How electric rates are set
Man holding a marker white board with Fixed and Variable columns written on it in black

How does EnerStar know the appropriate amount to charge members for electric service? Have you ever wondered about that question?

Certainly, part of the answer depends on how much electricity you use. But it is much more complicated than that. Let me use something we are all familiar with, the purchase of appliances (or anything else) at your local hardware store, to explain.

The price includes these components:

  • Fixed costs. That is, those costs to keep the hardware store running and are unrelated to the volume of appliances sold.
  • Variable costs. This is the wholesale price of each appliance sold.

In the electric utility world, we have two costs as well. They are:

  • Fixed costs. They are costs to maintain the basic, minimum infrastructure (power lines, substations, etc.) needed to serve you. These fixed costs are there regardless of whether you use any electricity. It is comparable to the fixed costs at a retail store.
  • Variable costs. This is the wholesale cost for the electricity you buy.

At EnerStar, we hire independent third parties to professionally evaluate our cost structure. They conduct a detailed review of all aspects of our business model. The study first breaks our costs into Rate Classes, such as:

  • Single-phase service,
  • Small commercial three-phase service, and then
  • Large power.

Within each rate class, the costs are broken down into Rate Components:

  • Fixed costs — These are billed as a Grid Access fee on your billing statement.
  • Variable costs — These are billed as an Energy Charge on your billing statement.

All results from the studies are then reviewed by the board of directors before being approved.

All of this effort to create cost-based rates serves to avoid cross subsidies, or one group of rate payers subsidizing another. By keeping rates as close as possible to the true cost to serve results in fairness and equity for all. Such an approach — fairness and equity for all — is the only approach that works long-term!

Finally, remember EnerStar is a not-for-profit entity. We do not have any investors to reward with profits. We have no conflicting goals pulling at us. We only exist to serve you with the best quality of service at the lowest (and fairest) price.