Original post date: 1-12-15
Cost of service study confirms need for adjustments to Energy and Facility Charges
Throughout much of 2014, your ECI REC was reviewing the results of the Rate and Cost of Service Study conducted by a third-party consulting/engineering firm. The study evaluated the Cooperative’s revenue requirements and rate structure—the methods by which we collect revenue to provide safe, reliable electricity.
“The electric cooperative industry is undergoing change. ECI REC provides service 24/7 and has a reliability rate of over 99%, and there are costs associated with the equipment and technology needed to maintain this standard of service,” said CEO Steve Marlow. “Given these and other factors, we strongly suspected that our rate structure would need to evolve.”
At the July 2014 ECI REC Board meeting, the Board approved measures to implement electric rates that better align with the strategic objectives of the Cooperative as well as coordinate with the rate structure by which we are billed by our power supplier. The process of setting a new rate structure for the Cooperative will be undertaken in stages, derived from recommendations in the Rate and Cost of Service Study, to meet several objectives:
- Move toward a Facility Charge that covers the fixed costs associated with providing reliable service 24/7.
- Allocate costs across all members in an equitable manner.
- Minimize subsidies among members.
- Implement technologies to provide members time-of-use options to potentially decrease their own electric bill by using electricity during non-peak hours.
The Facility and Energy Charges will be the first parts of the rate structure to be impacted. Most members will see very little change to their total monthly bill; the most noticeable change will be a shift from the Energy Charge to the Facility Charge. The Energy Charge, or electric rate, will decrease for all members. The Facility Charge will increase for most members; a few commercial members are already paying adequate Facility Charges. These changes will occur in April and will be reflected on the bill you recieve in May. For a detailed breakdown of what these charges will be come April and sample billing scenarios, see page 7 of the latest Heartland LInk.
Marlow explained that the decision to start revamping the rate structure with the Facility Charge was due to the fact that it had become misrepresentative of actual costs over the years. As you recall, the Facility Charge is the charge that provides revenue the Cooperative needs to provide safe, reliable electricity to members. It is a fixed-cost recovery method associated with your rate class that does not vary, regardless of the amount of electricity consumed. By definition, the Facility Charge should cover the costs associated with delivering your electricity (see the graphic above). However, the Rate and Cost of Service Study revealed our Facility Charge was recovering only 40% of the cost for most members.
The new Board-approved rate structure will now recover 75% of the facility costs via the Facility Charge and collect the remainder through the Energy Charge or Demand Charge. “The Energy Charge will decrease for all members while the Facility Charge will increase for most members. This more closely reflects the true cost of services.”
This rate structure change is not due to the Cooperative needing a revenue increase in 2015, and this is not an overall rate increase. The new rate structure that will be implemented in April will be revenue neutral. “We will receive the same amount of revenue, but it will come from different sections of the total bill which will be fairer to all members,” said Marlow.
ECI REC is committed to making sure all members’ questions about the rate structure changes are answered. You may contact the main office at 877-850-4343—the Cooperative’s Consumer Service Team is ready to help you learn more about how your bill might be impacted by providing an analysis based on your 2014 usage. CEO Marlow can also be reached for questions. Additionally, you can access an online rate structure calculator or read the Facility Charge and rate structure FAQs.