Knowing your money goes different places aids electric rate education
By Preston Knight, Communication Manager
Warning! This article contains lots of numbers.
But please bear with us as we seek to provide you a better understanding of your electric bill, which has seen changes in various aspects in May, June and, most noticeably, will again with bills rendered in July. It’s an uncharacteristic series of alterations after years of relative stability.
Electric cooperative rate making, and subsequent payment collection, is a volatile, complex web of formulas and all-important “buckets” in which money goes. More on those buckets in a few paragraphs.
With a founding principle of Education, Information, and Training, we want to best explain our rates just as we would any other topic. It’s just not a simple task.
It’s not an impossible one, either. Follow along for our best effort to explain what you pay to keep the lights on.
Who Sets Base Rates?
Speaking of co-op principles, another founding concept is Member Economic Participation, which generally speaks to a member’s ownership stake in the cooperative. Excess revenues do not line the pockets of investors; they go back to members who receive electric service. As a not-for-profit utility, Shenandoah Valley Electric Cooperative (SVEC) relies on the timely payments from all members to keep running.
This sets the foundation for your bill. For the sake of ease in communications, we’ll address single-phase residential bills in our explanation here.
Typically, SVEC can only raise base distribution rates — how much you pay for every kilowatt-hour you use — with approval from the State Corporation Commission. The SCC must act in its capacity as the commonwealth’s regulatory agency over many business and economic interests in Virginia, including electric utilities.
Recap: March 2021 to March 2022
SVEC filed a rate case with the SCC in March 2021, the first increase the co-op sought through a general rate case filing 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 4 years to pave the way for more detailed demand readings.
Electric Bill Breakdown
Distribution Subtotal: around 30%
- Basic Consumer Charge
- Variable Distribution Charge
Power Cost Subtotal: around 70%
- Power and Energy Charge
- Billing Factor
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 kilowatt-hour( kWh) distribution rate, ironically in the context of an overall rate increase, went down. 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 about 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, Old Dominion Electric Cooperative, 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 on 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.
Key Events Throughout Rate Increase
- February 26, 2021 - Board of directors instructs staff to file rate case.
- March 16, 2021 - Case filed with the State Corporation Commission.
- March 11, 2022 - SCC issues final order, approving all aspects except billing for residential demand.
- March 22, 2022 - SVEC files motion for reconsideration on demand.
- May 1, 2022 - The new basic consumer charge and variable distribution rate take effect. Outside of the rate case, a new power cost adjustment also takes effect.
- May 5, 2022 - SCC upholds decision to deny SVEC's request to bill demand.
- June 1, 2022 - The new residential inclining block rate becomes effective June through September 30, 2022, picking up again in June 2023. A new variable distribution charge is implemented to recover revenues not collected from billing demand.
- July 1, 2022 - A second increase to power cost adjustment is implemented.
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.
Today's Status: July 2022
By now, SVEC’s changes are 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.
This is still a month with activity, though. One major change is occurring in July because of power supply costs. 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. The new July rate — for a line item called billing factor — will cost an estimated $18.68 for the average residential member consuming 1,000 kWh per month. In dollars, this means the average member’s monthly bill has increased from $118, in May 2022, to an estimated $138.25 for July 2022.
Will the power cost adjustment change again in the near future? It’s possible. Let our bucket talk commence to clarify.
Breakdown of Rate Changes – in Dollars
|Charge||April 2022||July 2022|
|Basic Consumer Charge||$25||$30|
|Variable Distribution Rate||$0.02167||$0.02048|
|Power and Energy Charge||$0.07336||$0.06380 (First 800 kWh)
$0.09024 (Excess of 800 kWh)
|Total Bill||$118||about $138.25|
|Total Increase||$20 or 17%|
The numbers above are based on an average residential member using 1,000 kWh of electricity a month. Local taxes and surcharges are not included in the total. The Power and Energy Charge will be one amount, $0.0638 per kWh, from October through May.
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% of member bills. There are 2 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 based on how much electricity members use — they’re “fixed” costs — 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 charge. The power cost adjustment, also known as billing factor, is the part that increased in May and 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.
As stated earlier, the power cost adjustment, per ODEC board action, increased substantially on July 1. SVEC is analyzing the full effect this increase will have on members and will continue to communicate details.
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.
At Long Last
By reading this far, have you mastered co-op ratemaking? No, of course not. It’s our job as your trusted energy advisor to continue to educate you and explain ourselves. Consider what you’ve read here a good start, or maybe for some, it’s way more than you ever wanted to know. Either way, we stand by our tag line, “We Exist to Serve Our Members,” and when that means opening a can of worms overflowing with numbers, we will.