the following is an article from July's issue of Power Lines -- the member newsletter.
by Matthew Boshaw, CEO & General Manager of Central Electric Cooperative
One of the primary governance roles of your member-elected board of directors is fiscal responsibility. With that in mind, Central Electric Cooperative’s (CEC’s) board put a financial plan in place to provide clear direction to CEC staff regarding financial priority. The plan is quite comprehensive and includes direction, in priority order, for rates, rotation of patronage capital, member equity level, and a few other items that impact CEC’s financial health. I would like to highlight that the single highest financial priority that the board has identified is the rate to our members. They recognize that while the other financial issues are important and can impact rates, nothing is more important than maintaining a reasonable and stable rate for this essential service.
The board’s direction for rates is to extend the time between increases as far as possible and be competitive with, and work to be lower than, the surrounding utilities. We have been measurably successful in meeting these goals. We have not had a rate increase since July 2016 and do not plan one in 2019. We have a rate lower than one of our neighboring investor-owned utilities and have narrowed the gap substantially with the other, despite having significantly fewer members per mile (which spreads the costs).
Electric utility rates are made up of several components. They include generation, transmission, demand, distribution, and base charges. As complex as they may seem, residential electric rates have been billed largely the same since electricity was first supplied. As you can see from your current electric bill, there is a base charge along with a cost per kilowatt hour (kWh) for your distribution, and generation and transmission (G&T) energy usage.
The G&T charge is effectively a pass through of the cost from our G&T provider. The other two components — base charge and distribution energy charge (kWh) — are meant to recover the cost of our distribution system infrastructure. This two-part, distribution rate — one fixed and one variable based on usage component — creates potential volatility in our revenue. In an extreme weather year (hot summer and cold winter) the variable component is higher because our members use more electricity. While this puts the cooperative in a strong financial position, it costs you more and is extremely difficult to predict and budget. Conversely, in a mild weather year, our members use less energy. This means our members pay less but the cooperative potentially can be left without enough revenue to cover expenses and could lead to a rate increase.
As I mentioned, this has been our rate structure for as long as can be remembered, but there are several factors that have elevated our concerns. First, our distribution costs have increased over 82 years. Second, our weather has fluctuated more dramatically, and our mild years are fewer and further between. Lastly, we are experiencing members who have installed alternate generation, typically solar, but stay connected to the grid through CEC’s facilities. Because these installations can offset the energy component of the member’s bill, the base charge component alone does not allow CEC to recover the monthly cost of the distribution facilities, leaving the other members to cover the costs.
In an effort to mitigate these risks to both the member and the cooperative, we will be rebalancing the fixed and variable components of your distribution cost in August or September. We will decrease the variable component and increase the fixed. The variable component will also change to include a tiered cost, allowing us to make this change without any rate increase.
The only accounts that will see impact are those that use no energy. This will mitigate other members paying for unrecovered costs from a service that exists, but uses no energy. In addition, these changes will allow members’ bills to have less fluctuation based on weather conditions and add to rate stability.
Our website will have a bill calculator to allow you to do a side-by-side comparison that will illustrate that the same kilowatt-hour usage will result in the same end cost to each member — so again — no rate increase.
As I mentioned our rate structure has been largely the same for most of our existence, so we have been careful to ensure these changes will provide the benefits described with as little impact on each member as possible. With that in mind, we continue to research ways to maintain our rates in a manner that will best serve the long-term interests of our members.