PowerSouth CEO speaks at Brundidge meeting

Published 9:32 pm Tuesday, March 17, 2009

PowerSouth Energy Cooperative President and Chief Executive Officer Gary Smith was the keynote speaker at Tuesday’s Brundidge City Council meeting.

His presence was met with a room full of concerned Brundidge residents.

Smith explained to the residents their power costs had increased not because of the city council but because of costs passed down from PowerSouth.

Sign up for our daily email newsletter

Get the latest news sent to your inbox

“Cost have gone up because (PowerSouth’s) costs have increased and have been passed down (to the city of Brundidge),” Smith said

With residents seeking answers to their increased power bills, Smith explained the reasons for the increase and what PowerSouth is doing to try and hedge costs.

According to Smith, the stark increases in fuel prices in 2008 were a driving force in some of the increase.

Smith showed a presentation that showed natural gas reached it’s peak on July 3, 2008, but was currently down, and coal also topped out around $180 per ton and is now $70 per ton.

PowerSouth generally purchases natural gas and coal ahead of time and this allows for the company to hedge some of the cost, but when prices are like they were in 2008, Smith said it’s not so easy to make the decision to purchase ahead of time.

“When you’re trying to plan an electric system, you have to ask should you hedge or not,” Smith said.

But, with prices steadily increasing last year, Smith said they weren’t sure if prices where prices were going to top out.

Smith said the company usually can hedge ahead as far as 36 months in advance.

As for saving money, Smith said sometimes money is saved a sometimes it’s lost in hedging programs.

But the main purpose of hedging is to levelize the prices, the company isn’t trying to make money.

According to Smith, a main reason for increased coal prices was the fact that China was seeking large amounts of coal, and there were mining problems in the U.S.

Smith said those problems drove the prices up and even left the company with only 7-12 days of coal on the ground, when the company likes to keep a thirty day or more supply.

With two of the suppliers experiencing mining issues, PowerSouth was forced to pay more than $180 per ton on the market because the coal supply was down, and the supply had to be replenished.

These prices drove production costs up 1.1 cents per kilowatt-hour higher than what it was projected.

Smith also explained that PowerSouth buys power on the market, and can see prices days ahead, and if power can be purchased for less than it can be made they will do so.

But, these increases in power costs may just be the beginning.

Smith said the federal government is planning to levy a carbon tax starting around 2012, which could make electricity rates increase another $2,200 to $3,000.

In other business, the council voted to pass an ordinance that would establish a drug tip fund that would allow a judge in a case where a drug dog helped make the arrest to pass along part of the court fee to the city for maintenance of the dog.

The next meeting will be April 7 at 4 p.m.