Rate design is a balancing act between meeting revenue needs while minimizing the overall financial impact to members.

As a not-for-profit organization, it is necessary to recover the costs of doing business, as well as maintain enough cash reserves (margins) to reinvest in the system.

Therefore, it is important to: 1) evaluate the cost of providing service to members, 2) determine the revenue required to cover the costs, and 3) charge rates that ensure the required revenue is collected. The process involves completing a cost of service study which is typically done every three to five years.

The study, completed by an independent and experienced firm, evaluates costs and identifies the total revenue requirement for the Cooperative.  The costs are allocated appropriately based on classifications such as residential, commercial, and industrial which are based on the type of service, equipment, infrastructure, and the capacity required to provide service. The results of the cost of service study are then used as a tool to design rates.

• To identify the cost of providing service based on member class (residential vs. commercial), type of service provided (single vs. three-phase), and energy load characteristics (the demand and capacity requirements a service puts on the system).
• To provide guidance for allocating revenue requirements to ensure equity among all members.
• To design rates that recover adequate revenue to provide the service required by members.

PEC's member-elected Board of Directors and executive staff continuously monitor the financial stability of the organization to determine if a rate change is necessary based on a class cost of service study.

The Board of Directors then approves what the rates will be based on the following rate making principles:

• Rates should generate the revenue required to operate the Cooperative, including appropriate operating margins.
• Operating costs and margin requirements should be spread across all member classes equitably.
• Rates should reflect the cost of serving each member class.

The list below displays nine objectives that are considered by the Board of Directors and executive staff when establishing and adjusting rates.

• Fair and Equitable
• Financially Adequate
• Reflect Cost Causation
• Avoid Abrupt Changes
• Member Acceptance
• Promote Efficient Use
• Comparison with Other Utilities
• Easy to Explain and Administer
• Continuity Between Rates

This monthly fixed charge ensures that member expectations for continuous power and outstanding customer service are met.  It provides the funds required to maintain the quality, reliability, and integrity of services that our members count on and have come to expect.  The expenses include items such as:

• Substations, wire, poles, transformers, and equipment needed to distribute reliable electricity and members' power needs.
• Trucks, equipment, and tools required to build and maintain the electric distribution system.
• Facilities that house trucks, equipment, and supplies, including the technology and office supplies needed to operate.
• Payroll for the wages of the professionals who design, build, maintain, and restore the system, as well as the staff needed to operate the business.
• Vegetation management and system inspections to ensure the safety and reliability of the electrical system.
• Liability insurance, interest on long term debt, and property taxes.
• New technologies to provide increased reliability and operational efficiencies such as the automated metering infrastructure (AMI) system, outage management system, and investments in renewable energy.

Because all cooperative members benefit from having reliable electric service available when they want it, the basic service charge ensures that everyone pays their fair share of the basic costs - fixed costs that exist whether or not a single kWh is used.

As mentioned in another FAQ, the basic service charge is used to collect fixed costs to ensure we can provide reliable service to our members, no matter the amount of electricity they use.  This distributes the fixed costs of providing power to our members fairly amongst the entire membership.  In other words, it ensures that higher energy users are not paying more of the fixed costs and lower energy users aren’t paying their fair share.

Since PEC serves rural areas and has low consumer density, we have less members per mile of line to collect those fixed costs than utilities who serve in a more urban area.  For example, PEC serves an average of just over eight consumers per mile of electric line.  RPU has an average of 69 consumers per mile of line.  That results in RPU receiving a higher average revenue per mile of line to cover their fixed costs, allowing them to charge a lower monthly fixed charge.

To the electric utility, demand represents the amount of electrical power that must be available to consumers at any given time.  

To learn more about demand and how it affects the electrical grid, click below.

Understanding Demand

Future PCA adjustments may be implemented if necessary to keep up with the cost of wholesale power.

With continued rising costs and unpredictable economy, it is anyone's guess.  One thing that is certain is that the Board and executive staff will continue to carefully and thoughtfully evaluate revenue requirements and the need for a rate change to ensure we continue to provide reliable and safe power.

Typically, members are on a rate for 12 consecutive months before being moved to another rate.  There can be exceptions to this, like when a major load is added to your service which may qualify you for a new rate.

The Cooperative has several options to help members manage electric costs.  Services include energy management programs to help manage electric usage as well as flexible payment options such as budget billing and a pre-pay option.  The first step is knowing how much energy you are consuming.  This data is available through SmartHub.

Members can find helpful information about conserving energy on the "Energy Saving Resources" page of the website which includes:

• Energy conservation tips
• Energy Star appliance guide
• Home Energy Guide
• Energy Calculator
• Locations of home energy savings kits that walk members through simple tools to evaluate energy usage

Energy Saving Resources