March 1, 2018 Rate Increase
Egyptian Electric Cooperative (EECA) conducted a current Cost of Service Study Analysis (COSA) to assess utility rates on our 14,979 meters. The purpose was to present different options to fairly and equitably break down the costs of providing service to each rate class and to reasonably and responsibly allocated costs to each class of members that avoids any class paying more, or less, than their fair share. In order to align these different rates on behalf of our member-owners, all line items were evaluated including the member’s basic charge, service availability, the charge to all members in order to have an electric delivery system, as well as the energy charge, or kilowatt-hour (kWh) charge, and for larger consumers, the demand and power factor charges.
It has been 5 years since Egyptian Electric has undergone a rate change, last being in 2012. Few consumers per mile of line (7.5 average) coupled with wholesale power cost variables and various terrain throughout our service territory causes EECA’s costs incurred per mile of line to be higher compared to investor owned utilities at 35 average consumers per mile of line. However, there is a balance to maintain to keep your bill as low as possible, and yet maintain a system that will provide you with the electricity you need when you need it, now and into the future. Increasing wholesale power costs is the largest culprit for the 2018 rate increase. Our wholesale energy rate (kwh) from our wholesale power producer and supplier, Southern Illinois Power Cooperative (SIPC), will increase over 6 percent effective Jan. 1, not including any additional power adder charges to us considered. For larger services, the wholesale demand rate (kW) will increase 1.7 percent, from $18.67 to $19. Majority of our membership are single-phase non-demand users, which 89 percent of EECA’s electric accounts are made up of, correlating to 13,344 meters. At the December board meeting, it was compromised between management and the board to raise the service availability charge for these accounts $2.50 and slightly increase the energy charge $0.004/kwh. This will increase the service availability charge from $36 to $38.50 and the energy charge from $0.103 to $0.107 per kilowatt-hour. For example, based on an average EECA user of 1,200-kwh, the average bill would increase from $159.60 to $166.90, a $7.30 or 4.57 percent increase.
Our cost of service study also recommends security and outdoor lighting charges to increase a dollar across the board. The 100W equivalent, or small LED, will increase from $9 to $10, and 250W equivalent, or large LED, will increase from $13 to $14 for the monthly rate. The rates on these lights have not changed since our last increase in 2012. Rising lighting rates are a direct reflection of rising energy costs. Note: members who rent lights in addition to their electric service will see this same increase.
The remaining accounts or services fall into small commercial, large power and industrial rates. Larger loads are billed differently because of the demand they put on the electrical grid and power production. These accounts can require four billing components: a service availability charge, an energy charge, and depending, power factor and demand charges. Accounts with a smaller usage and lower demand will experience less of an increase versus those with higher usage and higher demand factors, varying from an 4-8 percent increase overall.
Rate increases to us from SIPC will be effective Jan. 1, 2018, but we will not implement our rate increase to the membership until March usage, or April bills, and instead will see the difference needed adjusted in the Power Cost Adjustment (PCA) line item. Since 2008, there has been a line item for the PCA and is currently a charge of $0.004/kwh. Once the rate increase has taken place, the PCA will be reevaluated monthly. Now that your board of directors have made their final decision on the rates, management will educate our employees to ensure that members understand the cooperative’s strategy and how they will lead to reliable supply and acceptable costs for you, the consumer, our member. Below are the current rate schedules and the March 1st and forward rate schedules.
2018 Rate Schedules-Effective March 1, 2018
Schedule A: General Service - Single-Phase
Schedule B: Small Commercial - Single-Phase
Schedule C: General Service - Three-Phase Rate
Schedule LP-1: Over 50 kVA
Schedule LP-2: Industrial Dedicated Substation
Schedule LP-3: Industrial High Load Factor
Schedule L: Private Outdoor Lighting
Schedule P: Utility Power Pack Rate
When was the last rate change?
The last EECA rate change was in 2012. The way our rates are changed, is variant on the type of service and overall usage. For residential, the flat service availability charge will increase $2.50/month, and the energy rate will increase $0.004/ kwh. Overall, everyone will see an increase, but overall percentage will vary based on usage. The variations of changes for residential, and all other rates, are a direct result of the energy rates being recalculated from the wholesale provider and distrib¬uted equally across the different rate classes based on the required ser¬vices, equipment and infrastructures needed. There have been wholesale power costs increases made intermittently since 2012, without being passed on, and absorbed periodically by EECA.
Why is EECA’s service availability charge higher than an IOU?
