Facilities Charge Under Review
Central Electric wants its members to understand the role the monthly Facilities Charge plays in the electric cooperative’s cost recovery. This is important because in 2015 and 2016, co-op management will be reviewing the costs of operating our business and studying changes in how costs are recovered between the Facilities Charge and the kilowatt-hour charge. This will likely lead to future changes in how CEC bills its members each month.
As discussed in this article in the July 2015 Ruralite, the Facilities Charge is dedicated to recovering the costs of everything it takes to deliver electricity to members. The cost of the electricity itself is recovered through the kilowatt-hour charge. The costs the Facilities Charge helps pay for such high profile assets as poles, wires, substations, trucks, transformers and the crews that fix and build the systems. The charge also covers plenty of other lower profile costs. They include customer service personnel and systems, our computer control systems and the work it takes to keep them reliable and secure against cyber theft, the financial people and systems that keep the co-op’s books in order, and the maintenance and upkeep of our properties and buildings.
We have prepared the following questions and answers to help you understand the issue and how it will be managed over the coming months.
Frequently Asked Questions:
Q: What is driving the need to review the charge?
A: This issue is not unique to Central Electric; the vast majority of electric utilities use some form of monthly charge for being connected to the system. Most, if not all, are reviewing the relationship between such charges and kilowatt-hour charges. Here’s why CEC is doing so. Our current kilowatt-hour charge includes recovery of both the cost of the energy we purchase and provide you, and some of our fixed costs like those mentioned above. The current facilities charge revenues cover only part of these fixed costs. As energy use fluctuates due to weather or changes in the economy, so do kilowatt-hour revenues. We can under-recover our fixed costs during periods of reduced energy use. This makes financial management of the cooperative increasingly difficult. We want to make sure our rates and fees are balanced and fair.
Q: This system has been in place for a long time, why the need to address it now?
A: True, the Facilities Charge or its predecessor has been in place since 1978. However, in recent years energy prices and weather patterns have both become more volatile, causing us to more frequently experience years when our cost recovery formulas become imbalanced. Secondly, we are beginning to see more members acquire their own on-site energy source – a trend that is expected to continue and even grow. Such members pay a reduced portion of the cooperative’s fixed costs because their kilowatt-hour payments have decreased.
Q: Why is that a problem?
A: The best way for us to fairly allocate our costs to the members is on a per-meter basis. Under our current structure, the Facilities Charge covers only a portion of the fixed costs and we depend on each member using an average amount of electricity to get sufficient fixed cost recovery from our kilowatt-hour sales. As individual members significantly reduce their kilowatt-hour purchases they are paying less of the fixed costs. Recovery of those costs then shifts to those members who don’t have on-site energy production. It is in order to be fair to all members that we are reviewing the Facilities Charge to ensure that each account is paying a fixed amount each month sufficient to cover its share of the costs of providing power around the clock, 365 days per year.
Q: What kind of on-site generation is taking place?
A: Today it is mostly solar energy facilities along with a small number of micro-wind projects. Right now, only a very small portion of members do this, but it is likely to grow over time as some of these energy sources come down in costs or other technologies, such as fuel cells or micro-wind generators, become more available and affordable.
Q: Are you taking action to discourage the growth of the use of these technologies?
A: No, we have entered an age where consumers seek empowerment and choice in many aspects of their lives and we realize energy is one of those areas. We believe in the right of owners to make such choices. We simply want to ensure that those using the electricity transmission and distribution system to receive electricity – and depending on the grid for uninterrupted service – pays their fair share of the costs of keeping that system maintained and operating.
Q: It sounds like a Facilities Charge increase will happen, is that true?
A: The answer to that question is the purpose of our study. Our objective is to ensure fixed costs are recovered by the Facilities Charge and energy costs are recovered by the kilowatt-hour charge. As noted earlier, this blended cost recovery structure has been in place a long time and can actually be traced to the very first days of Central Electric Cooperative under a pricing structure that was the standard within the electric utility industry. We feel a pricing and fee structure that properly reflects the cost of obtaining and delivering energy is the most fair for all members.
Q: When will we learn the outcome of the Facilities Charge review?
A: We will be studying the economics of Facilities Charges through the first part of 2016. Toward the latter part of the year, co-op management will present its findings to your elected board of directors. We will then work with the board to develop a course of action. Any decisions or changes will be shared with the membership before they are implemented.