The cost of power is on the rise in July. Residential members will see this reflected in their bills under the “billing factor” line item. Those who use an average of 1,000 kilowatt-hours a month will see a total dollar increase of about $18.68.
Overall, including rate changes from SVEC’s general rate case this year (explained below), average residential bills will go up about $20, or 17 percent, from April 2022 to July 2022.
The largest increase is in the July billing factor, also known as the power cost adjustment. This is a dollar-for-dollar, pass-through cost from SVEC’s power supplier, Old Dominion Electric Cooperative. It’s the cost to generate and transmit electricity to SVEC. There are no profits here for SVEC; costs are passed through directly from ODEC, which, as a cooperative itself, also does not profit from the higher charges. Historically, these costs account for about 70% of the total SVEC bill.
Dramatic increases to natural gas prices are the leading cause for the increase in this portion of members’ bills. In ODEC’s region, natural gas is a fuel source that is widely used to generate the electricity provided to distribution co-ops like SVEC.
ODEC must recoup costs for the fuel used for power plants in its region to continue providing reliable energy. As of the end of May 2022, natural gas prices have more than doubled since the beginning of the year and nearly tripled since May 2021. SVEC’s energy rate has gone up less than one half of the overall market increase for electricity purchases because of ODEC’s hedging and other cost mitigation strategies.
SVEC General Rate Case
SVEC filed a rate case (click here for more) with the State Corporation Commission in March 2021, the first increase in rates sought by the co-op through a general rate case since 2014. A year later, in March 2022, the commission granted approval for SVEC to revise rates to bring in $5.3 million in additional revenue per year, to meet projected expenses.
The method on how to recoup the additional revenue, however, requires further explanation. As simple as it might sound, this was not a matter of increasing a single component of the bill.
In the rate case filing, SVEC sought to introduce a demand rate, which would charge members for their highest 15 minutes of use each month. You would pay for when you use electricity, in addition to what you use. This concept is designed to shift the co-op away from consumption-based rate recovery methods, which is good energy conservation practice, among other benefits. Everyone has a different level of demand at home, and those with the most — who “demand” more of our infrastructure to meet their electricity needs, essentially — would pay more.
In its March 2022 ruling, the SCC denied the demand charge, preferring that SVEC wait until a meter upgrade is complete before it could bill for demand. The cooperative then filed a motion for reconsideration. Current metering can read demand as it was proposed in the rate filing, while meter upgrades as the SCC prefers are planned over the next three or four years to pave the way for more detailed demand readings.
Recap: May 2022
While waiting for a decision on the motion to reconsider demand, SVEC implemented new rates on May 1, per SCC’s ruling. Changes included increasing the basic consumer charge by $5 while the per-kWh distribution rate, ironically in the context of a general rate case, decreased. The rate, from 2014 until May 2022, was 2.167 cents per kWh, while the new rate was 1.965 cents per kWh.
The timing was not ideal, to say the least, in terms of trying to educate members of what was going on. The demand issue was the elephant in the room. If approved, more changes were coming via a new demand rate. If denied, different changes, yet changes nonetheless, were coming. The rate structure in May 2022 was not going to last long, either way. May 2022 would be a blip on the radar, in the grand scheme of SVEC rate history.
Further complicating matters, while SVEC’s own rates changed May 1, higher costs passed down from our wholesale energy provider, ODEC, required additional increases to member bills. When considering the overall impact of the changes, the average SVEC residential member consuming 1,000 kWh per month in May saw a 6.5% increase in their average monthly bill compared to 2021.
Then came May 5. The SCC announced it upheld its denial of the proposed demand rate. With this decision, it’s important to remember what the SCC did allow originally: that SVEC could raise $5.3 million in additional revenue. There was no “new” rate increase; instead, more changes were to come to reflect SCC’s second — and this time, final — ruling.
Recap: June 2022
Without the demand rate, SVEC faced a shortfall in its projections. The fallback option was to turn to the per-kWh distribution charge, raising it from 1.966 cents to 2.048 cents per kWh, effective June 1.
If you read these pages in June, you may already know this next part. Also introduced in June, as allowed in the SCC’s March ruling, was a summertime inclining block rate for charges related to ODEC’s power supply costs.
From June through September — the hottest months and when ODEC’s system is worked hardest — the first 800 kWh consumed costs 6.39 cents per kWh, while anything above the 800-kWh mark is 9.024 cents per kWh.
