In the June issue, I briefly informed you of the increasing costs that are being experienced in the electric utility industry.  The industry is facing increasing costs in coal, carbon, natural gas, oil, diesel fuel and materials used to construct power lines.  In this month's article, I would like to inform you about the increasing cost of coal and some of the causes attributing to the increase.

In summary, the cost of coal is increasing very rapidly due to tight global markets.  The market for coal has become tight partially due to supply problems, production problems and greater demand.  The market principle of supply, demand and price indicates that when supply is decreasing and the demand remains unchanged, the price of the product increases.  When the demand is increasing and the supply remains unchanged, the price of the product also increases.  The highest pressure on price of the product occurs when the supply of the product decreases while the demand increases resulting in a significant increase in prices.  This is where the coal market is at the present time.

Australia, the world's largest exporter of coal, along with Venezuela and South Africa have experienced either port infrastructure problems or production problems causing lower exports from those countries.  China, who was also a net exporter of coal until mid 2007 became a net importer of coal.  This means that coal that had been supplied globally from other countries including Australia, Venezuela, South Africa and China are now being supplied from other countries including the United States.  In addition, the global demand for coal is increasing, especially in countries such as China and India, to fuel new power plants.  Another contributing factor to the increasing cost of coal is the value of the dollar.  When the value of the dollar is weak, coal produced in the U.S. is less expensive to foreign markets than the originating countries.  This provides an incentive for U.S. coal producers to sell to foreign markets.  All of this results in higher coal prices and an increase in U.S. coal exports.  In the fourth quarter of 2007, the U.S. exported 34% more coal to foreign markets than in the fourth quarter of 2006.

All of you know that Southern Illinois contains numerous coal reserves and due to the increasing demand and price for coal along with new technologies that remove sulfur from the coal, Southern Illinois is experiencing resurgence in coal mining activity. 

As a result of these primary contributing factors, the spot price of Illinois Basin coal has increased from $36 per ton in February of this year to a current spot price of $65 per ton.  This represents an 81% increase in approximately 5 months.

In conclusion, the prices of natural resources including coal and carbon that are consumed to generate electricity are escalating at alarming rates.  These increases are being driven by global issues that can't be controlled locally or nationally that will result in higher electric rates in the future.  Your Cooperative continues to work diligently to minimize the rate increases necessary to cover the increasing costs incurred in the industry.