The whole premise of electric rates in a cooperative is one of fairness. Beltrami Electric Cooperative (BEC) uses consulting engineering firms to assist in studying the impact that each member group has on incurring the cost components. We then develop a method to send the correct rate signals in order to recover the expenses incurred in serving each customer group.
In an electric cooperative, the ultimate authority on all issues belongs to the member elected board of directors. The staff and consulting engineers must present the studies and proposed rate to the member’s representatives for approval, including service rates.
Rates should be fair and equitable
Rates should generate enough revenue to cover the cost of providing the service
Rates should reflect why the costs occurred--what caused the cost
Many other acceptable objectives; simplicity, promote efficiency, competitive, avoid abrupt changes, etc.
Nearly 70 percent of your electric dollar goes toward the cost of wholesale purchased power, with the largest component of the balance going toward costs in constructing and maintaining the local distribution system. Within each of the broad categories, there are many key cost components, which are listed and detailed below:
The access charge is designed to recover local distribution costs related to making a basic electric service available to all its members. The access charge ensures that your expectations for continuous power and outstanding member service are met. It provides funds that must be invested now to maintain the quality, reliability and intergrity of services that our members have tradionally counted on and come to expect.
For years, cooperatives have recovered fixed costs through a combination of a fixed access charge and the energy (kWh) rate. As a result of a pattern of declining retail sales, cooperatives have begun to reevaluate the way fixed costs are recovered.
Density is an important factor when comparing electric utility service charges. Our density factor is about six consumers per mile and not as tightly packed together like the city of Bemidji or the Twin Cities area, for comparison. Xcel Energy has 44.6, Otter Tail Power has 25 and Beltrami Electric Cooperative has about 6 services per mile of power line. All three companies must fully recover their costs. All of the power lines being used carry 7,200 volts, regardless if the service is to a cabin, a home or large commercial operation, which is an industry standard.
Like any business, BEC has both fixed and variable costs. The poles, wire, transformers, meters represent the fixed costs and other necessary equipment needed just so power can be available when needed. Obviously, BEC has fewer members to share the fixed costs. Even if you have lake property where services are closer together, your power probably crossed many miles of sparsely populated lines.
Since we all have an opportunity to use the power provided, we believe coop members should share equally in those fixed costs, which leads to the monthly Access Charge.
This brings us to the question, “Why doesn’t BEC charge the higher user more money since they are using more power?” Well, that would simply not be fair, as it does not cost any more for the 7200-volt line to deliver more energy than it does to deliver less energy. More energy on the power line does not wear out the line any faster. The only things that wear out a line are weather, soil conditions, and time--not kilowatt-hours traveling over the line.
Wholesale Rate Components
As mentioned previously, Beltrami Electric purchases its power from a wholesale vendor. Here are some of the charges that are incurred:
Generation Energy Charge: This is the cost of each kWh. It recovers the cost of fuel and generator operation.
Generation Demand Charge: This charge is the peak rate of delivery, as well as helping to pay the mortgage on the power plant where the energy is produced.
Transmission Charge: This is the cost of the power lines to deliver to the substations from the power plant.
Substation Charge: This is the cost of the substation that connects the transmission to our distribution system.
Generation Energy Charge Detail
Many factors contribute to the cost of creating clean, affordable energy.
The energy charge pays the cost of the fuel and the operation of power generation. The lower the cost of fuel and the better the efficiency of the power plant, the lower the cost of energy. Because a lignite-fired power plant (from which BEC gets it energy) uses a lower cost fuel, they produce lower cost energy.
The energy markets have moved to place less of the wholesale cost on demand and more on the energy component. This may in part be because much of the newer peaking generations equipment uses higher cost fuel, but may have a lower construction cost per kilowatt of size.
Generation Demand Charge Detail
This charge is determined by the peak rate of delivery to the customer. The greater a customers portion of the total peak demand, the greater their portion of the fixed cost of the power plant. The larger the customer’s peak demand, the larger the power plant must be that supplies their power. The demand charge also pays the mortgage that covers the fixed cost of having a plant of such size ready to serve electrical equipment when it is turned on.
Transmission Charge Detail
Here we’ll look at the costs incurred in delivering the power to our area. The transmission charges recover the cost of the power lines used to deliver the electricity. There are two components to the transmission charge just as with the generation. The first is a component for delivering the energy based on each kilowatt hours transmitted, while the second is a transmission demand charge based on the average of the monthly peak transmission demands.
Substation Charge Details
The substation is one of the last stops of the power before it reaches its final destination, such as your home or business. It converts the much higher transmission voltage to the distribution voltage and connects to BEC’s distribution lines. There is a fixed charge for each substation, which covers the site and fixed cost that any location would have. In addition, there is a variable charge based on power demand. The larger the substation, the more charges need to recover costs.
As you can see, there are many factors that determine energy rates for Beltrami Electric members. Once again, the focus of a cooperative is fairness. By keeping the rates fair, we believe it best serves our members and their power needs.