EECA serves on average 7.5 members per mile of line, whereas investor owned utilities (IOU), such as Ameren, serve on average 35+ members per mile. Additionally, EECA’s sales are 89% residential, whereas, the IOU receive a much higher portion of their sales from commercial and industrial custom¬ers in more concentrated areas. All of this means that the IOU receive 5 times more revenue per mile of line than EECA does, and therefore IOUs are much better positioned to spread their fixed costs. EECA is at a signifi¬cant disadvantage due to the rural nature of its service area.
For many years, our cost of service studies has shown that we’ve been significantly under collecting on the flat monthly service availability charge. These studies have indicated that the actual cost of having service available in our rural area should be even higher yet. Although, when comparing bills, all line items, factors and charges must be considered to make accurate comparisons.
How do EECA’s residential rates compare to other Coops in Illinois?
The Illinois Electric Cooperatives Association publishes a residen¬tial rate comparison annually so that Illinois Cooperatives can see where they compare to other Illinois Cooperatives. In 2016, Egyptian Electric Cooperative had the third lowest overall rates of all Illinois Electric Cooperatives.
Non-controllable vs. Controllable expenses:
Controllable expenses include: Distribution operations and main¬tenance, customer accounting and collection, administrative, and member services. These costs, or Egyptian Electric costs, accounted for only 20% of our total expenses in 2017. We regularly review our expenses and strive to do more for less, but here are many economic challenges of being a rural utility service provider that city and town utility providers don’t have.
Non-Controllable expenses include: Wholesale power costs, depreciation, taxes and interest. The wholesale cost of power Southern Illinois Power Cooperative (SIPC) is a major non-controllable expense, that made up 70% of our total expenses in 2017. For residential bills, wholesale cost account for more than two-thirds of the bill, yet for large power services, wholesale power can account for as much as 98% of the billed amount. However, SIPC’s focus is clear — deliver electricity at the lowest cost possible now and into the future. Depreciation, taxes and interest are largely outside of our influence. These costs accounted for 10% of our total expenses in 2017. However, recently we have been able to curtail some of these costs. For example, EECA has streamlined internal operations into a single building, as well as various additional rate discounts on our current loan portfolio.
What causes costs to go up for EECA?
For Egyptian Electric yearly costs in 2017, we invested $4 -$5 million in operations and maintenance to our electric system. That, plus what we pay for poles, wire, transformers, vehicles, etc., tend to increase and impact on our electric rates. These costs simply cannot be recovered only through the kWh energy charge because there are too many vari¬ances such as weather which can negatively impact the Cooperative financially. EECA currently owns and maintains 1,679 miles of overhead line and 306 miles of underground line, being a total of 1,985 miles total. Again, 80% of our costs are non-controllable.
What is EECA doing to control costs?
Purchasing – EECA is in the beginning stages of implementing a competitive bid process for the purchasing and ordering of materials. The bid process is already being used for contracting out right-of-way man¬agement, utility contracting crews, and large project line up-grades.
Information technology – Egyptian Electric has implemented paperless functions, such as service orders, which not only saves in materials, but in employee time and energies. We’re driving more members to the web to pay through e-bill and SmartHub. We are promoting member engage-ment with social media, our website and SmartHub, opposed to investing in costs such as bill stuffers. These measures help reduce labor, printing, and postage costs.
Ways to Pay – We encourage mem¬bers to use automatic bank draft and recurring payment methods to cut down on labor costs. We have three payments kiosks, and have initiated a 24/7 automated phone system for members to make payments with extended hours, which also is a convenience to the membership.
Write-offs – EECA has been able to significantly reduce member account write-offs over the last several years. For example, write-offs were approximately $79,000 in 2010, to about 1/3 of that amount, approximately $26,000 in 2017.
Automated Meter Reading – is the technology of automatically collecting energy consumption, and transferring the data for billing, troubleshooting, and analyzing. This technology saves us the expenses of periodic trips to each physical location to read your meter. Along with this, we also utilize remote meters, that can connect and disconnect a meter with a click from our office.
Personnel- As far as our employees we have maintained the same headcount number, if not less, over the last several years, even though it has become apparent to add additional variations of full-time employees to the EECA head-count. For instance, in 2016 we hired an Informational Technology (IT) Manager to meet the challenges and changes of technology used in EECA’s business practices, prevent cyber security attacks through employee training, along with software and hardware reinforcement. Our IT Manager is an asset to our organization and membership, now having the ability to run software and systems in house opposed to contracting costly services had been an expenditure in the past. Safety and security will continue to be a priority, as we continue to advance member facilities and network. With that said, we will most likely be losing 2/3 of our work force in the next 5-10 years, therefore additional employees will be hired for future succession planning.
