As I was preparing to write about the rising cost of energy this month, the catchphrase from Superman, “Up, up and away!” came to mind, and it reminded me of comic books. I have always loved comic books and still have many of them preserved in plastic at home. My son, Nick, now collects comics, and he even met Lou Ferrigno, “The Incredible Hulk,” at Kapow Comics in Sherwood in May.
I love reading and was punished a few times in my childhood for reading too much. One of those times happened at the local grocery store when I was about 12 years old. My parents went to town, which was a big event for our family, and I got to go, which was even better. As soon as we got into the grocery store, I immediately headed for the newsstand and started reading comic books off the shelf. I got so engrossed that I failed to realize when my parents finished shopping and failed to notice that they went home without me. At some point, I realized that I had been reading a long time and went to go find my folks.
Panic struck when I searched the entire store and did not find them. Even deeper panic struck when I ran outside and looked in the parking lot and our pickup truck was gone. Since this was long before cellphones, I went to a payphone and deposited 10 cents and called home. The phone rang, my dad answered, and I queried, “Hey, dad, where did you guys go?” He said, “Home. You are talking to me on the phone. We got tired of looking for you, so we left.” I asked, “How do I get home?” He simply stated, “You walk. See you when you get here.” Five miles later, I arrived home worried that I was in big trouble only to be surprised that there was no trouble at all. My dad was straightforward and, in his mind, a 5-mile walk home was ample justice for a child who didn’t stay close in the store.
You ask what does this have to do with rising energy costs? Not much, but it was more fun to talk about that than what I am about to write. The truth of the matter is that energy costs are rising across the nation, and Arkansas Electric Cooperative Corporation (AECC), the wholesale power provider for the Electric Cooperatives of Arkansas, is not insulated from those rising costs.
Costs have increased more than normal this year for two major reasons. First, the cost of natural gas has, like Superman, gone up, up and away, and has sustained prices not seen since 2008. Natural gas prices averaged $1.75/MMBtu in May of 2020, $2.91/MMBtu in May of 2021 and $7.86/MMBtu as I wrote this in mid-May. Don’t let the units in the numbers above scare you, but rather think of them like you would looking at the price at the pump per gallon of gas. The price of natural gas has increased 200% from this time last year and 300% from this time two years ago.
Second, and equally important, is that AECC has had to rely more on natural gas for baseload fuel for generating electricity than in the past. AECC is a joint owner in six coal-based plants, and while the two plants we jointly own with American Electric Power (AEP) have been able to receive adequate coal inventory, the Union Pacific Railroad has not been able to deliver adequate coal inventory to the four plants we jointly own with Entergy. The Union Pacific Railroad is unable to staff and power the full number of trains needed, and constraints on the rail system are slowing delivery times for those sets that are in service.
The price of coal is relatively stable and is somewhere between $2-$3/MMBtu. Coal generation would normally provide low-cost energy this time of the year, especially with high natural gas prices. However, the inability to get adequate coal deliveries has caused Entergy Arkansas to conserve coal and keep available coal units offline to save coal for the summer peak season, when prices and demand are expected to be even higher. The result is that AECC has been relying on higher-priced gas, in addition to our wind, solar and hydro generation resources, to provide electricity, and our members are seeing these increased costs in their monthly bills.
I believe that the remainder of 2022 will likely include higher electricity prices due to a continuation of the impacts above. Natural gas prices are forecast to remain high for the remainder of the year. AECC would anticipate some relief in fuel costs as the coal plants are brought back online this summer. However, given the increased demand in the summer and the need to use gas-based generation in addition to coal, the fuel price over the next several months is expected to remain above average. Additionally, the Union Pacific Railroad has not signaled that coal delivery constraints will end anytime soon, so we may have to resume coal conservation after summer peak this fall to build back coal inventory for the winter peak season.
This is yet another reason why a balanced and diverse portfolio is important and why we push for a “Balance of Power.” While the costs are higher than we would like, they would be significantly higher if we didn’t have resources other than natural gas in our portfolio. Our jointly owned coal plants with Entergy are slated to close in 2028 and 2030, so the prices we are seeing today are a taste of the future, as we will likely get less diverse and more dependent on intermittent resources and natural gas in the future. To learn more about our Balance of Power initiative, visit our website:
In the meantime, I can assure you that we are fully committed to finding ways to keep your power Affordable, Reliable and Responsible.
Vernon “Buddy” Hasten is President and CEO of Arkansas Electric Cooperatives, Inc., and Arkansas Electric Cooperative Corporation.