Manager's Message: Sharing the True Costs of Service
guest column by Tom Manting, Chief Financial Officer
Members often ask, “What is this availability charge on my monthly bill?”
This charge helps cover the fixed costs of making power available to you whenever you need it. Poles, wires, transformers, bucket trucks and employees exist to provide you with electricity, and the availability charge is needed to recover those costs, regardless of how much electricity you use.
An infrastructure charge like this, whatever it’s called, is in place at most utilities nationwide. Large or small, we all have similar fixed costs, based on published cost of service studies.
Many small utilities, like electric co-ops, have been increasing their monthly service charge steadily. In Michigan, several co-ops are charging members $18 to $25 monthly.
Our recent cost of service study, performed by an independent professional engineering firm, shows us that if every one of our residential and general service members paid the true cost of having electric service, the monthly availability charge would be $36.96. (In comparison, the current monthly charge is $12 for residential accounts and $20 for general service.)
The breakdown looks like this:
Primary line, transformer, meter $ 21.40
Customer support $ 9.92
Property taxes, other fixed costs $ 5.64
The first line includes depreciation of purchase costs, interest costs, installation and maintenance costs, and other administrative costs, such as insurance.
Since we are a not-for-profit electric cooperative, our rates should be based on our actual costs of serving you. If we were to increase the availability charge to the full cost of service, we would then be able to reduce the cost per kilowatt-hour of the energy you use – by about 20-25%, to its actual cost.
We believe, as a cooperative, that the cost-causers should be the cost-payers. In an ideal world, each of us would pay our exact share of the costs, and no member would pay more to subsidize another’s rates.
Your board of directors has established a rate policy that would direct future rate increases into the monthly availability charge, to reduce the subsidies paid by those who use more energy. This is one of the agenda items at the Special Open Member Meeting on Sept. 24.
This also benefits the cooperative. Even though we operate on a not-for-profit basis, to remain financially strong we need a margin, or profit. These days, members are purchasing less energy, whether it’s because of Energy Optimization or other energy conservation measures, net metering with renewable energy sources, or distributed generation. We believe this trend will only continue in the years to come. The cooperative cannot maintain a reliable system by attempting to recover costs from ever-decreasing kilowatt-hour sales.
A common response when rates increase is that we are penalizing those who use less energy. Not at all. Making sure service is available to you, whenever you want it, costs your cooperative the same whether you use 10 kilowatt-hours a month, or 10,000. However much energy you use, you should pay your share of the costs, and not expect your neighbor to pay more so you can pay less.