This month we discuss the Energy Adjustment charge. This charge is based on the amount that the Cooperative pays for power generation and transmission to deliver to our substations.
The full cost of power and transmission is covered by a base amount that is included in the kWh charge (to be explained in the next special edition) plus the Energy Adjustment Charge. The base amount is set each time that we have a rate increase and right now it is 2.1573 cents per kwh. This base amount covers the amount that we paid for hydro power, incremental power and transmission in 2005, the last full year before our last rate increase. Increases in these are included in the Energy Adjustment.
Hydro power is the allocation of power that we receive from the Niagara Falls Power Plant that is run by the New York Power Authority. Our monthly allocation of this power is 12,814kw. This covers the Cooperatives use each month from April to November. We have a contract to receive this power until 2025 at cost based rates.
Incremental Power is the power we must buy when our use exceeds the hydro power allocation. In the winter our monthly use increases to over 16,000kw. As of January 2008 the cost of incremental power is at “market rates”. Market rates are determined by the market for wholesale electricity that is run by the New York Independent System Operator (NYISO). We expect that this power will increase significantly in 2008.
Transmission costs are divided into a number of categories. We pay one charge to NYSE&G to use the actual transmission poles and wires and another to the NYISO for so called Ancillary Transmission Costs. The Ancillary costs are to pay for the operation of the transmission system and provide “services” that power plants provide to maintain a stable system. The Ancillary include:
The cost to run the NYISO: 0.1 to 0.5 cents per k\Wh Losses on the transmission system: 0.2 to 1.0 cents per kWh “Congestion” on the transmission grid: 0.0 to 1.3 cents per kWh
B lack start in case of a blackout: Less than 0.1 cents per kWh
Several other items: Less than 0.1 cents per kWh combined
It is easy to see that the Ancillary items 1, 2, and 3 are our major concern. In recent months combined they cost 1 to 2 cents per kWh. Recently the cost of congestion has become a major item. Over four years ago the Cooperatives in New York chose to be charged the NYISO rates for congestion because we could save up to $15,000 per month. By making the change we saved over $500,000 in transmission costs over 4 years.
Congestion occurs when a transmission line is not able to carry all the power that the power users and power producers want to move over that line. When this happens the users are forced to purchase some of their power from nearby power plants that are more expensive than the power that they have a contract for. The NYISO takes care of purchasing this power and divides it among all the users of that line as a “Congestion Charge” for each kWh purchased. Congestion occurs when there is just not enough transmission line in existence, as in the lines to New York City, and when there is an outage on a transmission line in an area that normally has enough capacity but the outage reduces the capacity. We are normally not in a congested area and the congestion charges that we have seen recently, have been caused by outages on the line between Niagara Falls and Rochester.
The Energy Adjustment also includes an amount of 0.1 cents per kWh for cost justified conservation and load management programs Each of these programs must be justified based on its ability to reduce the Energy Adjustment by more than it costs These programs work by reducing our peak demand, allowing us to use less costly hydro power, and by shifting power from the peak use times to the lower cost off peak times. Past programs are saving over 0.3 cents per kWh from what the Energy Adjustment would have been.
To give you an idea of these costs, the amount of base charges and the estimated Energy Adjustment in 2007 and 2008 are:
Base Rate Annual Average Energy Adjustment
Cents/kWh 2007 2008
Hydro Power 0.892 0.089 0.178
Incremental Power 0.305 0.090 0.296
NYSR&G Transmission 0.576 0.082 0.082
Ancillaries 0.425 0.670 0.670
Conservation 0.000 0.100 0.100
Total 2.157 1.031 1.326 Cents/kWh
In order to keep the monthly fluctuations from appearing on your bill we use a 12 month rolling average to determine the Energy Adjustment. Many of these fluctuations are caused by billing errors and adjustments for estimates made by NYSE&G and the NYISO.
Controlling these costs is a major undertaking. To do this we have joined together with the other three New York electric cooperatives and half a dozen of the New York municipals to monitor and intervene when the NYISO takes actions that will add to our costs. This coalition has been very valuable.
To control the cost of Incremental Power we are actively pursuing power contracts with several power plant developers and a possibility of building a power plant ourselves. With these our goal is to have long term stability at a cost lower than the market rates.
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