Electrical rates for customers of the City of Houston could jump about 24 percent beginning April 1 following a rate increase by the community’s wholesale supplier. The dramatic increase comes after Sho-Me Power Corp., which provides power to Houston and 16 other towns, will shift the way it charges for power.
The new structure – based solely on consumption – will hurt economic growth because it puts Houston and other communities at a disadvantage, city leaders say. The formula – which the City of Houston’s electrical consulting firm says is unique to Missouri – penalizes usage. The rate is based on an inverted formula scale – increased use equals an increased rate.
The change has left city leaders shocked. They say they had been inquiring what an expected rate increase might total. They had no idea of the magnitude of the jump following the Sho-Me board’s action, knowing that an increase was understandable and likely.
“The new tariff, when applied to your specific usage characteristics, and coupled with the first three months under our existing tariff, is estimated to result in an average cost of 5.445 cents per kWh for the 2008 calendar year, an increase of 34.3 percent from our 2007 estimate,” wrote John Richards, chief financial officer, for Sho-Me Power Corp.
Using a complex formula, the city’s rate increase actually converts to a rate increase of about 24 percent. Electrical customers will see the increase beginning with their May 1 bill. A month later, the full effect of the hike will be felt.
“This is anti-growth and could affect economic development,” said Larry Sutton, city administrator for Houston, one of several cities in the region faced with the big hikes. They include: Salem and Lebanon, 35 percent; Cuba, 26; Ava, 74; Mountain View, 19; and Richland, 5. Intercounty Electric – which doesn’t have as much as a demand in its rural coverage area – will pass along about a 5.4 percent increase to its customers.
Sho-Me provides electricity to 17 municipalities, nine cooperatives, including Intercounty Electric Cooperative at Licking, as well as Fort Leonard Wood.
Sutton is among several community leaders in south-central Missouri who are seeking the help of legislators and municipal organizations, such as the Missouri Public Utility Alliance. At a recent study session, Houston’s utility committee met to discuss the hike and its affect on residential, business and industrial users.
The city has retained the electrical engineering and consulting firm of Barnes, Henry, Meisenheimer and Gende of St. Louis, to aid it in its review of the rate hike. All agreed that the increase punishes growth through industrial expansion and future development. Areas with large industrial bases are affected the most. That has legislators scurrying to see what role the state might have in reviewing Sho-Me Power Corp’s rate increase.
Houston isn’the only community stunned.
“This inverted formula, which we might add Sho-Me is the only electric cooperative that is using this formula, makes it virtually impossible for communities in the southwest Missouri region to complete for jobs and economic growth,” wrote Ava Mayor Leon Harris in a letter to residents in the Douglas County community. Adding, “Sho-Me’s failure to reconsider their formula and/or allow cities other marketing options is definitely putting the cities in an unfortunate and adversarial relationship with Sho-Me Power.”
Sho-Me Power Cooperative was formed in 1941 and incorporated in 1947 as a public utility. This entity, regulated by the Missouri Public Service Commission provided retail service to many communities until 1985, and was converted to an electric cooperative in 1992, removing itself from PSC rate regulation.
Sho-Me Power says it is passing along the cost of its own increased expenses from its supplier, Associated Electric Cooperative. A 25.3 percent increase kicks in sometime in April. In 2006, it increased rates 8 percent and another 4.6 percent earlier. It marks the first jumps by Associated Electric since 1985.
Sho-Me says the rate increase is primarily due to:
*Additional generation to serve its growing needs – which is costly to generate electricity.
*The addition of pollution-control equipment mandated by the federal government.
*The addition of wind generation.
*Increases in the cost of coal.
*A hike in coal and transportation costs.
*Jumps in cost for federal hydropower purchased from the government.
Richards said consumers in Missouri have a good buy when it comes to electricity purchases. Before the hike, the state’s consumers paid less than eight bordering states.
He predicts single digit increases over a three-five year period with a double-digit increase in 2013-2014 sparked by a possible carbon tax enacted by the federal government.
Communities: Electric Co-Op Power Costs Threaten Economy of South-Central Missouri
Communities: Sho-Me ‘Rate Structuring’ Shifts Costs Irrationally.
AT AVA: Citizens told by leaders they may move the issue to courts.