Public utilities are characterized as slow to change. The admonishment might be associated with advocacy to pivot to renewable forms of energy, place power lines underground, or even to adopt more equitable methods of calculating bills. Resistance to rapid change in the utility world can often be traced to a mundane accounting concept: the useful, depreciable life of assets.
Investments in utility facilities, be they pipelines, powerlines or electric generating plants, are not immediately recovered through rates. Rather, assets are depreciated over many decades. For example, powerlines are depreciated over 40 to 50 years. Customers would pay for duplicate assets if facilities were prematurely replaced prior to being fully depreciated. Maintaining competitive rates throttles the pace of change.
Even with long-lived assets, energy utilities are capital intensive. The decades between facility investment and retirement give inflation time to multiply costs, in some cases 50 to 100 times the original cost of what is being replaced. The U.S. experienced a significant investment in the expansion of the electric grid in the 1970s and 1980s. Many of those assets across the country have reached end-of-life and must be replaced to serve current and future loads. Midwest Energy's Board of Directors and management are evaluating the need for additional electric revenue beginning in 2026 to support the replacement of aging grid facilities.
We are acting to mitigate the costs of new facilities in many ways. Multiple federal grant programs were approved post-pandemic to stimulate the economy and replace aging critical infrastructure. Midwest Energy has secured three grants to date. Among them are announced awards that total more than $105 million for high voltage transmission line replacement, natural gas pipeline replacement, and natural gas leak detection equipment. Full use of the grant funds within the required five-year windows brings a pace of construction not seen for decades.
Midwest Energy is engaged on several fronts regarding the equitable allocation of costs for high voltage transmission lines. Our challenge is to ensure the Midwest Energy customers are not carrying the cost of facilities added to export renewable energy elsewhere. This effort entails activities at the Southwest Power Pool, Federal Energy Regulatory Commission, and the U.S. Court of Appeals.
A desire to send a better price signal to customers, especially in a period of increasing capital expenditures, was motivation to implement demand rates for residential and small commercial customers in 2023. Electric bills that incorporate the intensity of energy use, that is, the individual's contribution to company peak demand, improve awareness of a major cost driver and enable customers to better manage costs and bills.
Our proposal in the Kansas Legislature to equalize property tax exemptions across all types of new electric generation facilities was signed into law. This is a win for customers, whether Midwest Energy builds its own generation of enters into a purchase power agreement associated with a new plant owned by others. Previously, the exemption period was shortest for natural gas peaking plants, the type of generation most needed to balance non-firm renewable energy sources.
Affordable and reliable energy supply must withstand many threats. Some, such as severe weather, energy commodity price spikes, and employee succession planning, are well known to Midwest Energy. If not constant, these risks occur at a frequency sufficient to exercise and improve response capabilities. Other challenges are evolving, such as cyber threats and supply chain constraints. A rapidly emerging threat to electric reliability is sufficient dispatchable generation to replace aged facilities and serve growing loads such as data centers, manufacturing, and electric vehicles. Even when not in Midwest Energy's service area, such new loads consume available generation capacity in the regional market. Adding generating capacity will impact future rates, whether built by Midwest Energy or any other entity.
These are extraordinary times, but we have extraordinary people. The preceding focus on emerging issues masks the reality that our 280 employees are dedicated to the essential daily work of keeping gas flowing, lights illuminated, and customers satisfied. Most importantly, they understand the importance of personal and public safety. The dedication of our employees to your energy cooperative and communities remains strong. We appreciate your trust in Midwest Energy and its people. It is a privilege to serve you.
Dale Unruh, Board Chair
Patrick Parke, CEO