Per state regulation, Virginia’s electric rates are unbundled, which gives consumers an idea of where exactly their money is going. You don’t pay one large per-kWh charge and question how it’s allocated by the cooperative. This leads to the bucket analogy, while also making it a challenge to explain. There’s the distribution rate and power supply rate, and both, as of June, are higher than before, albeit for only four months for the latter.
Status: July 2022
By now, SVEC’s changes will be complete. The higher basic consumer charge and distribution rates will stand pat, and the only difference yet to come will be an end to the block rate schedule in October.
July is still a month with activity, though. One change to occur in July is because of power supply costs, explained at the top of this page to equal about $18.68 for average-use residential members. Just as in May, increased costs from ODEC require an increase on that portion of your bill, as a dollar-for-dollar, direct pass through from ODEC to SVEC members.
Will the power cost adjustment change again this year? It’s possible. Electric cooperative ratemaking, and subsequent payment collection, is a volatile, complex web of formulas and all-important “buckets” in which money goes. Let’s learn more about those buckets.
Bucket 1 of 2 – Distribution
At SVEC, the distribution bucket is for revenue to operate and maintain infrastructure that delivers electricity from substations to your home. It’s SVEC’s cost to provide electric service to you.
On average, distribution revenue accounts for about 30 percent of member bills.
There are two components of this bucket: the basic consumer charge and variable distribution rate. The basic consumer charge is a fixed charge that reflects the shared costs to have a member connected to our system. Poles, wires, transformers, operating systems and personnel are all supported through this charge. Those costs don’t change — they’re “fixed” costs — based on how much electricity members use, but they are the basics needed to run the organization. Because all members benefit from having reliable electric service available when they need it, the basic consumer charge allows everyone to pay a share of the costs.
The current $30 basic consumer charge is less than what a third-party rate study found SVEC should be charging, which was calculated to be $32.31.
The variable distribution charge, as the name suggests, will vary based on a member’s use. This is the component of the bill where you pay SVEC back for the electricity you use. It’s the fuel (i.e., power) for your home, just like when you fill up at the gas tank. You control how much you pay through this charge. Wash clothes with cold water. Open a window in the summer. By conserving electricity, you have an opportunity to keep your bill lower.
SVEC filed a rate case to ensure greater system reliability and safety as member needs continue to grow and evolve. It’s all in the name of providing better service to members, from being a part of the rural broadband solution to building out a communications network with the latest metering technology.
As a reminder, all profits coming from this bucket are returned to members in the capital credit retirement process. Any SVEC profits each year come from this bucket.
Meanwhile, there’s a second, costlier bucket that is out of SVEC’s control.
Bucket 2 of 2 – Power Supply
SVEC does not generate or transmit any of the electricity it provides to its members. Instead, the co-op enters into purchase power agreements with ODEC, which is owned by 11 electric cooperatives in Virginia, Maryland and Delaware.
The operative word with ODEC is “cooperative.” Like SVEC, ODEC is a not-for-profit organization. It does not benefit financially through higher rates and extra revenues; if it has extra money, its members, including SVEC, get a return on our ownership. It also decreases rates when prices drop.
This is the power supply bucket on your bill. It’s the cost to generate and transmit electricity to SVEC. There are no profits here for SVEC; costs are passed through directly from ODEC. Historically, these account for about 70% of the total electric bill.
For the power supply bucket, there is the power cost adjustment and power supply charges. The power cost adjustment, also known as billing factor, is the part that increased in May and will again in July because of dramatic increases to natural gas prices. In ODEC’s region, natural gas is a fuel source that is widely used to generate the electricity provided to distribution co-ops like SVEC.
Sometimes — in fact, for several months before May 2022 — the power cost adjustment is a credit on SVEC member bills. Based on how SVEC bills members for ODEC-related costs, there could be months where demand on SVEC’s system is greater, or less, than ODEC. In a hot month, for example, we might incur greater expense to our distribution system but across ODEC, that’s not the case. In this situation, SVEC would over collect on the power cost adjustment and credit our members.
On the other hand, when ODEC incurs greater expenses — as it is now with natural gas prices — this part of bills goes up for every distribution cooperative. The billing factor acts as a shock absorber, balancing out power cost revenue and expenses over time.
Meanwhile, collections from power supply charges, such as the summertime inclining block rate, cover the cost SVEC is charged by ODEC to generate and transmit power. It’s just like the variable distribution rate you pay SVEC, only this time you’re effectively paying ODEC.
The less electricity you use, especially during the hottest and coldest days of the year, will help hold down power supply rates that SVEC implements from ODEC. If SVEC doesn’t need as much electricity from ODEC to meet the needs of all members, the cost to SVEC is less.