News Details

Rates will increase despite slower growth in demand

February 16, 2010

Electricity rates in Indiana are predicted to rise despite slower than normal growth in demand, according to a recent report from the State Utility Forecasting Group at Purdue. These increases could ultimately lead to gains in efficiency.

Specifically, the report says overall rates will increase by 12 percent in 2013. Residents will see a 14 percent rise while commercial and industrial sectors will see 13 percent and 11 percent increases, respectively.

Duke Energy, the company providing electricity to the West Lafayette and Lafayette areas, will also likely see an increase in its rates. Purdue also buys 55 percent of its electricity from Duke Energy,

Lew Middleton, Duke Energy spokesman, said the company does not have a specific projection for rates, but “we do foresee that electricity prices will go up.”

Rates are increasing because of several main factors, according to Douglas Gotham, director of the Forecasting Group.

“The biggest one is probably the utilities have added new pollution containment units in order to meet stricter federal emission standards,” Gotham said.

This applies to Duke Energy as, according to Middleton, the company has invested hundreds of millions of dollars on environmental compliance. Duke Energy is also working on a new, cleaner plant costing roughly $2.35 billion that converts coal into a synthetic gas before being burnt.

“Those costs are eligible to be recovered by rate payers,” Middleton said. Stated differently, Indiana laws allow the cost of adding technology to make power plants cleaner to be passed onto consumers. Previous calculations by Duke placed an 18 percent rate increase from 2008 to 2013.

Another factor, Gotham said, which actually increases electricity rates, is the slower than normal growth in demand.

“The growth in demand has slowed from what we’ve seen in the last 25 years,” Gotham said.

Gotham proposed that economic factors are at the root of the slacking growth, with manufacturers consuming less, along with increased consumer efficiency.

“Any time electricity rates go up, that tends to dampen consumption,” Gotham said.

The connection between increased rates and efficiency was stressed by Gotham. Offering support to his position, Gotham said, “States across the U.S. that tend to have the most active efficiency programs have the highest electricity rates.”

Consumers, motivated to save money, will reduce consumption.

“Companywide, we have initiatives to help customers save money and be more efficient,” said Middleton.

Duke Energy offers free efficiency audits for customers and encourages the use of fluorescent bulbs, which can have a major impact on electricity consumption.

“If I replace all the incandescents with compact fluorescents ... then I’m going to be using one-fourth of the electricity,” Gotham said.

Beyond improving the efficiency of its consumers, Duke Energy actively improves its energy production profile.

Middleton said, “In Indiana, we are purchasing up to 100 megawatts from the Benton County Wind Farm.”

Purdue University, generating 45 percent of its electricity needs from its Wade Utility Plant, purchases the other 55 percent from Duke Energy, said Erick Van Meter, director of utilities. For fiscal year 2010, the purchased energy budget is $10.4 million. Van Meter said an increase of $400,000 is expected for next year as well as the next two to three years.

The power plant at Purdue is considered to be primarily a heating and cooling plant. Electricity is simply a byproduct. In the face of rising costs of buying electricity, Van Meter said Purdue will try to produce more of its own.

“We’ll generate slightly more, but chances are we’ll end up purchasing more,” said Van Meter. “Sometimes that energy costs more for us to make than to buy it.”

Overall, Van Meter was not surprised by the increase in rates resulting from energy companies adapting to new environmental concerns and regulations.

Van Meter said, “It’s just part of business, and they’re doing their part for the environment.”


Source: The Exponent Online

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