In the Cooperative world few things are more important than effective communication with members.  Shortly after this year’s annual meeting, I mailed an informational letter to a member who asked why his Ameren electric rate was cheaper than SouthEastern’s.  Since there may be other members with the same question, I thought I would share a shortened and updated version of that correspondence response with all of our members:

Thank you for your inquiry concerning Ameren CIPS rates as compared to SouthEastern Electric Cooperative.

As you may already know there is a considerable density factor differential between the two power suppliers and although I do not know the exact number of customers per mile of line that Ameren serves, I do know investor-owned utilities typically serve about 30 customers per mile, as compared to the 6.6 customers per mile served by your Cooperative.  Obviously, having more customers per mile equates to greater revenue from each mile of line, or simply stated, “more return on investment”.

Despite the disparity in the number of customers per mile of line, SouthEastern’s rates have been very competitive with CIPS over the years and for the twenty-year period encompassing 1981 through 2001, your Cooperative’s residential rate for a monthly usage of 1000 kilowatt-hours (which is a standard used for comparison purposes) was lower than CIPS with the exception of three years, 1981, 1987 and 1993.

When making rate comparisons, it is important to note that Ameren/CIPS, as well as most other investor-owned utilities, utilize a Summer Rate for four months of each calendar year and a Winter Rate for the other eight months.  To compute an actual kilowatt-hour charge for such utilities, the summer and winter rates have to be annualized.  It is also important to note that many electric cooperatives, including SouthEastern use a declining block rate, with all energy usage above 1,100 kilowatt-hours per month charged for at a lesser amount.  Ameren/CIPS does not currently use a declining block rate and has a flat summer charge of 8.176 cents per kilowatt-hour and a winter charge of 6.988 cents per kilowatt-hour plus an environmental adjustment of $.00025600 per kilowatt-hour on all energy used.  Their monthly customer charge is $5.20 which includes a “hidden” State fee of 45 cents per month.  The residential Schedule “A” monthly customer charge at South-Eastern is $18.75 which reflects the density differential noted earlier and the first energy block is charged for at 7.91 cents per kilowatt-hour, and all energy over 1,100 kilowatt-hours per month is 7.38 cents.

Obviously Ameren/CIPS currently has a more favorable residential electric rate than SouthEastern and there are a number of reasons for that situation, which I have addressed not only at past annual member meetings but also in our monthly SouthEastern Light center section of the Illinois Country Living magazine.  Those reasons include:

·     The Clean Air Act of 1990

·     The Illinois Electric Service & Customer Choice Act of

     1997

·     Commitment to Community, Financial

·     Commitment to Community, Environment

The Clean Air Act of 1990 had a direct and dramatic impact on our State and literally thousands of Illinois jobs were lost because of the high sulfur content of most Illinois coal.  The Clean Air Act forced electric utilities to either install expensive sulfur removal equipment in order to burn Illinois coal, or import low sulfur coal from Montana and Wyoming.  Since importing western coal was the quick and inexpensive “fix”, most Illinois utilities elected to import the low sulfur western coal.

However, since our power supplier, the Southern Illinois Power Cooperative located at the Lake of Egypt had constructed a generator with a sulfur removing “scrubber” in 1978, we continued to burn locally mined coal in that unit and the three smaller generators constructed in 1963.

The stepped provisions of the Clean Air Act were applicable to the three smaller generators and in the late 1990’s we started looking at the feasibility of equipping those units with emission control devices.  Since the boilers of the three small generators were 37 years old, the decision was made to replace those boilers with a state of the art fluidized bed system which should not only increase generator reliability and availability, but also dramatically reduce sulfur and nitrous oxide emissions from the Marion power plant.  At that same time, additional pollution control equipment was also installed on the generator built in 1978, for an overall reduction in power plant emissions of 75%.  Those improvements cost the Southern Illinois Power Cooperative $145 million dollars.

The Illinois Electric Service and Customer Choice Act of 1997 was in-acted by our State as a means of promoting and attracting business and industry to Illinois through a reduction in electric rates.  In order to get the bill passed a number of provisions were included with the intent of benefiting residential customers as well.  Those provisions include rate reductions of 20% for Illinois Power residential customers and up to 15% for CIPS residential customers.  The rate reductions were mandated by law to occur during the period from 1998 through 2002 and furthermore, those mandated reduced rates were initially frozen through the end of the year 2004.  However, when it became apparent that there would be no real customer choice for residential customers in Illinois, the rate freeze was extended through the end of December 2006.  You might also recall that a number of other states including California were experimenting with deregulation at that same time and because of the declining number of electricity generators and market manipulation, wholesale power prices rocketed from the market standard of about 3 ½ cents per kilowatt-hour to more than  $1.00 per kilowatt-hour bankrupting several power companies.  To protect our members against such market manipulation and to insure the availability of power, the Southern Illinois Power Cooperative purchased and installed two gas powered turbine generators at an installed cost of more than $87 million dollars.

Because we have a Commitment to our Community and the local Southern Illinois economy, we have made a conscientious decision to burn locally mined coal and SIPC purchased 22 million dollars of coal products from area suppliers in 2004.  In addition $2.5 million dollars of limestone, fuel oil and ammonia were also purchased from local business owners.  When those expenditures are combined with the power plant’s annual payroll of approximately $8 million dollars, few companies contribute more to the local area economy than does SIPC and its local electric cooperative owners.

Because we have a Commitment to the Community that we live and work in, we want our air and water to be as clean as it can be.  Burning imported western coal is cheaper and easier than burning locally mined high sulfur coal, but there are environmental ramifications to doing so.  Western coal has an inherently lower heat value (btu per ton) than does locally mined coal, which means more western coal has to be burned to produce a kilowatt-hour of electricity.  Burning more coal to create the same amount of energy exasperates the solid waste disposal problem and there are other emission problems with burning western coal as well, not to mention the millions of gallons of imported diesel fuel used by the rail system to haul the products into our area and back out west again.

In closing I might mention that out of each dollar of revenue received by SouthEastern, 71 cents is paid to the Southern Illinois Power Cooperative for wholesale power, and it takes another 10 cents to pay our interest and depreciation expense, leaving 19 cents of every dollar as controllable expense by your Cooperative.  In short, the $237 million dollars of improvements at SIPC is the prime reason SouthEastern has had to increase rates in the past few years, and the mandated reduction in rates and concurrent rate freeze imposed by State law is the primary reason the gap between our rates and Ameren/CIPS has widened.

This is your electric cooperative and I appreciate your interest.  As a post script I might mention that Ameren is looking at adding generation capacity and, in addition, will probably have some significant expense in retrofitting existing generators to meet ever changing emission requirements, and I suspect they and the other investor-owned utilities whose residential rates were reduced and then frozen by State law will be applying for rate increases to be effective in 2007.

NEWS UPDATE:  In recent weeks, Ameren has announced that it will seek rate increases of up to 35% when the rate freeze imposed by The Illinois Electric Service and Customer Choice Act expires at the end of 2006.