5. Is my bill going up this year?
No. The last rate increase was April 2019. The $0.50 increases to the monthly base charge for that were already approved for starting April 2020 and April 2021 were postponed by the Board in response to the COVID emergency. Despite additional inflationary pressures, DCEC rates will remain constant for 2021 and 2022 except for any incremental changes in supplier pass-through charges in the power cost adjustment (PCA) and seasonal formulary rate adjustment (FRA). In 2022, a Cost-of-Service Study will be performed for guidance in setting rates for years 2023 through 2028.
6. What is a cost-of-service study (COSS)?
Cost of service studies provide useful information to a utility not only in a crisis (when immediate rate changes are necessary or when margins become extremely tight) but also as part of the traditional planning process as is the case with DCEC. These studies provide detailed cost information necessary for designing rates, showing cost differences among rate classes, unbundling rates into separate functional components, pricing special services, developing economic development incentives, responding to customer rate inquiries, and establishing line extension policies.
A Cost-of-Service Study (“COSS”) is a study in which the total company cost to provide electric service is spread or allocated to the customer classes. More particularly, the COSS is an analysis based on historical costs during a 12-month test period, which allocates the utility’s costs to its customer classes as fairly as possible based on their consumption patterns. The COSS process starts with overall expenses and revenues, in total and for each rate class, as well as plant in service and depreciation data, and then calculates the rate of return on rate base (or rate of return on revenue) in total and for each rate class, and allows for a relative comparison of the contribution of each rate class to utility margins. In short, the COSS takes all of the utility expenses and shows how those costs are attributed to the various customer rate classes, and takes the rate class revenues and shows how much each rate class contributes to the overall utility margins.
The COSS identifies the costs incurred to serve each rate class, plus margins, such that each rate class makes an equivalent contribution to the utility’s overall return. The rates that recover these costs are called “cost-based rates” and set the ideal target for rate design for the customer classes.
Most utilities use the COSS as a guide for designing rates, to ensure that each rate class pays its fair share of the utility’s costs and margins.
7. Material Cost increases in the near term?
As electric cooperatives across the country, we are encouraged to plan 2022 budgets and work with 30% additional materials cost due to economic trends and forecasts. Domestic and international manufacturers are in COVID new-variant areas. Here is just a small sample of items under consideration:
- Transformer core steel is same steel used in EV charger/battery components. Transformers forecasted up 11-15% in Q3 with pad-mounts experiencing potential 44-week lead time.
- PENTA treatment for poles is estimated to end May 2022 with change over to DCOI treatment. Wood products and treatments forecasted to increase 14-22%
- Domestic freight up 8-30% as 25% of OTR trucks are parked due to fuel and/or driver shortages. (Even residential delivery with FedEx and UPS is up 6.5-8.8%)
- International (ocean) freight up 200-300% due to container bid wars.
- Pole hardware (bolts, insulators, etc.) generally up 10-47% depending upon particular commodity
- Conductor (wire) is forecasted up 20%.
Most of the materials are associated with projects that are capitalized over 30 years which helps spread costs over time. However, a 30% adder over 30 years still yields larger fixed interest payments and adds pressure to present day and future fixed cost (base charge). Some materials may be expensed for emergency repairs or other purposes which can add pressure immediately and can impact fixed and variable cost.
As individual consumers, here are a few non-utility items and what has happened on average just in 2021.
Car/Truck Rental +12.1%
Car/Truck Prices +7.3%
Fresh Seafood +6.4%
Medical Care +9%
Other Pork +6.5%
Whole Milk (non-regulated pricing states) +7.5%
Citrus Fruits +9.5%
Other Fruit +8.7%
Fast Food +6.2%
Vending machine snacks +5.7%