In 2009, Hancock-Wood enacted its first rate increase in over nine years. At that time, rates were also restructured to allow for the recovery of the company’s fixed cost under the “service charge” component of its rates, and subsequent adjustments to the service charge were to occur over the next several years.
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How much will the service charge go up?
The implementation of the service charge adjustment is occuring over four consecutive annual adjustment periods. The first in October 2010 was a $5/mo. service charge adjustment. The next in October 2011 was a $5 (which makes the total now $28). This amount will be offset by a reduction in the kwh component of the rate.
What does the company’s fixed cost consist of?
The company’s fixed cost is defined as all cost that the company incurs annually irrespectively of whether the company generates sales. This includes cost such as interest and principal on long term debt, insurance, employee wages and benefits, equipment, trucks, tools, and rebuilding of the distribution system to name a few. Every business must generate sufficient revenues through its rate structure to cover these costs.
Why is it important for Hancock-Wood to recover its fixed cost through the service charge component of the rate?
The service charge component of the rate allows the company to generate sufficient revenues to cover its fixed cost obligations without this recovery being negatively impacted by volatility in sales. The company’s current rate structure recoups fixed cost through both the service charge and the Kwh charge in the rate. When Kwh sales are reduced as a result of a weak economy or loss of sales from residential/business accounts, the company is unable to cover all of its fixed cost obligations. Moving all of the company’s fixed cost into the service charge removes the volatility out of the fixed cost recovery process.
How does this change affect my bill?
If you are an average electric user, who uses approximately 1250 kwh/month, you will see very little change in your total monthly bill (about 5¢/month). If you use significantly below the average, (i.e 500 kwh/month), you will experience a small increase in your overall monthly electric cost of only about $3.
Will there be any further rate changes in future years?
Again, adjustments to the service charge will be held each year from 2010-2013, but will have a very negligible impact on most members. It is difficult to forecast any future distribution increases, as it is dependent on the economy. We will continue to do everything possible to minimize the impact of any future distribution rate increases on membership. You'll continue to see annual wholesale rate adjustments from Buckeye Power for the next several years in either June or July, as we shared with you back in 2009.
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We feel it is important to keep you informed on key issues such as rate adjustments. Hancock-Wood is a non-profit organization that operates at cost and any restructuring or adjustments in rates must support this effort.
As always, if you have questions about this adjustment or your electric bill, don’t hesitate to contact us.
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