Fayetteville Public Utilities’ board of directors has passed a new rate structure which does not call for an increase in electric rates.
The decision was made following a Cost of Service Study presented by Walter Haynes of Power Consulting Associates, LLC, of Nashville, who reviews rates and customer charges for the system each year. The goal of the study, Haynes explained, is to eye fixed cost recovery, those costs FPU incurs to operate and maintain the distribution system independent of monthly electric sales.
“The whole purpose of a Cost of Service Study is to take your distribution expenses – that’s everything that it takes to operate Fayetteville Public Utilities’ electric division other than wholesale power costs, or your TVA bill – and allocate those to the different customer classes,” Haynes told board members during his presentation. “We do this to make sure each customer class pays their fair share of the expenses, no more and no less.”
No increases in customer charges are suggested for residential, GSA-1 low use (up to 500 kWh), GSA-2 and GSA-3 customers. The study, accepted by the FPU board, does suggest increasing the GSA-1 high use (above 500 kWh) customer charge by $1.75 to move it toward covering the cost of service amount and then lowering the energy rate for that class to make it revenue neutral to FPU.
The study suggests increasing the demand charge for the first 50 kW demand block of GSA-2 class from $3/kW to $4/kW and then lowering the first block energy rate for that class to make it revenue neutral to FPU, as well.
“The whole idea is to collect as much of your fixed expenses as we can through a fixed revenue stream,” Haynes explained.
Haynes noted that the rate structure approved by FPU does not include the effects of a possible wholesale rate increase from Tennessee Valley Authority (TVA) in October of this year, something Haynes said is likely to come in the form of a one and one-half percent increase if the past four years are an indicator.
FPU has not had a local electric rate increase in the past five years, something Haynes said is commendable but can’t be sustained forever.
“The last rate increase Fayetteville Public Utilities had was May 2012 at 1.3 percent,” he said. “That’s a long time to have gone without a rate increase.”
According to Haynes, since October 2005, TVA’s rate has increased 45.9 percent, while FPU’s rate has increased 6.8 percent over the same 12-year period.
“It’s a commendation on the operation you have here, but I want to caution you that you can’t not have a rate increase forever,” he added.
Each year, TVA sets a guideline amount for each power distributor which dictates how much of an increase a distributor can charge. This year, FPU’s guideline amount is $299,000, but the utility will not seek to raise the rates to meet that guideline amount.
“TVA says in the economic times we’re in and the costs changing the way they are, this would be a reasonable retail rate increase amount,” Haynes said, explaining guideline amounts. “You’re not asking for that, but you should be aware of that.”
Haynes was asked if other area utilities have had fewer rate increases than FPU over the last several years.
“I know there have been no local power utilities that have had the percentage increases that TVA has had,” he said. “Some of your neighboring utilities have certainly had larger increases (than FPU) over that same time. I can’t definitely say none have had less, but you’re on the lower end of the increase during that period.”
Haynes then presented a residential rate comparison of area utilities based on October 2016 rates. Of the 15 power companies noted, eight have lower rates, while six have higher – “You’re in the middle of the pack,” Haynes said. “Folks always ask me where they should be. My answer is always about in middle of the pack… I think you’re in a good place.”
Comparisons of GSA-1 rates show that nine utilities have lower rates than FPU and five have higher rates.
Of the utilities that have lower rates, both residential and GSA-1, Haynes noted all are municipalities, rather than co-ops. FPU, covering a largely rural area, averages nine and one-half customers per mile, while municipalities average between 30 and 40 – “It makes a difference in operations for sure,” Haynes said.
Information courtesy of The Elk Valley Times