There is no good way to sugar coat bad news. Rather than attempting to do so, I want to use this opportunity to simply share that our rates will increase by an average of 9.7% effective with January billings. Get more details about the rates below. The focus of this article is to explain what is driving this increase and what KEC has and is doing to lessen the impact this has on our members.
Before doing so, let me acknowledge the obvious. We recognize and regret that this increase in rates places a financial burden on our members that many may struggle with. We also recognize that it comes at a time when consumption is high due to the cold weather of winter. Unfortunately, our costs are increasing due to many factors which we have little control over. Postponing the increase in rates necessary to cover those costs only had the effect of making a larger rate increase later in the year necessary. So, what’s causing this increase and what is KEC doing to lessen it?
The single largest operational expense we incur is the cost of purchasing the power used by our members. As mentioned in my previous articles, approximately $45 out of every $100 our members pay in rates are used to cover that expense. Most of that power, 70% to be precise, is purchased from the Bonneville Power Administration (BPA). BPA sells the power produced by the federal dams on the Columbia River to its customers, such as KEC, “at cost.” While this power remains inexpensive in comparison to other alternatives available to KEC, the cost of production is increasing by 10%. The other 30% of our power comes from non-federal power generation resources. The cost of that power is increasing by 20% next year. Covering that expense alone requires an increase in rates of 6%.
Demand charges assessed by BPA, which account for about 8% of our total power supply cost, are also increasing by 24% next year. These charges cover the cost of ensuring the transmission system used to deliver power to load is capable of carrying the highest volume of energy demanded by customers at any given time. All other transmission-related costs, which reflect about 10% of our total power supply cost, are increasing by 20%.
The reason for these increases in power supply costs is primarily one of scarcity. Electrical consumption and demand in the Pacific Northwest is skyrocketing. In order to ensure that scarcity does not lead to blackouts or brownouts, additional resources must be built. The cost of those resources is increasing the cost of power for all customers in the Pacific Northwest.
Another factor influencing this rate increase is the cost of building and maintaining the electrical distribution lines KEC owns and operates. Over the last four years, the cost of materials has increased between 30-266%. For example, transformers cost 188% more today than they did four years prior. The cost of primary wire has increased by 30%. These are materials that the cooperative must purchase to operate and maintain our system.
Interest expense on long term debt is also influencing costs. Because 70% of our capital requirements come from long term debt, higher interest rates set by the Federal Reserve cost more than in the past.
These costs are difficult for utilities to directly control. In fact, almost all regional utilities are facing similar pressures and are planning comparable increases in their retail rates in the near future. But this isn’t to say that the cooperative can’t take actions aimed at lessening the impact. So, what has KEC done in that regard?
First, we have very carefully evaluated all capital expenditures on infrastructure planned over the next 10 years to ensure they are being constructed no earlier than electrically necessary.
While doing so results in less margin for error, we have been able to defer $5 million in capital expenditures over the next five years. Secondly, and perhaps most strategically, we have joined a generation cooperative comprised of 25 electric cooperatives across the region. This cooperative, known as PNGC, is charged with developing electrical generation resources that can serve our collective needs less expensively than each could do so individually. This partnership allows us to diversify risks and take advantage of economies of scale which are crucial in the development of power generation. Finally, KEC has ensured that the 2025 budget is as lean as possible.
You can help too. You can help reduce your costs by implementing energy efficiency measures throughout your home or business. Examples include replacing older appliances with newer models that are more energy efficient. You can replace your thermostat with a programmable one and ensure your home or business is only heated or cooled to the temperature needed throughout the day. Replacing lighting with LEDs also helps reduce costs.
You can also help keep the cooperative’s costs lower by electing to receive your bill digitally. This avoids postage expense for bills which amounts to about $125,000 each year. Or, you can pay your bill with a check or through an ACH transaction from your bank account rather than with a credit card. Doing so would help KEC avoid approximately $220,000 in charges imposed by credit card issuers annually.
Finally, shifting electrical usage away from the breakfast and dinner hours helps reduce demand charges. Reducing unnecessary electrical consumption between 7-10 a.m. and between 5-9 p.m. will help reduce the demand charges the cooperative incurs.
Thank you for your understanding of these matters. We are working hard to keep the cost of power as low as possible while ensuring our reliability remains high and our member service excellent.
