Increase could bring power rate decrease

Published 8:00 pm Wednesday, September 2, 2009

Adding a $24-a -month minimum charge to a power bill, on the surface, sounds like something Brundidge residents wouldn’t want to do. But maybe they should think again.

St. John’s Engineers made a proposal at Tuesday night’s council meeting to raise the monthly minimum charge from $7.50 a month to $24 a month. A minimum charge is the amount a customer pays whether electricity is used or not.

Since the city would charge a base fee of $24 to all residential customers, the city would only collect the necessary cost to supply power rather than under collecting from some customers and over collecting from others.

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According to St. John, all infrastructure bills would now be covered without the city having to sell any electricity and the actual cost of power can be passed along at a lower rate.

City Manager Brit Thomas agrees with St. John that this would help the city because he said across the industry consumers are conserving.

“Across the industry, less kilowatt-hours are being sold. People are conserving,” Thomas said.

But, what does this actually mean for Brundidge residents?

In Brundidge’s case, the actual cost of power would decrease from a little more than 12 cents per kilowatt-hour to 10 cents per kilowatt-hour.

Currently, Brundidge charges a base fee of $7.50 per residential account but has to charge 6 cents per kilowatt-hour, plus a fuel adjustment of $62.96 per 1,000 kilowatt hours. This with a 4 percent utility tax, for a total of $135.68.

But under the new plan, Brundidge would charge a base fee of $24, 8.5 cents per kilowatt hour, a fuel adjustment of $15 per 1,000 kilowatt hours, plus the 4 percent utility tax, for a total of $128.96 tax and all.

Customers would see savings, after being hit hard earlier in the year with the additional fuel adjustment charge that left many Brundidge residents angry.

In January, the council voted to impose an 8.77 mil increase on residential customers, after PowerSouth Energy Cooperative, the city’s power supplier adjusted its wholesale power rates a little more than 10 percent.

Several factors had contributed to the increase, but the stark increases in fuel prices in 2008 were a driving force in some of the increase.

According to St. John, the turning point came in 2005, when Hurricane Katrina caused the cost of oil and gas to increase significantly. Meanwhile, the cost of cost followed suit.

This hit PowerSouth hard since its primary generating facility is a coal-fired power plant in Leroy, Ala., and coal topped out around $180 per ton in July 2008.

Another factor was that China’s economy began to boom and began to drive up the cost of steel and other raw metals necessary for transformers and electric wire, St. John said.

But PowerSouth’s latest announcement could be a sign that the city could finally get much-needed relief.

According to Thomas, PowerSouth announced that effective Sept. 1 through Dec. 10, 2010, barring some unforeseen force in the power market such as major hurricanes in the Gulf of Mexico, PowerSouth will reduce wholesale power costs to 6.5 mils.

And how would the additional $24 affect low-income customers?

St. John also noted that it is important to realize that a low use customer is not the same as a low-income customer.

Thomas echoed saying that the majority of the cutoffs this month were not low-use customers.

“Most of our cutoffs used at least $100 worth of electricity, some even were up to $400,” Thomas said.

Still, Thomas said low-income users have several disadvantages when it comes to power usage.

“Most of our low-income residents, don’t have up-to-date appliances,” Thomas said.

According to St. John’s study, most low-income customers live in houses with poor insulation and old appliances.

These factors push them into high power usage.

While the Brundidge City Council considers whether or not to implement the $24 monthly minimum charge, customers may be wondering why is would be necessary to charge this base fee.

There are many rate design models that have been used through time. All have one common characteristic, which is called cost of service.

According to the rate study, conducted by St. John Engineers, cost of service comprises the two elements of power, which are fixed costs and variable costs.

Fixed costs are the cost of infrastructure to serve customers and any debt the city may have. These are costs the city is responsible even if no electricity is sold.

Variable costs include the cost of power and personnel to maintain the system.

Other factors that influence the cost of service are material costs, load sizes, number of customers, miles of power line necessary and supply from substations.

And while these factors could vary greatly from customer-to-customer, it’s not feasible for the city to create a rate for each individual customer in order to recover the cost of service.

So, exactly how does a city recover the cost of service?

According to David St. John of St. John Engineers, who prepared the study for the city of Brundidge, traditionally cities and most other utilities have collected little of the fixed cost in a customer fee and loaded the remainder of the costs into the cost of power.

With this system, St. John said, the city recovers less than the imbedded cost of service from low use customers and over collects from high use customers.

“The city must also count on selling at least some amount of power to cover their cost,” St. John said.

But, the suggestion St. John has for the city of Brundidge would have the opposite effect.