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New Rate Design in 2018

  • Posted: 12.21.2017

Part of our financial policy and obligation to you, our member-owners, is to conduct a cost of service study approximately every four years to examine our rate classifications and costs for providing service. A professional, third-party utility consulting firm performed an in-depth cost of service study.

I'm happy to report the cost-of-service study findings indicate essentially a revenue-neutral change (an overall 0.39 percent increase in revenues) meaning the amount of money paid by the total membership remains basically the same. 

It is part of the board of directors' responsibility to allocate costs to each member to ensure that all members are treated fairly - that they are paying as close as possible to what it actually costs to serve them, so that no one group of members is unfairly subsidizing another. The cost of service study provides your board of directors a road map for rate design and the method by which your Cooperative can collect the revenue it needs from each rate class so that each rate class is paying their fair share of the costs.

According to the cost of service study, the actual fixed costs to serve the general service, residential accounts is approximately $55 per month. However, the current access fee of $29.50 recovers only about half of the fixed costs. The other portion of these fixed costs are recovered through the kilowatt-hour charges. Therefore, the revenue collected through the energy charge to cover these costs is dependent on kilowatt-hour sales, which fluctuate with changes in weather, economic conditions, energy efficiency efforts and lifestyle patterns. The Cooperative can better plan and manage operations when the revenue needed to provide for these costs is more properly aligned.

Access Fee and Fixed Costs 
The fixed cost, also called the "access fee," covers a portion of the costs associated with providing and maintaining an electrical distribution system capable of providing power to you on a 24/7 basis, whether you use it or not. This includes poles, wires, transformers, substations, meter testing, buildings and maintenance, insurance, labor, administration and much more.

By increasing the access fee from $29.50 to $37.50, an $8 increase, it shifts more of the fixed cost to the access fee, and less costs from the energy (or kWh) charges. This will help reduce the volatility in the Cooperative's revenue due to factors such as weather. While the increase in the access fee will not completely recover these costs, it does move us in a direction toward greater financial stability.

As I said previously, the rate adjustment is revenue neutral meaning the Cooperative does not need additional revenue with regard to the annualized recovery costs.

Therefore, within the new rate structure, the fixed monthly access fee will increase to reflect the cost of providing electric service regardless of the amount of electricity used while the second tier in the kWh energy charge will decrease. 

We break down our rates by rate class to ensure that all members are treated fairly - that they are paying as close as possible to what it actually costs to serve them. The overall changes by rate class are different, some go up, some stay neutral and others go down.

General Service, Single Phase - Residential

USAGE                     2017               2018               Change
Access Fee             $29.50             $37.50               $8.00
1st 750 kWh           $0.134             $0.140000        $0.00600           
Over 750 kWh       $0.101              $0.096434      -$0.00457
PCA on all kWh     $0.0060           $0.0000          -$0.00600

Average General Service, Single Phase

CUSTOMER CLASS               CURRENT AVE.               INCREASE/               NEW AVE.               % INCREASE/ CLASS                                    MONTHLY RATE              DECREASE               MONTHLY RATE     DECREASE General Service                     $212.33                            $0.97                       $213.30                     0.46%     Single Phase

From the table above, the "average" general service, single phase members will see an increase of 97 cents per month in their electric bill starting with their January 2018 billing statement. These changes will affect each rate class differently, based on kWh use.

Low Use Residential Members

Members with monthly usage of 0 to 750 kWh will see an $8 increase per month, the largest impact in this rate class from the rate restructuring. Please refer to the table for a breakdown of example charges. Some examples of service that fall in the category include well pumps. seasonal loads, cabins, detached garages and low-use homes (snowbirds).

Average Use Residential Members

The average Iowa Lakes Electric Cooperative residential member uses 1,300 kWh per month.* Those members with an average use of 1,507 kWh per month will not experience any change due to the decrease in the over 750 kilowatt-hour rate block, which again, is part of the rate restructuring process.*

Above Average Use Residential Members

Any residential member using over 1,507 kWh per month will see decreases in their bill. Members using 2,000 kWh per month will save an average of $5.21 per month, while members using 3,000 kWh per month will save even more at an average of $15.77 per month.

*Electric heat use and electric heat credits will impact results.