CEO Note - Evaluating the rate structure

Thank you for attending the annual meeting

Let me start this month with a thank you to all of those that came out to the annual meeting this year. I appreciate your willingness to get involved and be a part of the governance of your cooperative. If there was a topic you were interested in that was not addressed I would encourage you to drop me an email and I’ll do my best to answer your question quickly.

If you attended the meeting this year you heard Dr. Marty Blake discuss utility rates and rate structures. Tipmont’s staff is currently in the process of evaluating system and electric delivery costs and restructuring the cooperative’s rate schedules to bring them up to date. Marty is a principle partner in the Prime Group. His staff is working to help us make sure we have all applicable costs captured and rates structured in a manner that collect costs appropriately across all member segments.

Landscape for rate structure has changed

If you are a regular reader you have seen articles in the past discussing the need to change from the antiquated declining block rate structure the cooperative has used for years. This rate structure was common in the utility industry and the design was conceptualized at a time our country’s energy horizon held an abundance of generation at low costs. Needless to say, that landscape has changed in a fairly dramatic fashion over the last 40 years.

Today, many of the fossil plants that exist are starting to be closed or they are being asked to add on technology to lower carbon emissions. With the events in Japan, many consumer fears of nuclear generation have been rekindled. In either case, the costs associated with adding new generation utilizing these technologies have skyrocketed. We are scrambling to find alternative energy sources. Wind, solar, hydro, biomass, and hybrid generation stations are being built at a very fast pace. However, our consumption habits dictate we do more. The cheapest energy we will ever find is energy we don’t have to produce. Conservation and energy efficiency will play a huge role in lowering demand and costs to consumers. Our rate structures must change to allow members the ability to make a difference.

Intention to offer membership options

The primary goals of our new rate structures will be the appropriate collection of fixed system costs and an effort to decouple those fixed costs from energy sales in whole or in part. Once this rate redesign is completed it will offer the member much more ability to influence the size of their electric bill through conservation and energy efficiency efforts. While I can’t predict what the final rate design will look like now, I do want to let members know up front that the “service charge” you see each month will increase. This charge is there to collect the fixed costs associated with the system build out to get service to every member location. Each member pays a portion of these system costs distributed across their rate classification. Right now, Tipmont’s service charge is artificially low. This is a result of a subsidization of those fixed costs in energy sales. The good news is if the fixed costs are collected appropriately in the service charge, the energy charges become closer to that of a pass through. In other words, they should be lower as the system costs subsidization is removed.

It is our intention to offer the membership some options such as a “Time of Use” rate and eventually, some web based tools that will allow members to more closely monitor their own usage patterns. This will help members be able to determine the type of changes required to lower their consumption, and overall costs, if they so desire. These new rates should be ready to implement in 2012. As we move toward the final design, we will continue to communicate the status through this column, on our web site, verbally, and through other mediums that make sense in getting the word out to all of you.

Watch for children returning to school

In closing, I want to shift gears. School is starting this month. The kids will be back out on the streets. They will be at crosswalks and boarding buses in the neighborhood. Be alert! Watch for them on your morning and afternoon commutes. Treat each one like they were your own child and watch out for them. After all, if you have or have had kids, they are or were out there too. We want to make sure everyone is doing what they can to see all of them get to school and back home safely throughout the year!