Manager’s Message – April 2023
The electric utility industry has a long history of charging for service by making assumptions that, over time, become problems that must be resolved. The concern is too much emphasis has been placed on charging for how much power each location uses each month rather than how much it costs to supply power to the location.
If you picture a map of an electric system, there are hundreds of miles of lines on poles, along with transformers, breakers and other electrical devices. Each system is initially built through funding from lenders. Thereafter, replacements are paid for by revenue from sales and more loans for large projects. The system is always degrading over time, and our challenge is to replace equipment before it fails.
The way rates have been structured is by taking total kilowatt-hour use in each rate class, such as residential, and then dividing that kilowatt-hour use by all members in the class. Rates are then determined by calculating cost expectations against expected use.
The part of the equation that has been overlooked throughout the industry is the monthly delivery charge. As you remember the map of the system, each location is responsible for part of the initial construction costs and then maintenance, which is perpetual. Wasco Electric Cooperative must recover all expenses, and this is accomplished through the rates. If the average use is not consumed by members, the revenue generated does not satisfy our financial obligations. The solution is to move toward having a monthly delivery charge that most effectively generates cash to pay expenses.
Regardless of whether members use any kWh, the lines to their homes are always degrading and eventually need to be replaced. Sometimes this happens 1 or 2 poles at a time, and sometimes this occurs with a large section of poles and lines being replaced. To cover costs in a more confident and equitable method, the monthly delivery charge should cover most of all budgeted expenses. That way, if there are fluctuations in energy use, all expenses are contained.
WEC’s most recent cost-of-service analysis stated that if there was no use by any residential members, the appropriate monthly service charge necessary would be more than $100 a month. While we expect to have sales in each rate class, we believe it is responsible to increase the monthly delivery charge slightly while reducing the kWh rates so the resultant adjustments are net neutral. We will be changing both the energy rates and monthly delivery charges to create a balance that is more aligned to fairly cover costs of maintenance each month.