Serving
Mohave County
May 2024
Volume 24 Issue 3
COMPLIMENTARY

Oct 2023 | October 2023

NATURAL GAS / COAL PRICES CLIMB, MEC ADJUSTS PPA

October 2023

October 2023

BULLHEAD CITY, AZ – Mohave Electric Cooperative (MEC) has been serving members for 76 years strong, and unlike most items over time, the cost of MEC’s electricity has stayed relatively the same since inception. Unlike investor-owned utilities who provide profits to shareholders, a utility operating under the cooperative model is a not-for-profit entity structured to provide its member-owners with exceptional service at cost.

MEC is a regulated utility under the Arizona Corporation Commission (ACC) which reviews our operations and energy costs paid for, by members, via rates. The ACC does not allow us to adjust rates based on future expenses, and the newly approved rate case was based on the 2021 test year which included the financials from 2016 (previous rate case) through 2021.

Recent spikes in the cost of natural gas highlights the current supply/demand imbalance. Since 2021, the price of coal has risen 32% and the price of natural gas has climbed 30%. Both fuel types are used to generate cost-effective energy that MEC provides for our members. Over 85% of the power purchased by MEC comes from those two fuel sources.

Those increases combined with lack of power supply in the open market, have resulted in a rise of 67% for power purchases during peak demand periods. Even greater is the increase in off-peak demand periods. Those have increased 85%. These costs were incurred after our rate case filing and are not included in our current reduced rates.

“MEC partners with our major power supplier, Arizona Electric Power Cooperative (AEPCO) to keep costs as low as possible for our members,” says MEC COO Jon Martell. “Although we have some of our own power generation sources, MEC was not able to avoid all costs associated with the sky rocketing fuel and power costs in the wholesale market.”

With prices constantly changing, MEC is authorized by the ACC to use a tool called the Purchased Power Adjustor (PPA) to cover the cost of rising fuel and purchased power without filing costly rate cases. This adjustor could be changed month to month based on necessity; however, MEC has been successful in keeping the PPA relatively constant despite the rising costs.

Since 2013, the PPA has always been a credit to members. In fact, in 2022, the PPA reached a credit of $0.0225 per kWh. That means for the average member usage of 959 kWh, they would receive a credit on their bill of $21.58. From 2013 through the end of 2021, through MEC resource management, members have saved a total of $66.2 million thanks to the adjustor.

As natural gas fuel and coal prices increased, the PPA eventually dropped to $0.005 per kWh, but it was still a credit. That is about to change as the rising costs have resulted in MEC needing to reduce the PPA further to zero $0.000. This is a neutral change with there being no charge, but also no credit on member bills.

“As a not-for-profit utility, MEC makes every effort to save our members money by negotiating the most reliable, yet affordable power prices possible,” says Tyler Carlson, MEC CEO. “This includes monitoring, buying and selling power on the market every hour of every day. Additionally, we at MEC have made the conscious choice to build our own multiple generation and battery storage projects to help isolate MEC from volatile market fuel costs.”

MEC management closely monitors the amount of fuel (coal, natural gas) and wholesale power purchased by the cooperative as well as the cost, and then compares these costs to energy revenue received from members. The ACC then reviews the costs as well for approval.

Each month MEC’s Board of Directors receives an analysis of the status of purchased power and periodically reviews projections up to a year in advance. If trends indicate a significant out of balance condition, the Board may decide to change the PPA to move in a direction that improves the balance between fuel and energy costs and revenue received from members.

“Higher prices are still challenging us daily and we could, in fact, see a positive PPA, or a charge, in the near future,” Carlson said. “We are optimistic that supply and demand settles down in the upcoming months and hope that if there is any charge, it will be a short-term proposition.”

MEC has, for the past 10 years, been successful in securing power purchases at a lower cost than anticipated, and we believe that should continue in the near future. The Purchased Power Adjuster is printed on every member’s monthly bill.

Founded in 1946, Mohave Electric Cooperative is a not-for-profit utility providing reliable, cost-effective power to 36,000 members, 43,500 meters, with more than 1,555 miles of line spanning areas from Bullhead City to Topock on the west, Hualapai to Burro Creek to the south, and Nelson to the east.

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