Electric rates in Indiana are projected to increase 20 percent over the next five years, according to a report released by the State Utility Forecasting Group (SUFG), a state-funded panel of researchers based at Purdue University.

Pushing those rates higher will be new federal air-quality standards as well as increasing construction and fuel costs, the study indicates.

The SUFG presented its findings to the Indiana Utility Regulatory Commission on Dec. 21, in a report entitled “Indiana Electricity Projections: The 2007 Forecast.”

“The demand for electricity is going to increase, and the prices are going to increase considerably during the early years of the forecasting period,” SUFG Director Douglas Gotham said in a statement released on Friday. “Part of the increase will come from expenses associated with new emissions standards, and another issue is that costs of construction materials have gone up dramatically in the last couple of years, in some cases doubling for some materials.”

The third factor is higher cost for fuel, such as coal and natural gas, used to generate electricity, the statement said.

The study’s findings:

•By 2012 electric rates will increase by 20 percent overall, with residential rates jumping by 22 percent, commercial by 20 percent, and industrial by 12 percent.

•After 2012, rates are projected to rise at a far slower rate, slightly slower than the general inflation rate.

The use of electricity is expected to increase by 11 percent during the next five years, from the present 113,000 gigawatt hours to nearly 126,000 gigawatt hours, rising 2.46 percent annually over the next 20 years and adding up to around a 55 percent increase by 2025. One gigawatt hour is enough to serve the annual needs of around 90 average-sized Indiana homes.

“This annual increase is a little higher than what we’ve forecast in the past, and its’ due primarily to a more robust economic forecast,” Gotham said.

Clean-air standards set by the U.S. Environmental Protection Agency will require Indiana utilities to increase the amount of equipment for reducing sulfur dioxide, mercury, and nitrogen oxide emissions from coal-burning power plants, the statement said. The new environmental rules will likely hit Indiana harder than some other states because of its heavy reliance on coal for energy.

More than 94 percent of the electricity generated in Indiana is from coal-fired power plants. As of 2006 Indiana ranked fourth in the U.S. in the amount of nitrogen oxides annually emitted and third in sulfur dioxide.

The SUFG did project the need for 3,220 megawatts of additional resources by 2012. A new $2 billion power plant which Duke Energy has received regulatory approval to construct near Edwardsport, along with the purchase of two non-utility generators, are projected to add around 1,500 megawatts, meeting around half of the needed additional resources.

The SUFG prepares its reports about every two years to predict Indiana’s future electricity requirements and the need for new generating power. The group does not make policy recommendations.

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A copy of the report is at www.purdue.edu/dp/energy/SUFG/

Posted 1/8/2008