Cost of Power Projections
(To be clear and avoid any confusion, electric rates are not expected to increase in the next fiscal year due to these projections.)
Every year, Lansdale faces the same challenge when it comes to the cost of providing power to our borough. The cost of power remains the same, around $50/MWh, but the cost of getting power to Lansdale continues to increase despite the amount of power purchased remaining, mostly, stable. Each year this occurs, our borough ends up paying more for power without the cost of the power itself going up.
Lansdale, like most municipal electric departments, enter into a purchase power agreement that allows us to keep our rates stable over an extended period. Think of our purchase power agreement as the contract many in the area have for their home heating fuel oil. A resident agrees to a contract that stipulates what amount of fuel you might expect your house to burn. Within in that agreement is an agreed upon fixed price for that fuel for the year. That is exactly how Lansdale Borough continues to achieve a stable cost of $50/MWh for the generation of power.
What that agreement does not keep at a fixed rate is the cost of transferring power to the borough for our distribution. In 2019 transfer rates for our community were around $13/MWh. In 2020 that increased to around $15/MWh. In 2021 we are now projecting that it will cost $17/MWh to get power to Lansdale. Additionally, in 2022, the expectation is that rates will climb again to a decades high $24/MWh. By 2022 we will be looking at an increase of 84.6% over a four-year period causing the total cost of power to increase from around $72/MWh to around $86/MWh.
So, how does this ultimately impact our community? It is no secret that the electric department helps fund many local infrastructure projects that are otherwise paid in tax dollars via an annual transfer from one department to another. It is a highlight of why our electric department is so critical to our community. Instead of paying some faceless corporations profit lines, you are funding a road, a park, a sewer, or our police by paying for Lansdale Electric. Your electric dollars stay local and directly benefit you as a resident.
However, the rising cost of purchasing power means less money will be transferred and less infrastructure and local work will be completed. This is an unacceptable reality, in my opinion. Our borough needs consistent and fully funded infrastructure projects to continue to build and improve our community. To do that without increasing electric rates we need to take control of the cost of transferring power to Lansdale by generating it more locally to begin with.
Those of you who are regular readers of my articles know this is not a new topic. I have discussed at length that generating our own power will allow us to better manage the cost of power for our whole community and thus allow us to avoid costly transfer fees that are eating away at our ability to continually improve our home in a cost-effective way. Additionally, by generating our own power locally we will need to generate less power overall since about 5% of power generated is lost in line transfers due, in part, to the distance it is traveling. If we were able to decrease power costs by 5% our average price for power would drop from around $50/MWh to around $46MWh. Between decreasing transfer costs and power loss, Lansdale would be able to dedicate more resident funds to projects that directly benefit them and the community.
Obviously, building locally generated power would require significant investment in our electric infrastructure (the options for power generation were outlined in a prior musing). However, recouping those costs through spending three to five million less per year on power will substantially increase the ROI on the investment and make the project more viable. If we do not generate our own power and continue to face increasing transfer costs of power, we will be faced with hard decisions on how we are going to fund the work our borough needs to complete and will need to explore other options that allow Lansdale to expand services beyond electric and sewer, something we should be doing regardless of our growing cost of power. Very likely, a complete solution to this local challenge involves both expanding services, to include something like high-speed wireless internet, and generating more local power.
These are complicated challenges and require careful investment by our community to help build a better future for all our residents. We cannot ignore these issues and we need to face it head on while considering innovative ways of meeting the needs of our residents and our community.