6.2. ERMUSR 07-11-2006 - Laserfiche WebLink

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We've seen some examples of what can happen when municipal utilities are exposed to market prices under the new MISO regime. The CMMPA members have for years operated under the model of buying interruptible energy and self-generating with local plants when they are interrupted. They don't currently own any central station generation, although the agency is buying into both Big Stone 2 and Nebraska City 2. Many of the CMMPA members have experienced brutal wholesale power increases due to their broad exposure to the MISO market. City councils and consumers are expressing frustration and anger over suddenly high power bills and wondering why they have a municipal electric utility. These utilities have always been significantly lower in cost than their neighboring IOUs and co-ops. Now they are suddenly significantly higher. It's a very uncomfortable position to be in. In a similar but less drastic circumstance, SMMPA experienced both a planned and an unplanned outage at Sherco 3 last year, and the unexpectedly high cost of replacement power put a real strain on the agency's finances. There are other factors beside MISO that will likely drive municipal wholesale costs upward. IOUs and co-ops that have provided pretty favorable wholesale power deals over the years now see a tight market and the potential to make a lot more money from the market than they can get from long-term fixed-price contracts. Municipals looking for power supply are seeing much shorter contracts, at prices that are market-driven or at much higher levels than previous contracts. Municipals looking for power supply down in Iowa have been seeing offers in the $50 to $60 range. Another factor putting pressure on prices is the fact that we are about to enter a period of significant new generation and transmission construction. The CapX 2020 study estimates that we will need about 6,300 MW of new generation over the next 14 years. That will have to be accompanied by roughly $3 billion in transmission investment. Add the wind development necessary to meet a 10% to 20% renewable energy mandate, and there is going to be a lot of investment being recovered through wholesale power rates. Take all these factors into account and we may be in for a major upward adjustment in prevailing rate levels, comparable to what occurred in the late 70s and early 80s. This will actually please most of the environmental groups, since it will make both renewables and DSM more cost-effective. It will likely make utilities the target of public outrage and put a lot of pressure on small town municipals to keep costs down as best they can. Some suppliers will probably encourage municipals to sell out rather than have to keep operating in a high cost environment. What role should MMUA play in helping educate and prepare municipal utilities for some tough sledding ahead? About 45 of our municipals have no active agency affiliate and will likely be out there on their own looking for reasonable power supply deals as their contracts expire. Some thoughts that come to mind are: • Put together a workshop on power supply costs and alternatives. The Iowa association did something like this last month and had very good attendance.