Manager's Report - October 2015
Hey, How Are Your Rates Doing?
The good news is our electric rates are doing well and we do not need any increases at this time. The cooperative, as a non-profit organization, is not in the business of making profits. Our goal is to provide you with reliable and safe energy while having enough revenue to satisfy the bank’s requirements. With that said, you may wonder how we have been able to go without a rate increase for the past six years.
The biggest reason is the efforts you, our membership, have put into managing your usage in the 5 to 8 p.m. time frame. Nearly 65 percent of all the revenue coming into the cooperative goes to paying the power bill. Well over 50 percent of the power bill is attributed to the demand costs during the peak hours of 5 to 8 p.m.
We also work hard to keep our costs under control. Approximately 20 percent of the revenue goes to paying what we call “controllable costs.” The remaining 15 percent of the revenue goes to paying depreciation, interest and property taxes. Rates are not just about covering the costs to provide power and operate the cooperative. They also need to be fair. To determine this, we perform a cost-of-service study. This study helps us determine the right amount for each type of rate. Over simplified, this tells us what the residential customer rate should be versus the commercial customer. It also helps us determine what the customer, demand, and kilowatt-hour (kWh) charges should be.
Historically, our customer charges have been low, which means the kWh charge has to be higher to recover our costs. You might be wondering why we should be concerned with this. Our desire is that our rates be fair. If the customer charge is too low, then people who don’t use very much energy are not covering the costs to the cooperative. This means some users have to pay a little extra to cover those costs. That’s really not very fair.
In an effort to be fair, we are looking at small increases to customer charge that will be off set by a slight decrease in the kilowatt-hour charge. This is what we call a revenue neutral change to the rates. The average residential member uses an average of 1,285 kWh per month. Based on that average, this rate change would have zero impact on your billing. If you use less than that per month, then your bill may be a few cents higher, or if you use more, then your bill may be a few cents lower. Additionally, to minimize the impact of these changes, we are looking at phasing them in over a period of the next few years. We are also looking to apply a minimal increase to the demand rate, which will also be offset with a decrease in the kWh rate.
Another cost that is buried within the kWh rate is what the cooperative pays for property tax. We are proposing that the property tax be split out into a separate line item. This will shift approximately half-cent from the kWh rate to a property tax rate. The property tax rate will be adjusted annually to reflect the actual property taxes charge to the cooperative.
We will have more specific information at a member information meeting as we get closer to the end of the year. Hopefully, when you are reading this letter, the weather is beautiful and you are enjoying your fall.