General Manager’s Corner – Spring 2022
A Letter From the General Manager
Good spring to you all. I hope this letter finds you and your loved ones healthy, as we turn the corner of another year and especially we are looking forward to moving away from the effects of the pandemic. A new season is warmly welcomed!
In November 2021, we conducted another survey to gather feedback from our membership and customers. The final question on the survey asked participants to provide any other comments or questions they had. One of the most common comments dealt with why there is a base (or basic) charge on my utility bill and/or why is it so much. I thought I would devote my newsletter article to provide an explanation of what a base charge is and why it is necessary. Initially, it is important to understand that as a cooperative utility LLP is a non-profit business. Thus, our rates are used to solely finance the operations, plant, and equipment of the utility for its membership and customers.
LLP’s residential and general commercial customers, have two cost components on their monthly utility bills: a base charge and usage charge. A third component of these bills is demand, but there is currently no charge for this item, for residential and general commercial customers. Our larger commercial rate classes include base, usage, and demand charge on their monthly billing.
The base charge covers much of our fixed and variable costs, such as substations, conductors (wire), power poles, transformers, equipment, tools, software, and staff. Specifically, revenue from base charges go directly towards replacing aging plant assets, general maintenance of the distribution grid, and improving system reliability. One of the most material capital expenditures we are undertaking is replacement of our substations. We completed the Tyee Substation project in 2020 and are currently replacing the Roy Miller 2 Substation. Although we were able to replace the Tyee Substation for $1.7MM ($300M under budget), current substation replacement costs have increased to nearly $2.5 million dollars. Much of this is due to the distressed state of our economy, which has been impacted by both inflation and supply chain issues.
The usage charge primarily covers our variable costs, such as the cost of power we purchase for customer consumption as well as the related costs to transfer that power from generation resources to our distribution system.
The easiest illustration to compare the interdependency of the two charges, are the costs associated with owning and operating an automobile. The usage charge would be most similar to purchasing fuel, which is consumed proportionately to how far you travel. The base charge would represent all other costs (general maintenance and repairs) you experience, to keep your vehicle operational, reliable, and safe.
Back in the latter part of 2017, we began analyzing how much revenue we would need to support a five-year strategic plan to continue the reliability of service our customers have grown accustomed to, while looking for ways to improve the resiliency of our distribution system Some of the major cost considerations were the replacement of our 40+ year-old substations, averaging 40-50 pole replacements per year, and increasing the capacity of some of the conductor runs from substations. Even with the financial impacts of an unforeseen global pandemic, I am happy to say that LLP has been able to operate without a rate increase since September 2018. As always if you have further questions or interest to learn more about this topic, please feel free to contact me.
John DeVore, General Manager