Because EECA has built a new headquarters, is this the real reason I will see an increase in my bill?
From the beginning it has been said that our new building could potentially have little to no impact, or an equivalent of up to a 1% increase, to the membership. A new build¬ing is a long-term asset that provide efficiencies and cost savings in itself. There are also tax savings offered as being apart of Jackson County’s Enterprise Zone, and USDA REAP grant money received in energy in-centives, aside from other savings of being in one primary location.
Instead of continuing to refund capital credits to active and inactive Members, why not use those funds in place of a rate increase?
By law, an electric cooperative must allocate patronage capital, or capital credits. Capital credits are allocated to each member of the cooperative every year based on participation in the cooperative. This is a primary difference between a for-profit investor-owned company and a cooperative. It is what happens to revenue above and beyond annual operating expenses. An investor-owned (for-profit) company disperses excess revenue (dividends) to its investors, a cooperative, on the other hand, distributes excess revenue to its members in proportion to their contribution of the revenue. The more you contribute to the revenue through your electric purchases, the more that’s returned to you when there is excess revenue. Refunding patronage capital does not affect our margins (but does impact our balance sheet). Part of the premise of a coopera¬tive is having members as investors, and giving members a return on equity over time. Active and inactive members who have been on our lines for many years paid patronage capital and deserve a return on those investments.
I am a low-energy user, so why do I feel I’m being penalized?
If one member uses only 1 kilowatt-hour (kWh) of electricity and another member uses 100 kWh of electric¬ity, EECA still incurs about the same cost to build the line, maintain the distribution system, deliver electric¬ity, calculate and bill each member. It takes just as much equipment to deliver 1 kWh as it does 100 kWh. Therefore, each member must pay the fixed costs that are associated with their size of service to maintain the financial health of the cooperative.
EECA does promote energy efficiency through its energy audit offerings to help members reduce unnecessary or controllable energy consumption, and lower their electric bill, in turn lowering our billed amount from our wholesale provider.
Are large power consumers/members going to see the same percentage of increase as the residential members? If not, why?
The cost of service study looked at the minimum amount of distribution equipment required to serve a single member in each rate class. This includes the cost of poles, wire, transformers and meters. In addi¬tion, we need to properly allocate the cost of the actual energy and generating capacity (demand) to each member class. Unfortunately, due to the increase in energy rate and demand charges, large power and commercial users will most likely see the largest increase in their bill, because not only will their monthly service and energy charges increase, but their demand charges will also increase.
If the rate increase won’t be reflected in our bills until April, why do my bills seem higher already?
The 2017/2018 winter bill season was extremely cold. Bills cannot be compared from one year to the next based only on dollar amount, as bills are a direct reflection of energy usage (which are heavily dependent on tem¬perature), and energy usage is based solely on your usage patterns and the efficiency of your home. Our rate structure has not changed since 2012.
The Power Cost Adjustment (PCA) is the only line item controlled by us, that has fluctuated month to month. It is not a new line item, and was added back in 2008. It was a charge beginning then into 2012. 2013 and forward it had been a credit, and is used to maintain the financial integrity of the cooperative, as a non-profit, to address unforeseen and fluctuating costs. We implemented a partial PCA credit for September 2017 usage (October bills), and eliminated the credit for October usage (November bills). November usage (December bills) also had no line item for the PCA, mostly due to SIPC’s January 1st effective wholesale energy rate increase, therefore we implemented a PCA charge beginning for December usage (January billing). The January 2018 bills showed a $0.004/kWh equivalent. Therefore, for every 1,000 kWh, it is a $4.00 increase. For LP (Large Power) accounts we were already absorbing the PCA charges from our wholesale provider, SIPC.
When the new rates take effect, will there continue to be a PCA charge?
When our March 1, 2018 rate increases takes effect for April bills, our margins, and therefore PCA, will be reevaluated monthly. Our rev¬enue is highly impacted by weather, which cannot be predicted, but with improved accounting methods we have implemented for 2018 we will have more accurate timed income amounts to base the PCA on, and are hopeful that the PCA will decrease.
Why can’t I choose another electric provider?
EECA is a distribution cooperative, so even if electric customer choice was practical, EECA would still have a dis¬tribution cost structure and would still be the distribution provider. Members do have choices: wind turbines, solar panels, permanent standby genera¬tors, propane or natural gas, however, those can be significantly more expen¬sive and not always reliable. Plus, who else is going to pay out capital credits?
Heating, cooling, and hot water are a home’s largest energy loads, typically accounting for more than 60% of a home’s total energy use. You do have a choice of competing fuels and efficien-cies for these, as well as the choice of insulation and appliances in your home.