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Sunday, March 9, 2008

Where Energy Cost Increases Come From

If you purchase your electric power from the Glasgow EPB, or any other utility that sells TVA power, your cost of electric power will be going up over ten percent on April 1. This latest increase will mean that the cost of electricity in our region has gone up 33% in the last five years. While the local newspaper already trumpeted this simple information to you as a giant headline, this post will explore the underlying reasons for the escalating cost of electric power in our region. You will note that it has alarming parallels to the same increases we have seen in the cost of gasoline and our intake of calories in our food.

TVA explains that these increases flow from our steadily increasing appetite for more electric power, and a steadily decreasing flow of water into their reservoirs that they can convert to electric power. From the most simplistic point of view, this reasoning is correct. However, a bit of digging unearths some shocking artifacts that go a long way toward explaining where we got this tremendous appetite for electric power and why TVA is unable to produce enough to satisfy our lust for electrons. Just like our present tendency to overeat and become obese, we are doing the same thing relative to energy consumption, but we are being driven to eat poorly by a food industry that is convincing us to do so by lacing nearly everything we eat with high fructose corn syrup, and we are becoming energy hogs at the hands of a wholesale energy supplier that employs a rate structure that also drives us to pig out.

These large cost increases for electricity are being implemented because, if we continue to grow our demand for electric power at our present rate, TVA will need to build several new generating units, including nuclear power plants, over the next few years. They need this new generation because, during about four or five hours a day in the winter and summer, TVA sells us more electricity than they have the capacity to produce. That’s right, they cannot make all of the power we are using! So, they are going out on the open market and paying whatever they must to purchase power for our demands during those peak times. Recent drought has just made this problem much worse. Electricity made by spinning turbines at dams as the water drains from a lake into a river is the least expensive and least environmentally damaging power we can make. When the lakes do not have enough water in them to do this, TVA must replace that power with extremely expensive power from a neighbor, if that neighbor has extra power to sell.

You or I would look at this capacity shortage and make some quick and simple decisions. One thing is certain, we would not be trying to convince anyone to use more power! However, TVA still chooses to live in some alternate reality which ignores this shortage of capacity and still pays industries to add more electric demand (through a program they call Enhanced Growth Credit Program), and their odd responses to a shortage of generating capacity certainly don’t stop there.

Anyone who has to pay their electricity bill at home has a good idea how much electricity it takes to heat and cool a big box retail store. These mega stores also have mega appetites for energy. So, if you were short on energy, almost anyone (at least anyone with a firm grasp on reality who was in the energy business) would look at these sorts of buildings and decide to discourage them by charging more for the massive amounts of energy these buildings require. But, as a TVA distributor, we are forced to charge these gigantic customers less per kWh than what we charge a regular small corner deli or gasoline station! Heck, they even pay less per kWh than you and I pay at our homes. That means we (when I say “we” that means you and me) are subsidizing these massive retail businesses who, in turn, extract massive amounts of money from our community, by charging them less per kWh for electricity than what we charge a small local entrepreneur who struggles to compete with one of these behemoths. We do that even though the small business presents much less of a burden on the electric system than the big business. Shaking your head yet? Well, read on, you haven’t even started getting to the really crazy stuff.

At meeting after meeting, where TVA calls together the power distributors to give us the bad news about another rate increase, they methodically display slides which depict the staggering growth of electrical demand and the growing shortage of their capacity to produce that amount of power. They clearly need more money to purchase more power to tide them over until they can build, get this, possibly $18 billion worth of new nuclear and other generation units over the next ten years. There is always great wringing of hands and gnashing of teeth, combined with promises to develop new methods, rates, and technologies to help lower the growth of energy usage in our region, but at the same time, look at what is going on in north Mississippi for an example that makes you wonder if they will ever be serious about working to reduce the growth of energy demand.

Just over a year ago Toyota announced that they would build a huge new production facility just outside Tupelo, an area also served by TVA. True to form for all such announcements over the last twenty years, the state of Mississippi, at the urging of throngs of “economic development” professionals, offered “incentives” for Toyota to locate the plant there which will cost the people of Mississippi roughly $200,000 per job created. But wait, there is more. Since TVA is already unable to generate enough electricity to serve its existing customers, they will need to build an additional amount of generation (something north of 25 megawatts of capacity will be needed according to published reports, but this number is likely to be several times this size when the total impact of this facility is finally known)to serve this facility. The cost of adding another 25 megawatts of nuclear generation capacity will be about $75 million. So, if we add that “incentive” to the $200,000 already granted by the people of Mississippi, we are up to about $240,000 per job created! The really bad thing about the additional $40,000 per job is that the people of Mississippi are not exclusively funding that incentive. WE are their partners in that one. The additional cost of this new generation will become part of what each of us in the TVA region will pay in additional future increases to our cost of electricity. While I am certain that those two thousand new Toyota employees in Mississippi will appreciate our kindness, I am not certain that any of us really want to make that donation! Personally, if I were a potential employee in Tupelo I would rather have the $240,000 than the job. At any rate, I do not like being forced to make donations to Toyota, a company that is already doing fine without me, and this is just one of many such projects we are attempting to land even though we don't have the capacity to serve them.

Do you see the parallels now? Decades of relatively cheap oil resulted in our attraction to gas-guzzling trucks and SUV’s and an addiction to food which has traveled more extensively than most of those who consume it. Now we are becoming very sorry for our addiction. Similarly, cheap electric power coupled with confused leaders, who think the only way to measure success is by counting the number of ceremonial shovels they have used in breaking ground for another new building to house an industry they just attracted by giving away the farm, combined to create our record breaking demand for electric power. Now that mistake is haunting us as well.

It is true that your cost of electric power is going up again on April 1 and much of the reason for the continued increase in the cost of electricity is because of our increased demand for power. But most of that increased demand is not a result of your personal wasteful ways. True, you have likely added a refrigerator or a DVD player over the years, but you are allowing those appliances to run during that peak afternoon time in the summer and early morning time during the winter because you have not been told not to do so. Rather, our rates have been telling you to use all you want, whenever you want to use it, and that line of reasoning has been faulted since its inception. Our real problems with lack of generating capacity come from the ridiculous kinds of messages we have been sending big-box retail store developers and the ingenious moves like the one we are making just outside Tupelo, Mississippi where we are going to sell power we do not have, at a rate below what it costs us to deliver that power, to a company that requires neither to be successful. You can buy all of the compact florescent light bulbs you want but those are drips in the ocean compared to the waste which flows from our leadership’s predilection to constant growth.

Meanwhile, your donations to the antiquated principle of all growth is good will go up sharply in April. That is a date certain. The date when TVA will finally start offering real alternatives and incentives to encourage us to reduce our energy usage during peak times is still to be determined.

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