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NAEC: adjustment not increase

Thursday, February 2, 2006

Not Changing Rates:
Not Changing Rates: North Arkansas Electric Cooperative customers have been paying a little more on their bills lately. According to CEO Mel Coleman, this should be a temporary situation. Photo/Price

Area residents will be paying more for electricity, though it is not a rate increase, according to North Arkansas Electric Cooperative.

NAEC CEO Mel Coleman said the company is facing an issue it hasn't faced in years, a power cost adjustment. It is a line item on bills.

Coleman said the power cost adjustment, as ordered by the Arkansas Public Service Commission, allows the wholesale power supplier, which is Arkansas Electric Cooperative Corporation, to pass the additional costs of fuel used to generate power to the distribution stations in Arkansas.

"This is a wholesale issue; the power cost adjustment on our bills is not a rate increase," he said.

Coleman said the problem will be temporary, and the prices will return to normal eventually.

"The bill that just came out has the highest power cost adjustment we've ever seen; $28 million in additional fuel costs were passed on to customers," Coleman said.

The generating plants that provide the power to NAEC are fueled by coal, natural gas/fuel oil and hydro. The power cost adjustment on customers' bill is near zero when AECC fuel costs are near their projection in their last rate filing. If generation fuel costs go down, customers get credit, and if generation fuel costs increase, customers will usually have a charge on their bill.

AECC is a minority partner in two of the state's largest coal generation plants. These plants have usually allowed electric generation at relatively cheap rates. AECC owns 35 percent of the plants which are operated by Entergy Corporation. Seventy-five percent of AECC's electric generation is from coal.

The plants depend exclusively on coal from Wyoming's Powder River Basin. Coleman said the coal is plentiful and inexpensive to mine, with two-thirds of the delivered cost going to the railroads for transportation.

"The coal plants have had to be shut down and the gas plants have had to be brought online. When the gas plants come online, fuel costs go through the roof," Coleman said.

Coleman said there are two major problems that have caused the power cost adjustment to rise.

The first is that the plant operator, which is part owner Entergy, entered the summer with less than half the recommended coal inventories. Summer is one of the peak seasons for electricity due to the use of electric coolers like air conditioners and fans.

The second problem is that the railroads have cut delivery to half of what it had been. The coal shipments from Wyoming have suffered from derailments and major track problems over the spring and summer, Coleman said.

Coleman said the railroads have a clause called "Force Majure" in their contract that allows them to change the contract.

"We are captive to one shipper," he said.

Coleman said repairs are still not complete and thus the coal shipments have been reduced.

Entergy is considered a captive shipper, with almost all rail transportation handled by the Union Pacific Railroad. Coleman said ineffective regulation and consolidation of the railroads results in no competitive options, escalating cost and poorer service to the generating facilities.

Coleman said the problem is not that there is a shortage of coal but getting enough coal to Arkansas.

Without coal, the electric companies have had to rely on natural gas. "Electricity generated from natural gas is six times more expensive than electricity generated from coal," Coleman said.

Coleman said there are some positive developments that might drive the power cost adjustment down by nearly 50 percent with the March 1 bill. "Coal inventory at coal generation plants is moving up slowly," he said. The mild January also played a hand as customers relied less on natural gas than expected. Coleman said the projections change daily.

"It appears the fuel issue will be with us through November of this year, just maybe not as severe as once projected," Coleman said.

"When this is all over, others can and will be held responsible for coal shortages. Monetary recovery of damages will come back to the members of NAEC in real dollars," Coleman said.

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