rate adjustment of oct. 2009

On October 1, 2009, Hancock-Wood implemented its first rate structure change and adjustment since May 2000. While virtually all aspects of today’s cost of living continue to rise, Hancock-Wood and its member-consumers have enjoyed one of the longest periods of distribution rate stability in recent history. Clearly, your electric cooperative has been successful in keeping rates affordable. The following information will describe the rate changes that will take place in the near future.

The upcoming rate changes will accomplish two objectives:

1. The current electric rates will be unbundled to provide complete transparency for members to easily identify all costs that make up their monthly electric bills.
2. An electric rate adjustment will be instituted to provide additional revenue to support the escalation in company cost, which has occurred since the last rate increase in May 2000.

The adjustment implementation plan has been structured to allow for up to two adjustment periods so that the impact on your monthly electric bills can occur gradually over the next six months should the second adjustment be required to fully recover the company’s cost of operation. As stated, the initial adjustment period was on October 1, 2009, and involved Hancock-Wood increasing its current distribution facility charge from $10 to $18 per month, Buckeye’s Generation and Transmission charge from an average of 6.3 to 6.8 cents per Kwh. There was also a very slight adjustment on the energy component of the residential rate. The impact of these changes on the typical residential consumer who uses an average of 1250 Kwh per month was about $12 per month.

The company also unbundled the residential electric rate into the following three components, which you see displayed on your monthly bill:

• The Service Charge, which is applied on each metered service. This charge covers our overhead costs associated with meter reading, customer services, billing, service calls, and meter maintenance. This is the former “facilities charge.”
• The Distribution Services Charge, which is the amount you pay for each kilowatt hour that you use each month.
• The Generation & Transmission Charge, which is Buckeye Power’s wholesale cost that Hancock-Wood incurs each month and is the amount you pay for wholesale cost, which includes generation, transmission, and environmental costs. This charge replaced the Power Cost Adjustment adder (PCA) and a portion of the wholesale cost that was reflected in the current residential energy rate displayed on your electric bill.

The sum of these three charges and applicable taxes equaled the total cost each member sees on their monthly electric bill. There is also a possibility of a second adjustment, which if necessary, will be made in 2010. More information will follow prior to the implementation of this adjustment. In the following years, we will continue to make structural changes to fully unbundle rates and make annual, but small increases in the service charge component of the rate over the next six years to recover the company’s fixed cost of operation. In the future, members will see smaller, but more frequent rate adjustments, which are aimed at reducing any rate shock on members’ bills.

What are the causes of rates going up?

The rising cost over the past decade of equipment, labor, benefits, and other expenses necessary to operate the business. Additionally, the current economy has had a considerable impact on your local distribution company’s kilowatt hour sales and revenue over the past eight months, mainly due to industry closures, reduced manufacturing operations and lost commercial accounts – all issues outside of Hancock Wood’s control. Even around the state, significant multi-year rate increases have been instituted by the large Investor Owned Utilities because of similar cost pressures on these organizations.

Wholesale cost continues to rise annually. Hancock-Wood does not generate power – we purchase it from our statewide generation and transmission organization, Buckeye Power. However, Buckeye Power is faced with many increasing operating and capital expenditures, including the need to purchase more generating capacity, the impact of higher fuel prices as lower cost long term coal contracts are replaced with market contracts, cost of retrofitting coal based power plants with mandated environmental controls, increasing cost of transmission services, and rising transportation costs for both rail and truck. In addition to these cost drivers, Buckeye Power has faced several challenges due to a depressed economy, which has resulted in a significant impact on its KWh sales and revenue. Cooperative members across Ohio have already noticed a wholesale increase this summer, which was reflected in Hancock-Wood’s Power Cost Adjustment (PCA) adder in the July 2009 electric bills.