accurately forecasted. For instance, you may recall the extreme jumps in gasoline prices immediately after hurricanes in the Gulf Coast region in recent years. Similar factors affect the wholesale power market. Market price fluctuations are due to circumstances that can’t be predicted and create highly variable power costs. Periodically, cost of service studies are performed and base rates are re-adjusted.
- When are wholesale market power purchases necessary?
One example is when a utility experiences an unplanned outage of a generating unit and is required to purchase power in the market. Power market purchases are also necessary when power plants are taken out of services for extended scheduled maintenance of seven weeks or more. High prices of natural gas used to generate electricity have led to higher costs for purchases in the power market. A significant percentage of U.S. electricity generation now depends on natural gas for fuel.
- Is Harrison REMC the only utility using a tracker?
No. All other Indiana electric utilities use tracker-type cost recovery methods as part of their rate structures. For many years, central and southern Indiana’s electric cooperatives enjoyed the position of not having a variable component or tracker in rates. When Congress deregulated the electric wholesale power supply business, the industry became subject to increased volatility and uncertainty, and our power supplier, Hoosier Energy, experienced a need to implement a cost tracking mechanism. The tracker became part of your electric bill beginning in 2001.
- How does Harrison REMC’s rates compare to those of other utilities?
Your co-op’s rates and the wholesale rates from our power supplier compare favorably to those of other electric utilities in the state, which are facing the same kinds of cost pressures. Yet overall electricity continues to be an excellent value compared to other types of energy.
- How does the tracker work?
Through its wholesale power rate to the REMC/REC, Hoosier Energy has included and is recovering a projected level of costs based on historic generating unit performance, power market forecasts, fuel costs, and other factors. The tracker is used to recover unanticipated costs. The wholesale power tracker is adjusted quarterly. It’s important to recognize that the tracker amount can decrease as well as increase depending fuel, market power prices and other variable costs.
- How is that amount determined?
The tracking mechanism recovers variable production costs (fuel including coal natural gas, wholesale power market purchases, operations and maintenance, and emissions allowances) incurred by our power supplier Hoosier Energy during a specific period. The tracker is adjusted quarterly and the amount you pay will vary depending on your monthly electricity usage.
- How do Hoosier Energy’s wholesale power costs compare to those of other electric power suppliers?
Hoosier Energy has been among the lowest cost wholesale power suppliers in Indiana for several years. Hoosier Energy’s rates continue to be competitive with other Indiana and regional power suppliers, which also include environmental and purchased power costs on consumer bills through a cost tracker mechanism.
- What are other reasons for the tracker?
Electric cooperatives are consumer-owned, but like other businesses must operate in a financially responsible manner to provide reliable service and maintain competitive rates. The tracker helps your electric cooperative manage risks associated with wholesale power costs, maintain financial stability, and avoid large increases in customer bills.
- Why are energy prices in general rising?
Although a worldwide economic slowdown is having an impact on energy, prices remain high around the world, in the U.S. and in Indiana. Among the major reasons for rises in energy costs are:
- Domestic energy demand has increased.
- Utilities are making major investments in aging power plants.
- Emerging economies such as China and India are using more energy and commodities, increasing worldwide demand.
- Fuel costs (natural gas, oil, coal) are increasing substantially.
- Shipping costs for coal are increasing.
- The nation’s transmission grid requires billions of dollars of investment to meet increased demand and continue to operate reliability.
- Environmental regulations and other government and public policy requirements are adding to costs.
- What is my electric cooperative doing about costs?
Cooperatives by their business structure are consumer-focused utilities that provide members with electricity at competitive rates. We too are concerned about rising costs and have taken steps to improve efficiencies in our operations.
A few things to remember:
- We are committed to delivering electricity at the lowest possible cost.
- We work to minimize the impact of necessary price increases.
- We are accountable to member-consumers not outside investors.
- We operate at cost and investments stay in our community.
- We work in partnership with our power supplier to bring jobs and improve the quality of life in our community.
- What can I do to better manage my electricity usage?
We recognize that cost increases have an impact on your household budget. As a consumer focused utility, we can help you stretch your energy dollars. Your cooperative has energy efficiency information on lighting, weatherization, cooling, heating and water heating that can help you manage your energy usage. Energy efficiency and conservation measures are more important than ever. And we recommend that you first look at insulation, caulking and similar low-cost measures that can save energy. Attend one of our Home Seminars to learn various ways of making your home energy efficient. Call our office to find out dates and times.
I’m concerned about rising energy costs. What else can I do?
At Harrison REMC, it has been our ongoing mission to provide you with reliable and affordable electricity. To ensure that we can continue to meet your energy needs, we have joined with other electric co-ops across the country in a grassroots campaign called "Action.coop". This campaign asks for your help to ask policymakers critical energy questions such as how to balance growing electricity needs and environmental goals, and how much will climate change regulations increase electric bills. Please visit www.action.coop to get the conversation started with public policymakers.