Surging Fuel Costs, Market Conditions Prompt Wholesale Power Increase

We rely on electricity to power our lives. Whether at home or work, at the gas pump or grocery store, we need abundant and affordable electricity.

Unfortunately, real-world conditions affect the price of electricity. While the energy we use every day remains a tremendous value—especially compared to the skyrocketing prices of other common goods and services—the cost of producing and buying that energy is rising.

Gulf Coast Electric Cooperative works alongside its wholesale power supplier, PowerSouth Energy Cooperative, to keep rates stable. As a member of the local community, GCEC is driven by the goal of providing reliable electricity at an affordable price.

Several factors beyond our control have increased the cost of achieving that goal.

In May, the PowerSouth Board of Trustees approved a measure to increase wholesale power costs by 39%, with additional rate increases expected. This is primarily due to an increase in the price of natural gas.

GCEC’s board and management are working hard to offset this increase, so the impact on our members’ bills is as minimal as possible. Our members will not see a 39% increase in their bills. At this point, we anticipate an increase in the single digits, not double digits.

We hope the increase in the cost of natural gas is short-term. In the meantime, we will do everything in our power to keep our members’ bills as low as possible.

Wholesale power costs account for approximately 80% of your monthly power bill. GCEC’s electric rates have remained relatively stable for the past 10 years.

What determines the cost you pay for power, and why are those costs increasing?

Rates Directly Related to Fuel Costs

Operating an electric utility is much like owning a car. Expenses related to car ownership include fixed costs—loans, insurance, and taxes—and variable costs— gas, oil, tires, and other maintenance.

Your fixed costs remain relatively stable throughout the vehicle’s life, but your variable costs are determined by how you operate it—the number of miles the car is driven and the price of the fuel and other materials you buy.

Similarly, electric utilities are subject to fixed and variable costs. Fixed costs include loans for capital expenses— power plants, power lines, and equipment— and purchased power contracts with other utilities. Variable costs depend on how the utility is operated—the amount of electricity produced and the cost of fuel needed to generate it. Your electric use is also a variable cost determined by the amount of electricity you use in your home.

For electric utilities, the variable costs associated with operations have dramatically increased over the past several years— especially the cost of fuel. Natural gas is a primary fuel for electric generation, so extreme volatility in that market has affected electric utilities nationwide.

Rising Inflation Has Increased the Cost of Fuel & Materials

As the nation struggles with rising inflation, GCEC, and PowerSouth have felt the impact and worked together to meet current and future energy needs. Despite these efforts, the cost of keeping the lights on has trended upward.

Some of this upward pressure is driven by the higher cost of power generation resources, including natural gas. According to the U.S. Energy Information Administration, natural gas spot prices averaged $6.59 per million British thermal units in April 2022. They are forecast to rise to $8.59 per MMBtu in the second half of 2022—more than triple the $2.66 MMBtu average cost in April 2021.

Supply chain shortages are also leading to a spike in the costs of materials, including transformers and electrical conduits.

The higher prices are affected by the pandemic and global conditions, such as Russia’s invasion of Ukraine.

High Demand Factors Into Rates

Global demand, tight fuel supplies, and labor shortages at coal mines and railroads affect the cost of generating and buying power. Demand is expected to increase.

Summer is a peak electricity use time. People need a lot of electricity for things such as cooling.

We're Doing Our Part

Unfortunately, the factors that drive wholesale power costs are beyond GCEC’s control, although we are actively pursuing solutions to minimize the impact of spikes in fuel prices.

One way we protect our assets is with our partnership with other electric cooperatives and municipal electric systems through PowerSouth. By pooling our resources with others, we gain economies of scale to help cushion the impact of higher energy costs.

PowerSouth actively compares the cost of generation with the cost of power available for purchase from other utilities, choosing the lowest-cost options. PowerSouth staff also buys fuel in advance, projecting fuel needs, negotiating lower prices, and ensuring adequate supply.

PowerSouth’s aggressive natural gas risk management program—executing financial hedges for protection from price increases—helps mitigate the impact of volatile natural gas markets.

As in the past, GCEC will continue to work with members to help reduce the impact of increased rates and find solutions to stabilize your power bills. We offer programs such as levelized billing and free energy audits.

Maintaining dependable service at the most affordable price possible remains the cornerstone of our business. At GCEC, we’re always here for you.