by Nolin President & CEO Greg Lee
There is no question that the inflationary impacts facing our economy have taken a significant toll on nearly all of us. We know that this has had upward pressure on our members energy bills. Here is some insight as to why that is happening and to help explain why costs are increasing. We will focus on three key areas and how they impact your energy usage and Fuel Adjustment Clause (FAC): increased input fuel costs, supply chain concerns and extreme weather patterns.
For all of our Nolin RECC members, the energy rates themselves do not change on a month-to-month basis. Nolin RECC last had a rate increase in 2017. Our generation and transmission provider, East Kentucky Power, last had a rate increase in 2021. What does change each month is the amount of energy you use and the cost associated with the FAC.
When the weather is very hot or very cold, we use more energy. We have seen record heat across much of the United States this summer. This impacts you in two significant ways. At a local level, the amount of energy required to cool your home increases and, as a result, many of you have probably observed higher kWh totals on your bill. In the bigger picture, the cost of producing energy goes up significantly because of increased demand and a limited capacity – with the capacity challenges increased by logistics and procurement issues (parts, equipment, labor shortages, etc.) up and down the supply chain.
Where we get electricity is changing
For a variety of reasons, the days of coal-fired generation resources providing electricity to the overwhelming majority of rural Kentuckians are gone. Environmental regulations have complicated coal, public safety concerns remain with nuclear generation, and increased emphasis and subsidies placed on “renewable” energy resources such as solar and wind have left nearly all energy markets in the United States with a much more diversified generation portfolio. Natural gas resources have also increased significantly as policymakers have created an environment that nearly eliminates the ability to bring new coal resources online. While there are some benefits to a diversified portfolio, there are also real drawbacks – we are experiencing these now.
Across the U.S., many coal plants and nuclear reactors have closed over the last decade. This has depleted a significant portion of the most reliable and cost-effective energy available. Solar and wind resources are not dispatchable, meaning they cannot be relied upon for consistent and on-going output. This brings natural gas into focus, a commodity that fuels over 40% of U.S. generation – more than double its market share from 20 years ago. Natural gas prices are at their highest levels in 13 years and have more than doubled since the beginning of the year.
Fuel Adjustment Clause
It’s this extreme variance in input fuel cost that ultimately impacts the FAC charge. It is designed to allow utilities to pass through the cost of fuels to our members without impacting our base rates. The FAC charged to members is what Nolin pays – we make nothing on this charge – it merely covers the cost of input fuels. As recently as last year, the FAC passed on to you was a credit of more than half a cent per kWH. So far this year it has ranged between a one to two cent charge per kWh. This fluctuation reflects the massive swing in fuel costs.
We are in this together
We provide electricity to you at our cost. When our sound fiscal responsibility does leave us with some residual margin at the end of the year, we make every effort to return it promptly as a capital credit to our members. We will be demonstrating that again this year by retiring $5.5M in capital credits back to our members. This will bring our four consecutive year retirement total to over $15.7M.
We care about our members. Though it may be impossible, we strive for each interaction with us to be positive. As we have since 1938, we will remain steadfast in our effort to serve you with the utmost integrity and strive to constantly improve in our service to you.