Electric Co-op Today

MINNEAPOLIS—Next time you get your rate consultant on the phone, prepare for a long chat.

At the closing general session of the Rates Summit here, two rate consultants went over “10 Questions to Ask Your Rate Consultant.” One of those is whether declining block rates are going the way of vaudeville and the 5-cent cigar.

Mike Searcy and Rich Macke answered the questions co-ops should ask their rate consultants. (Photo By: Michael W. Kahn)

Rich Macke of Power System Engineering, a Wisconsin-based electric utilities consulting firm, works with clients to get rid of such rates, but does not strongly suggest it.

He had some words of caution for co-ops looking to make a change, noting that an important function of declining block rates is to collect fixed costs not included in a facilities charge.

“One of the concerns about getting rid of [declining block rates] is that if you don’t couple that with an increase in your fixed charge, you can really be subsidizing low-use customers,” said Macke.

Mike Searcy of the Oklahoma-based consulting firm C.H. Guernsey said that when he works with a co-op to end declining block rates, he calls attention to the impact on consumer-members. “That may have a really negative effect on some of those [members],” he said. “So we may want to think about [whether] that’s the decision to make.”

Another key question is how often a co-op should raise rates.

“Distribution cooperatives are beginning to start thinking about doing more frequent and smaller rate changes, rather than just hammering somebody with great big rate changes,” Searcy said.

“What can happen when you do that second approach is it becomes a self-fulfilling prophecy: that you have the great big rate increase, it winds up being agonizingly painful for the cooperative, so the board says, ‘By golly, we’re never going to do that again,’ and it’s another 10 years before we do that.”

Tags: Business and Finance, Power Rates