Manager’s Message: Board Approves Rate Adjustment
A recent Cost of Service study, conducted for Stearns Electric Association by an independent consulting firm, determined that an adjustment to the rate structure was needed to ensure the strong financial stability of the Cooperative and maintain the quality, reliability and integrity of the services we provide. The Stearns Electric Board of Directors has approved an annual revenue increase of 4.4 percent effective May 1st, 2018.
One of the responsibilities of managing an electric cooperative is to provide the best possible service at the most affordable cost. While we don’t enjoy having to make a rate adjustment, from time to time it is necessary to generate additional revenue to adequately operate a safe, reliable and financially sound electric cooperative.
While virtually all aspects of today’s cost of living continue to rise, we pride ourselves on avoiding routine price adjustments. In fact, our last rate increase was in 2013 and prior to that 2008. We only consider an adjustment when we have to. Therefore I want to take this opportunity to explain the reasons and process behind the rate adjustment and the impact you can expect on your bill.
COST OF SERVICE STUDY
Before making this decision, Stearns Electric worked with Power Systems Engineering, an independent consulting firm, to complete a comprehensive Cost of Service study. The purpose of this study was to provide a guide for designing rates that provide equity to all of our members by analyzing Cooperative revenue requirements, cost causation, financial forecasts, projected wholesale energy rates and competitiveness.
The Cost of Service study helped us answer whether or not our rates are providing adequate revenue to meet our financial objectives and ensure fairness between and within rate classes. Ultimately the study indicated the need for an overall revenue increase of 4.4 percent.
At their meeting in March, the Stearns Electric Board of Directors approved this increase which will primarily be reflected in an adjustment to the fixed charge. The vast majority of our members are billed under our Single Phase General Service rate. The make-up of this rate includes residential, seasonal and small commercial or agricultural accounts. Since this represents the majority of our membership, I will focus my comments on this rate. Information regarding adjustments to additional rate classes can be reviewed on our website.
Effective May 1, 2018 the fixed charge on your bill will increase from $19.50 to $24.75. Most of our costs for delivering safe, reliable electricity are fixed; they exist no matter how much energy we sell. In an environment where the costs of providing electric service are increasing at a faster pace than energy sales, the fixed charge is the most reliable revenue source for the Cooperative. Read our blog post for more information regarding the fixed charge.
In addition to the $5.25 increase to the fixed charge there will also be a small increase in our energy rate, the price you pay for the amount of energy you actually use. There are two reasons for this adjustment.
First, while the fixed charge should ideally cover all of the Cooperative’s fixed costs, there are some incremental costs when members use more energy. So to keep rates fair, the more energy you consume, the more you fund those additional investments needed to provide adequate service for your needs.
Second, even though our “distribution” rate has remained unchanged since our last rate increase in 2013, the cost of wholesale energy has increased each year. We have passed those costs on to you in the form of a Power Cost Adjustment (PCA) which you have likely seen increase on your bill since 2013. When the new rates go into effect on May 1st, the PCA charge will be folded into the energy rate, so any wholesale PCA you see the balance of this year will be quite minimal each month.
The average Stearns Electric residential member uses 1,100 kWh per month and can expect a net increase less than $8.00 per month. If your usage is more or less than the average, your bill will vary. This increase will be reflected on bills due in June. For additional information regarding how Stearns Electric’s rates compare to other Minnesota utilities and the impact this price adjustment has on your bill, please visit our website.
THE NEED FOR A RATE ADJUSTMENT
As I’ve shared, this rate adjustment is necessary in order to cover the increased cost of doing business, ensure the financial stability of the Cooperative, and maintain the quality, reliability and integrity of the services we provide. Additional revenue is needed to: invest in the distribution network, in particular the replacement of aged and faulty underground wire; accelerate our Right-of-Way program to reduce outages and enhance safety and reliability; and invest in technology to protect our system and member data.
WE’RE HERE TO HELP
You have access to resources that can help keep your monthly bills manageable. The Cooperative’s Budget Billing program takes the bumps out by averaging energy costs based on your previous 12 months of consumption. Our energy experts are available to discuss load management and help you determine energy solutions that work for you. Rebates and incentives are available to help with the cost of energy-efficient equipment.
Stearns Electric works hard to keep its electric rates competitive. The bottom line is to have rates that are affordable and fair. We are committed to providing you with reliable, affordable and environmentally responsible electric service. If you have any questions or concerns regarding this rate adjustment, we encourage you to visit www.stearnselectric.org or call our offices during regular business hours at (800) 962-0655.
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