What is a Fuel Cost Adjustment?
The (Fuel/Energy Cost Adjustment) line item on your Craighead Electric bill usually does not get much attention, except during times of extreme weather conditions, such as the winter weather that Arkansas experienced in December and January.
When the amount paid by Craighead Electric to our wholesale electric supplier for the energy we purchase differs from the amount that is built into our base electric rates, a fuel cost adjustment is applied to each member’s bill. This adjustment factor (charge or credit) is multiplied by kilowatthours used in the current month.
Craighead Electric purchases its energy from Arkansas Electric Cooperative Corporation (AECC). In 2017, AECC’s electricity was generated by coal (54 percent), natural gas (18 percent), hydro, wind and solar (18 percent), with the remaining coming from regional energy markets. The fuel cost adjustment is usually small, and there is no profit added. It is a direct pass-through from AECC to the final electricity user.
Why has the fuel cost adjustment risen so much?
During December and January, Arkansas and large portions of the country experienced significant “polar vortex” events. Polar vortex events bring extremely cold air from the Artic polar region of the globe down into the United States. During such events, natural gas is used more for heating so there’s a great increase in demand. Since both electric utilities use natural gas to generate electricity, and gas utilities provide gas directly to industries, businesses and homes, that competition raises the price of gas. That price increase is reflected both in electric bills and natural gas bills.
AECC has a diverse portfolio of different types of generation that fortunately reduces the cost impact of severe weather events. However, the unusually cold weather like Arkansas experienced in December and January resulted in much higher than normal demand for natural gas, and therefore much higher wholesale fuel costs. The fuel cost adjustment only includes the actual cost of fuel that the utility had to purchase during the month. Sometimes, there is a lag between when the cold weather event occurs and when the member receives the bill, so it could show up on the next month’s bill.
AECC intentionally owns a variety of generation plants with different types of fuels so that weather events like this will have a lower impact on the member’s bill. Their primary goal is to provide the most reliable power at affordable prices for our members.