A Discussion on Power Supply Cost Recovery (PSCR)
One of the line item charges which appears
on your monthly electric bill from
Edison
Sault is the PSCR Charge. The PSCR Charge represents a cost recovery by
Edison
Sault for the increases or decreases in the cost of fuel and purchased power.
Purchased power is an essential part of the energy mix needed to assure adequate
electricity is available at all times to meet the demands of our customers. PSCR
costs include the water lease payments for the Hydro Plant, purchased power,
transmission costs, and fuel for the diesel generators.
Historically, the hydro plants on the St.
Mary’s River contribute approximately 40% of the power needed to meet the
supply requirements in the
Eastern Upper Peninsula
. The remaining 60% or so, must be purchased from other generation sources and
transferred into the
Eastern Upper Peninsula
via Transmission lines. The costs to purchase and deliver this energy are a
large portion of the recoveries rolled into the PSCR charge.
Since 2005, the water available for hydro
generation has steadily decreased as the level of
Lake Superior
has dropped. In 2007, less than 27% of the power needed for the Eastern
U.P. was generated at the hydro plants on the St. Mary's River. Thus,
Edison Sault Electric Company is now purchasing more than 73% of the Eastern U.P.
power needs from outside sources.
A clause in the rates and tariffs set forth by the
Michigan
Public Service Commission requires these costs to be reviewed and approved by
the Commission, and also restricts
Edison
Sault from including any profits or margins. The PSCR Charge represents a
straight pass-through of the purchased power costs.
Edison Sault Electric Company must purchase the additional energy needed from
outside sources to meet the demands of our customers.
At the end of 2007, several very price-favorable power contracts signed
in the mid-1990’s expired. Edison
Sault sent out over 100 bid requests seeking to purchase replacement energy, but
only five responses were received. Not
only is the supply of purchasable power very limited, but the prices for
available power are significantly greater (as much as three times the old
contract prices) than those negotiated 10 years ago.
As of January 1, 2008, a new wholesale
purchased power contract with We-Energies took effect.
Because of the new pricing under this contract, the PSCR factor charge to
Edison
Sault customers increased dramatically. In
order to help minimize the shock of this price jump, Edison Sault has requested
permission from the
Michigan
Public Service Commission to phase-in this price increase over three years.
(Under standard MPSC rules, PSCR costs must be recovered in one year)
The PSCR factor being charge in 2008
(pending approval by the MPSC) is 3.034 cents per KWH, with additional
adjustments scheduled for 2009 and 2010.
There are many reasons why the energy prices are increasing, but the most
significant are: sharply increasing prices for natural gas, increasing prices
for coal, insufficient generation in our region for a truly competitive price
market, and for the past decade, a preference to build natural gas fired
generating plants. These factors have contributed to a rise in purchased power.
Throughout 2006 and 2007, the water available for hydro generation has decreased
steadily. This drop in low-cost hydro generation has increased the need
for electricity purchases. By September 2007, the PSCR factor had increased to
2.354 cents per KWH, or an 89% increase over the January, 2006 PSCR factor.
Looking forward to 2008 the purchased power forecast is
gloomy at best with continued low water levels expected and no signs of new or
lower cost generation coming available for the purchased power.
Edison Sault Electric Company is working to reduce purchased power costs, but
the issues are complex, involving State, Regional, and Federal energy policies.
Resolving these issues is a political challenge at all levels and will take many
years. The most powerful tool available to fight the rising energy costs is
energy conservation. We must begin by educating consumers to conserve
electricity whenever possible, and thus, reducing the demand for electricity
when prices are at their highest. Unless new generation is built and consumer
demand declines, prices will
continue to escalate for the foreseeable future (the next 5-7 years).
