Demand Rates – Ensuring All Members Pay Their “Fair” Share
When electric cooperative were created 81 years ago, built into the business model was the idea of fairness. All margins (or profits) that a cooperative has are allocated back to the members each year. And as our board policy allows (through responsible financial ratios) we give those margins back to our members. In the last 28 years, we have given back more than $2.8 million.
Now we could take our total margins to be refunded and simply divide those margins by the number of members we have. But that wouldn’t be fair to the large electric users whose contribution to our margins was $6,000 whereas the small user only contributed $40 to our margins. So to be fair, we allocate margins based on the dollars a member contributes to the cooperative.
This idea of allocating margins based on a member’s contribution is a method followed by electric cooperatives across the country and is considered the “fair” way of allocating margins.
Well, it’s great that we’re “fair” when it comes to allocating margins, but are we “fair” when it comes to creating rates?
Howard Electric’s biggest expense is our power cost. That cost for electric cooperatives is anywhere from 50 – 70% of their total expenses. That one invoice is broken into 2 components, half of which is in the KWH charge and the other half is the KW demand charge.
Even though we have some residential members that set a demand of 24 KW and others who set a demand of 2 KW, historically the residential member who set a demand of 2 KW has paid a disproportional share of the demand cost. Howard Electric, and other cooperatives across the nation did this because there wasn’t an economical or technological way to gather KW demand readings from residential meters ----- until now.
Now, because of new meter technologies we are able to gather KW demand readings and Howard Electric and other cooperatives across the nation are beginning to research and implement KW demand rates.
Just like it is important to allocate margins fairly, it is also important to design rates that are “fair”, and the demand rates introduced to you in April of 2016 and refined in 2017 and 2018 will accomplish that goal.
About 1/3 of our members will see a rate decrease, about 1/3 will see very little change, and about 1/3 will see an increase.
If we had designed rates that were not time of use rates, then that 1/3 seeing the increase (or anyone else) could probably do very little to shave their peak demand.
But, because we designed time of use rates, it gives you the members, the opportunity to shave peak demand. Residential members will be billed on their highest one-hour peak demand set between the hours of 6 a.m. to 8 a.m. and 4 p.m. to 8 p.m. These are the hours that cooperatives in Missouri typically peak and Howard Electric is no different. Residential members will not be billed for any demand set outside of these peak demand hours. Shifting as much electric usage outside of these hours as possible will help you shave your peak demand.
If you would like ideas on how to shave peak, I invite you to call our office, and we would be glad to suggest ideas on shaving peak.
Just as we have been “fair” in allocating margins, we want to be “fair” in how we create rates.