The Cost of Reliable Electricity
As we begin a new year, we have put the final stamp on our budget and updated our financial forecast. This is an annual process as we try to predict the revenue stream that will cover our expenses for the upcoming year and look into the future to project our financial needs for the next 10 years. For 2023, we forecast a shortfall in our budget. Our financial projections have shown for several years that this shortfall has been coming.
Two of the goals set by the board of directors are to provide safe and reliable electric service and to maintain the financial integrity of the cooperative. Achieving these goals requires awareness of events that can impact our mission along with transparent and decisive action by the board and management.
The maintenance of the electric grid and replacement of an aging plant comes with a cost. Over the past several years, I have discussed our construction work plan that is implemented to continue providing safe and reliable electricity to you the member. The work plan calls for an investment of nearly $575,000 each year. Unfortunately, with today’s cost of materials, that money doesn’t get as much done for us as it did a few years ago.
Inflation is something that everyone is experiencing, and your electric cooperative is no different. In the past two years we have seen an increase of between 30% and 135% in the cost of material items such as wire and transformers. We also are needing to keep more material on hand since it is taking longer for us to get material.
While we’ve seen these increased costs over the past couple of years, we were able to minimize the impact on our members by delaying some projects and prioritizing less expensive projects. While those actions help for a short period of time, those cost increases are now showing up in the 2023 budget and only appear to be softening slightly. We continue to look for ways to limit the impact that these increased costs have on our electric rates.
Union County Electric is not the only utility that is facing these issues. The Energy Information Administration (EIA), the federal organization that tracks everything to do with all forms of energy, has indicated residential electric prices are up 7.5% from 2021 as the average price in 2022 reached $0.148/kWh. For 2023, EIA is projecting an average increase of 16% in electric prices over the last four years. In comparison, Union County Electric has not raised rates since 2016, 7 years ago.
We’ve worked hard to hold off a rate increase for as long as possible. Basin Electric and East River Electric, our wholesale power supply cooperatives, have also been successful in holding down wholesale energy costs even while other electric market prices have shifted dramatically.
Union County Electric Cooperative is a not-for-profit organization and operates at cost. Any revenues that exceed expenses are called margins. East year, margins are allocated to you, as capital credits, in proportion to the amount you are billed for electricity during that year. These “capital credits” reflect your ownership in Union County Electric Cooperative. The cooperative uses capital credits to fund operation activities and reduce borrowing. Each year, we return approximately 4.25% of your capital credits to you.
To prove safe and reliable electric service and maintain financial integrity for the cooperative, a rate increase will likely be needed in 2023 to recover the projected shortfall. We will keep you informed of any changes and continue to work hard to minimize the impact on our rates.
Until next month, stay safe and God bless.
Quote of the Month: “There are many ways of going forward, but only one way of standing still.” – Franklin D Roosevelt – 32nd President of the United States