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By 2013, Hoosier electric rates could jump by 14%

By LINDA McGURK
Indiana Correspondent

WEST LAFAYETTE, Ind. — Indiana residents could see their electricity bills go up by 12 percent over the next four years, according to a newly published report by analysts at Purdue University.

That could help trigger a wave of energy efficiency projects and boost interest in alternative sources of energy, predicts Douglas Gotham, director of the State Utility Forecasting Group, a state-funded panel of researchers at Purdue that conducted the study.
“One thing (higher rates) tend to do is they make energy efficiency projects more attractive. If you have a piece of equipment that you’re looking to replace, you may be willing to pay a little more to do that,” Gotham said.

“It may also make self-generation more attractive. If you have the opportunity to install a biogas digester or put up a wind turbine, the economics of that will be more beneficial when electricity rates go up.”

Federal regulations from the U.S. Environmental Protection Agency dating back to the mid-2000s, and higher construction and fuel costs, are the main reasons behind the projected rate increase, according to the report. Indiana is hit extra hard by the rules because of its heavy reliance on coal-fired power plants; 90 percent of the electricity generated in the state comes from coal, making Indiana the fourth biggest annual emitter of sulfur dioxide and nitrogen oxides in the nation.

In order to meet the new emissions standards, utilities have had to install costly pollution-control equipment, and in many cases construction costs have exceeded the estimates.

“Construction costs went up in 2007 and 2008,” Gotham said. “Some of these devices can cost hundreds of millions of dollars.”
Indiana’s rapidly growing wind industry is not a significant contributor to the rate increase, according to Gotham. “Wind tends to be a little more expensive than traditional methods of generating electricity from fossil fuels, but considering the small fraction of energy Indiana is getting from wind power, I wouldn’t say it had a significant effect,” he added.

The Purdue analysts predict by 2013, residential rates will rise 14 percent, commercial, 13 percent, and industrial, 11 percent. The figures represent the state average, though variations between different parts of Indiana are fairly small, according to Gotham. By 2027, rates are predicted to increase a total of 15 percent. The demand is expected to increase 1.5 percent per year in the same 20-year period.

This is a less-than-usual growth in energy consumption, which Gotham explained with a combination of the recession and renewed interest in energy conservation.

He said several utilities have programs in place to help consumers save energy and, to some extent, offset the higher rates.
“I know that the natural gas company that services this area, Vectren, gives customers a rebate if they put in a high-efficiency furnace,” he said. “Several of the electric utilities do similar things if you buy high-efficiency appliances.”

The increase in electricity rates means consumers who sell electricity back to the grid – generally through small, renewable energy facilities based on solar, wind or fuel cells – could stand to gain, although the number of people engaged in so-called net metering is fairly limited in Indiana.

Gotham said Indiana’s energy future and dependence on coal will largely depend on federal regulations regarding carbon emissions. “If we’ll see a cap-and-trade system, that’s going to hit coal harder than other sources of energy and we’ll move towards less carbon-intensive sources,” he said.

He added that methane capture from the livestock industry is one of several viable options, even though it’s no silver bullet.
“We have a lot of dairy and swine operations in Indiana, but not many of them are big enough to justify the investment in a digester,” Gotham said. “I don’t think anaerobic digesters will be a significant source of energy in Indiana – we probably won’t even get 10 percent of our electricity from them – but that doesn’t mean it’s not worth pursuing.”

1/20/2010