As electric cooperatives grapple with soaring natural gas prices and consumers see higher energy bills, a southern Arizona co-op has decided to offer its profits to members for immediate, short-term relief.
After receiving approval from Arizona regulators, directors at Sulphur Springs Valley Electric Cooperative approved a decision in February to apply $8 million in operating margins, or profits, to offset outstanding fuel adjustment charges—a fee that electric utilities typically pass on to consumers to pay for the cost of fuel.
The unprecedented decision to attack fuel price volatility “is an important step in what I have described as ‘the dragon we need to slay right now,’” said Jason Bowling, CEO of the Willcox-based co-op. “We are continuing to be aggressive in stabilizing and reducing energy costs for our members.”
The board action immediately resulted in a 20% decrease in the fuel charge adjustment, from 5 cents to 4 cents per kilowatt hour. For farmers needing electricity to operate water pumps, the price drop has saved them tens of thousands of dollars, said Eric Petermann, the co-op’s public relations manager.
“In the cool months, an average home uses about 700 kWh,” Bowling said. “So a 5-cent adjustment would add up to $35. However, since this is Arizona, and it gets kind of hot here during the summer, homes can use up to 2,000 kWh. That would have added an extra $100 a month to the fuel charge.”
Natural gas accounts for 43% of SSVEC’s generation and, like all utilities, the co-op has paid more for the fuel in recent months. According to the Energy Information Administration, wholesale prices for natural gas were the highest since 2008, hitting almost $10.00 per million British thermal units in late August 2022, compared to $3.70 per MMBtu in early January 2022.
“For us, we pay typically around $3 per unit, but in 2022, it was $6.50, so the price more than doubled. And at times, it spiked over $20 per unit,” Bowling said.
Last summer, SSVEC warned members about higher prices and explained how it was helping keep prices down through bill assistance, energy efficiency measures, a financial hedging program to lock in future rates, and more, Bowling said.
“When they started noticing their bills going up, we got out there on all of our communications channels,” he said. “We explained that geopolitical tensions and domestic policy—things out of our control—made it expensive for us to generate electricity. And when the raw material we use to create electricity—gas—is two, three or even 10 times higher than the normal price, that's going to have some effects.”
In the meantime, the co-op’s actions have enabled it to ramp down the charge before the peak summer months at a time when other Arizona utilities are announcing rate increases, Bowling said.
He added that co-op profits are usually returned to members as future capital credits, but in this case, they got approval from regulators and directors to give members relief now.
“This effort is an example of what’s special about cooperatives,” Bowling said. “From the perspective of an investor-owned utility, they physically could not do what we did. They can’t say, ‘We’re going to take our profits and give them to our consumers to help them with their bills.’ Their shareholders would be up in arms. But because we’re a co-op, we have that ability.”