A tracker is a mechanism that follows or "tracks" some unpredictable costs that a utility incurs in providing service to consumers. These costs may include price spikes in the volatile wholesale power market at times of high demand, or when a generating unit is unexpectedly out of service and the utility must purchase power in the market to maintain reliability. All Indiana utilities have tracker mechanisms in their rates.

Hoosier Energy provides wholesale power to 17 central and southern Indiana electric cooperatives. For the past few years, a wholesale power cost tracker has been a part of the cost member cooperatives pay for power.

The tracker is an additional charge for each kilowatt-hour that your co-op purchases from the power supplier and is increased or decreased based on variable costs such as fuel and market power. The tracker is adjusted quarterly.

Hoosier Energy uses the power cost tracker to equalize large swings in electricity and fuel prices while recovering costs in today’s volatile energy market. As well, the tracker recovers some costs incurred for environmental requirements and transmission or power delivery charges.

Factors in rising energy costs
There are many factors affecting energy costs in Indiana and across the country.

• Rising demand: Economic growth in the U.S. and overseas has increased the demand for energy.
• Higher fuel cost: Fuel used to generate electricity, including natural gas and coal, has risen sharply in price. Future forecasts suggest fuel costs will remain at high levels compared to the past.
• Power grid and equipment investments: Generating plants and much of the nation’s electricity grid are aging. Investments are being made to increase generating and transmission capacity and reliability. Many Indiana electric co-ops are experiencing rapid growth and additional investment is required to support facilities to serve new consumers. The cost of materials, including transformers, poles, wire and other necessities to provide electric service has experienced double digit increases in recent years.
• Increasing environmental and other regulations: Utilities are faced with the cost of compliance with environmental regulations and other government requirements. Compliance with already-approved or anticipated rules will add millions of dollars in costs for Hoosier Energy.
• Volatile wholesale market: Prices in the wholesale power market have increased substantially in recent years and continue to remain higher than a few years ago. Forecasts suggest continued market price increases in 2008 and 2009.

Electric cooperatives across the country are working together to increase electricity supply, improve reliability and efficiency and find new or alternative energy options that are cost-effective. As always, the objective of your electric cooperative and Hoosier Energy is to deliver reliable electricity at a reasonable cost.

For information and tips on managing your energy use and costs, see www.touchstoneenergysavers.com.
 

Tracker Questions and Answers

What is the power cost tracker?

A tracker is a mechanism that follows for “tracks” certain costs that a utility might incur in providing service to consumers.

What are these costs?

Utilities use trackers for various unanticipated, unpredictable or highly variable costs including fuel, environmental requirements and purchased power above estimated levels projected for a given period. You may be familiar with fuel adjustment clauses used by natural gas utilities to recover their costs for purchasing gas during time of uncertain market conditions.

What are these costs not included in the base rate?

These are costs of operations that are not fixed and cannot be predicted or known in advance. You may have read about extremely high wholesale power prices in California recently. Indiana experienced similar wholesale market fluctuations in the summers of 1998 and 1999, and at other times of high demand and short supply. These market price fluctuations are due to circumstances that cannot be predicted and create highly variable power market costs that cannot be forecast.

When are wholesale market power purchases necessary?

An example is when a utility may lose a generating unit and be required to purchase power on the open market to replace some of its power supply to maintain reliable service.

Is the REMC the only utility using a tracker?

For many years, central and southern Indiana’s electric cooperatives enjoyed the position of not having any variable component or tracker in our rates. All other Indiana electric utilities had these components already built into their rate structures. When Congress deregulated the electric wholesale power supply business, the industry became subject to increased volatility and uncertainty, and our power supplier experienced a need to implement a cost tracking mechanism. The tracker became part of your electric bill two years ago.

How do my REMC’s rates compare to those of other utilities?

During the last decade, your electric cooperative has made great strides in rate competitiveness at the retail level. We do not expect that competitive position to change. Our rates are lower now than in 1994 because of successful efforts to manage costs, and because our wholesale power cooperative Hoosier Energy has decreased rates over the past 15 years. Your co-op has maintained a favorable position during a period of growth that required substantial capital investments to provide service to new customers.

How does the tracker work?

Through its wholesale power rate to the REMC, Hoosier Energy has built in and is recovering a certain level or purchased power costs based on historic generating unit performance and other factors. The tracker is used to recover costs related to unanticipated circumstances such as those that occurred earlier this year.

How do Hoosier Energy’s wholesale costs compare to those of other power suppliers?

Hoosier Energy has been among the lowest cost wholesale suppliers in Indiana for the past several years. Hoosier Energy’s rates continue to be competitive with other Indiana and regional power suppliers, which have included environmental and purchased power costs on consumer bills through a tracker mechanism.

What are other reasons for the tracker?

Electric cooperatives are consumer-owned, but like other businesses must operative in a financially responsible manner to provide reliable service and maintain competitive rates. The tracker will help the electric cooperative manage risks associated with wholesale power costs, maintain financial stability, and avoid large increase in customer bills.