Answer to common survey questions/comments
Why are electricity rates higher in rural areas? What difference does it make how far the electricity travels to get to my home—shouldn’t it be the same price?
Good questions. And questions many ask across rural America. The answers can lead to a very lengthy discussion. This article will provide an overview of the “key-cost areas” when it comes to the costs of providing electric service which directly impacts rates. These “key-cost areas” are:
The cost to buy wholesale power
The cost to deliver that power to your home or business
The cost to obtain capital – the funding needed for construction of utility plant
So how is EnerStar performing in each of these “key-cost areas?”
Cost to buy wholesale power
Wholesale power costs are about 56 percent of our costs of doing business. EnerStar buys power at a price competitive with other cooperatives in the region. In fact, a recent study shows our costs were 4.5 percent less than the Illinois state median for electric cooperatives. That means, the remaining 44 percent of every dollar is used for the actual operation of the cooperative. We work hard to keep those costs down.
Costs to deliver that power to your home or business
This is the greatest challenge we face as a cooperative. Our geographic area has two significant challenges from the perspective of any serving electric utility. These are:
Fewer consumers per mile of line: Stated another way, we have low consumer density. Enerstar has about 3.5 members per mile of line. We are in the top three most rural electric co-ops in Illinois. Utilities in more suburban areas can have as many as 35 to 50 consumers per mile. Since there are fewer consumers per mile of line, operating costs are recovered over a smaller base of consumers. Unfortunately, this results in higher electric rates than in more urban areas.
Energy Sold (kWh) per consumer – Another challenge EnerStar faces is lower energy sales per consumer. Compounding the low customer density just discussed is the fact average energy sales, per consumer, is lower than some of our peers.
The compounding impact of lower density and lower energy sales is simple and probably obvious. Delivery costs have a smaller base of customer and a smaller base of KWH sales upon which to base rates. The previous two factors, customer density and average energy sales, are illustrated in the two graphs.
Costs to obtain capital—the funding needed for construction of utility plant
The cooperative has a strong debt management program. We carefully weigh the needs of current members and the needs of future members. This is important because our electric plant is depreciated over 30-plus years. Current members pay their portion and not that of future generations. That debt needs are will managed. In fact, long-term debt has increased only 5 percent in the last five years.
Management of equity (capital credits) is equally important in capital planning. EnerStar believes in retiring (rotating) capital credits. In fact, EnerStar has retired 25.7 percent of members’ patronage capital in the form of a cash payment. This is something that is truly unique to member-owned cooperatives.
In both of these areas, EnerStar is performing better than most other Illinois electric cooperatives, including much larger cooperatives with more consumers per mile of line.
How is EnerStar preparing for the future?
EnerStar is committed to controlling costs. As a member-owned cooperative, the board of directors is made up of co-op members who work with management to ensure efficient operations. The EnerStar team is continually balancing the demand for reliable electric service with the need to do so at the lowest possible cost. What is being done?
Stay the course on wholesale power supply: We have a competitive source for power. We have no retail rate increase planned at this time. Most likely, any future increases will be driven by changes in wholesale power costs since it comprises 56 percent of our costs of doing business.
Comprehensive, preventative maintenance programs: A systematic plan that promotes service quality avoids higher costs being deferred into the future
Manage long-term debt: As already stated, long-term debt has grown only 5 percent in the last five years. A strong plan minimizes the impact on future rate payers.
Long-term plan for capital credit retirements: Our current plan is designed to reduce the capital credit rotation cycle from 31 years to 25 years, without any upward pressure on rates.
Offer opportunities to lower costs: EnerStar offers energy efficiency programs to help save energy and save money! Rebates for efficient heating, cooling and appliances help members replace old inefficient units. EnerStar’s PowerShift program is designed to shift energy use to times when it’s less expensive. In return for the adjustment of reducing electric use at certain times, participating PowerShift members earn bill credits. You can learn more about EnerStar’s programs at Enerstar.com or by calling 800-635-4145.