City Administrator offers views on the electric rate increase

No matter how we look at it, the cost of energy is on the rise. Whether you are an electric cooperative, an investor owned utility, or a municipality, an increase in electric rates is/was inevitable. The City of Gallatin is a member of the Missouri Joint Municipal Electric Utility Commission (MJMEUC), which is a division of the Missouri Public Utility Alliance. The MJMEUC is a state-wide Joint Action Agency specifically authorized by state law to operate as an electric utility for the benefit of the combined requirements of the members. The MJMEUC has a membership of over 50 consumer-owned systems and provides service to nearly 350,000 retail customers.

The advantage of this consumer-owned commission is: while they have the authority to enter into contracts for power supply, transmission service, and other services on behalf of its members, the individual participants still own the rights to their electric systems. So the City of Gallatin owns their electric system. This allows us to purchase wholesale electricity through MJMEUC and still allows us the capability to generate our own electricity during peak demand to help lower costs.

Another advantage is the City of Gallatin can control their rates. Unfortunately we were forced to raise our rates 20% to meet the increase in wholesale cost of electricity. I assure you this is not a problem unique to Gallatin. In May 2005, Aquila, an investor owned utility, announced a 14.3% increase to its electric customers. In April 2005, Associated Electric Cooperative, Inc., an electric cooperative which supplies to Farmers Electric, proposed five 8% increases in wholesale power to begin in April 2006 with a total increase of 47% over current rates. Municipalities are suffering as well; the city of Rolla was forced to raise their utility bills 22.5%, Columbia 19.25%, Springfield 18%, and as we saw in the paper last week, Trenton has been forced to raise their rates 17%.

So what has caused this drastic increase in the wholesale cost of electricity? A major problem is the need for new base load power plants. The demand for electricity has continued to increase but the last base load power plant was built in the 1980’s. During the 1990’s a multitude of natural gas-fired plants were constructed to help with the peak and intermediate demands, but now are not as cost efficient to operate due to the increase in the cost of natural gas.

This brings me to another key factor, rising fuel costs. The cost of natural gas has more than doubled since the 1990’s. The cost of diesel fuel has made it less effective for municipalities to generate during peak demand using diesel generators. Coal, which is used in most base load plants, has increased due to an increase in rail transportation and because of the international demand increase in fast-developing countries like China and India. Another factor that has affected the cost of electricity is the method by which electricity is bought and sold.

In the 1990’s the federal government shifted from the traditional cost-base model to a market-based model. In other words the price for electricity is based upon what the market will pay rather than the cost to produce it. All of these factors and many more have created an unfavorable situation for both the providers and the customers.

Rest assured the city council is looking at all options to help provide a quality service at a reasonable price to the citizens of Gallatin. If you have any questions, comments, or concerns, please feel free to contact me at City Hall.

Zachary Johnson

City Administrator