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An Open Letter from the General Manager (continued)

Last year at this time we had budgets for wholesale power that included natural gas prices at less than $3.00/MMBtu. Today those prices are in excess of $5/MMBtu and the futures prices are expected to remain elevated for the foreseeable future. The average for 2022 is projected to be $4.50/MMBtu. Even though we have a very diverse generation portfolio that includes other resources such as wind, hydro and coal; natural gas is the commodity that sets the pricing benchmark. There are many reasons for the increase in natural gas and I’ll let you decide for yourself how much of it is market based and how much is political. Higher natural gas prices are just part of the equation. Coal prices are on the rise due to shortages from the mines and issues with rail transport. We will likely see a decline in the amount of hydropower we receive in 2022 due to a dryer than normal winter because of the forecasted La Nina weather pattern.

Further cost increases will come from early retirements of legacy generation facilities, primarily coal. Even though these resources are still very functional and have undergone extensive environmental upgrades, they are now the target of an aggressive “carbon free” agenda. Many plants are going away sooner than their normal operating life and that will leave stranded investment costs. These assets cannot simply go away. They must be replaced to meet the capacity requirements of our system. Thus, there will be a cost to replace these assets. Regardless of what the replacement may be, it will be more expensive.

As if those weren’t putting enough pressure on our power cost than we like, we also have to take into account the effects of Winter Storm Uri. Although you did not see it immediately on your monthly bill, the power bill we received at the Cooperative in March of 2021 was actually five (5) times what our normal bill would be for that timeframe. Yes, I said 5 times and while we weren’t happy about it, we found ourselves fortunate compared to other Coops in the state. I know many of them that spent their entire power cost budgets in those 5 days of February. Bowie-Cass elected to spread these costs over time therefore each of us are paying an extra $.01/kwh each month until the balance is paid off. All combined we are currently carrying a $.05 PCRF. I would love to tell you that I expect that number to decrease but the likelihood is it may have to increase as we see wholesale power costs go up.

Higher power costs and winter usage is the worst combination we can have. Our system consists of roughly 76% residential members and the highest usage we see year in and year out occurs during the coldest times of the year. It’s just a function of conventional, electric, strip heat. As always, we encourage you to take whatever practical steps you can to conserve energy from heating your home. Setting your thermostat to a reasonable temperature is a good place to start. Don’t believe the old adage that leaving your thermostat at the same setting all the time is the most efficient way to operate your home. If you need your home to be at 70 when you’re there but you work 8-10 hours a day outside the home, consider lowering the setting. The recovery time to get back to 70 is much less expensive than trying to maintain that temperature while you’re away. Space heaters are not good substitutes for running central heat. Three space heaters is the equivalent of running your central heat from an energy standpoint but the efficiency is significantly less. If you have questions about saving energy please visit the “Save Energy” tab on our website, or give us a call.

Besides all the wholesale power cost issues, we are also seeing the same supply chain shortages and price increases that everyone else is seeing. Lead times on most of our items are ever expanding and it’s forcing us into having to buy now rather than face shortages later. Most raw material costs have gone up and some by as much as 30-50% making everything we buy more expensive whether it’s a meter base, a transformer or even a treated wooden pole.

I know this is not the message you want to hear from your Cooperative and it is certainly not one we want to deliver. However, I would much rather tell you before it happens than explain it to you after the fact. I am not a pessimist but I am a realist. I believe it is better to prepare for what we anticipate will happen rather than to hope it won’t. We will continue to work within the organization to control our operating costs and externally to control power costs to the extent we have influence. Since roughly 70% of the cost associated with your Cooperative is our wholesale power cost, you can see our influence is somewhat limited. Ultimately, it comes down to each of us and our usage habits. We all have to make good decisions understanding the cost associated. My job is to inform and encourage you but ultimately we cannot control what flows through your meter.

Respectfully and sincerely submitted,

Mark A. Boyd

General Manager

Bowie-Cass Electric Cooperative, Inc.

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