Balancing Service Value and Cost

Recollections wane, especially when it comes to remembering the justification for, or the frequency of, cost increases. It’s also fair to say consumers everywhere aren’t predisposed to like them, no matter the circumstance.

Nevertheless, when United implements a 6.10 percent overall rate adjustment to its current electric distribution charges in September, it will have been only the second time in more than a 17-year period that a rate adjustment has been recommended.  United is a rate-sensitive service provider and rate adjustments have not been habitual.

The new rate structure, designed with the help of an independent rate consulting firm and an advisory committee composed of United members representing the cooperative’s entire service territory, will take effect in September 2021 and will be reflected in October billing. It  will more accurately match the revenue needed to support the cooperative’s true service delivery costs today. The rate adjustment is projected to meet the cooperative’s operational cost expectations until 2026.

In that regard, it should be noted that the largest slice of monthly electric bills—about 70-80 percent of most residential bills—is the cost of wholesale power United pays Brazos Electric Power Cooperative (Brazos), its power supplier, and passes along to members without markup (Energy Charge).  The remaining 20-30 percent of a residential bill consists of the delivery kWh usage component (Delivery Charge) to cover the following:

• Operating expense
• Costs for necessary replacement and maintenance of existing electric distribution facilities
• Costs for newly expanded electric distribution facilities
• Debt service coverage
• Maintaining sufficient margins to meet lending requirements

Even though costs go up for every business, there are few that can claim a similarly conservative philosophy for containing consumer costs, or who have perennially sustained the cooperative’s competitive edge in affordability. Even after this new rate adjustment, United members will still be able to tout they receive service from one of Texas’ lowest-cost providers, dollar for dollar, apples to apples.

Rate Watch, a rate comparison that is featured monthly in Texas Co-op Power magazine (Click to see: RATE WATCH), has for years provided a transparent view for how United’s electric rates stack up against other retail electric rate offerings in Texas’ deregulated electric market. United members who track those rate comparisons should be able to attest the cooperative’s

rate sensitivity has been convincingly reflected through its regular roost at the lower end of the cost spectrum.

In that comparison, the cooperative recently introduced community solar rate comparisons as added components in the chart, which illustrate how participating residential members cannot only offset the potential for rising power costs, but also more than mitigate the effect of the new rate adjustment with no added out-of-pocket expense.  The availability of certain community solar offerings is limited at this time due to the uncertainty of the bankruptcy outcome for United’s power supplier, Brazos (Click to read: MARKET FAILURE).   

United last implemented a 4.17 percent rate adjustment to its fixed facilities charge (spread out in two separate phases between 2015 and 2016), and the cooperative reported then, and on several occasions since, that the rate adjustment was conservatively designed to provide sufficient operating revenue for its expanding distribution system until 2021. Because of United’s fiscally conservative approach to operating the business, the cooperative achieved the 2021 goal even with some unexpected bumps in the road along the way.

During the past five years, the cooperative has maintained its position as one of the most efficient electric distribution cooperatives across the nation and one of the most cost-effective electric providers across Texas despite operating expense increases borne by the cooperative’s more aggressive approach to vegetation management (a planned $2 million increase in the program since the last rate adjustment), as well as an accelerated $900,000 per year depreciation of  the cooperative’s vast metering network (made necessary following the meter manufacturer’s discontinuation of production and support for the existing metering system).

But beyond overall cost considerations, United’s drive to deliver exceptional service and value to its member-owners has been evident not only in electric delivery, but also in what it gives back to members in added value. For many years, and in a variety of ways, members have not had to wait it out to receive the extra value they should receive as member-owners of the cooperative.

For example, the cooperative had, prior to 2021, returned many millions of dollars to member-owners in the form of member dividends (member-owner equity) throughout the years.  Even more service value has been provided through the thousands of free home energy audits the cooperative has performed; as well as the vast number of resources dedicated to members through energy efficiency rebates and grants, the advent of new cost-saving opportunities afforded through the cooperative’s community solar program, expanding thermostat control programs, community assistance provided through the cooperative’s Operation Roundup program, college scholarships, etc.

The cooperative’s intent to improve the quality of life of its members never wavered during the many challenges posed for businesses and consumers everywhere by the COVID-19 outbreak.

In the first wave of the pandemic, United voluntarily placed a moratorium on disconnections for non-pay well before the Public Utility Commission of Texas (PUCT) mandated for-profit, investor-owned utilities (IOUs) take such actions. In doing so, United also never entertained a notion to recover revenue losses sustained because of the moratorium from its membership, as the PUCT advocated that IOUs  should from their consumer classes.  In addition, the cooperative returned some or all security deposits to members and released thousands of dollars in extra financial aid to local and area relief organizations for disbursement to United members who had lost jobs or income because of pandemic shutdowns.   

“We have no other motive at United than to serve our members’ expectations to the best of our ability,” said United CEO Cameron Smallwood. “While the cooperative’s steady meter growth has continued to help the cooperative absorb necessary expenses such as a more aggressive approach to vegetation management (to enhance overall service reliability) and a new metering system deployment, our consistent growth has also advanced the need for new or expanded office facilities, and more employees within the next five years. Your cooperative is growing, and we’ve regularly reported what we are doing to accommodate that growth and our commitment to be the best utility our members will ever have today and going forward.”

Smallwood added that growth is a good problem to have for a member-owned utility such as United, because growth ultimately reduces individual costs for every member.

“Even after this adjustment in our rates, we will still be one of the lowest-cost electricity providers in Texas, which showcases the value you receive as a member,” he said. “I hope that fact also showcases your cooperative’s merit in being fiscally responsible and operationally efficient in everything we do in our service to the membership.”