Rate Change Proposal FAQs
The short answer is that it costs more to serve our members than what Western is collecting in revenue. The recently completed cost-of-study revealed a $1.9 million deficit for 2023 operations and beyond. To compensate for that shortfall, Western must collect nearly 6% more revenue from our members to maintain service levels.
As a not-for-profit electric cooperative, every member served by Western has an ownership stake in the company. There are no incentives to raise rates for a group of shareholders who would profit from the increases. All excess margins are returned to our members (owners of the cooperative) through the capital credit retirement process. All rate changes are carefully considered and designed to collect enough money to maintain service levels and cover debt requirements from our lenders.
The fixed Base Charge is intended to cover costs to make power available to your home or business before any electricity is sold. All members share in the cost of maintaining and operating the electrical system. These charges include poles, wires, transformers, bucket trucks, taxes, insurance, employee wages, and many more expenses that are not tied directly to the cost of energy. By lowering energy charges (kWh) and increasing the Base Charge, members who are high energy users will not be unfairly subsidizing other members.
The cost of wholesale power has been climbing mainly due to the increase in the cost of natural gas, especially in the last few years. In addition to the rise in wholesale power, westerns distribution system materials and equipment costs have also increased due to inflation and availability. Western's cost-of-service study also revealed a large imbalance exists between billing components. The Base Charge collects money to pay for poles, wires, transformers, and many other expenses that have dramatically increased in the past few years. Energy sales (kWh) are currently paying for costs tied to demand and base charges. The proposed rate adjustments will reduce subsidization and create a more equitable rate structure for all members.
Western remains dedicated to treating all members as fairly and equally as possible. This means reducing subsidization and staying true to our philosophy that cost causers should be the cost payers. It would be discriminatory for Western to unfairly burden one group of consumers to pay a large portion of the costs caused by another group of consumers.
An independent rate consultant, Power Systems Engineering (PSE), performed a cost-of-service study to assign costs across all the rate classes (Residential, General Service, Irragation, ect.) fairly. This cost-of-service study identified the cost of providing service for each rate class based on load and service characteristics. The cost-of-service study ultimately provides a valuable guideline for assigning cost responsibility to each class fairly and equitably.
After determining the total revenue required and the cost of service for each rate class, the final step is to design rates that fairly charge consumers based on how they use the system. Western's philosophy is to treat all members as equally as possible. Treating members fairly in rate design means reducing subsidization between the different rate classes and within any single rate class.
How much energy you use, when you use it, and how your usage varies all affect the cost of providing you with electric service. Rates will vary from one type of service to another. These varying costs are examined as part of the cost-of-service study.
Each rate class is assigned costs based on the profile of the consumers of that class. However, consumers can use the system differently, even within a rate class. Some consumers may be high-volume, efficient users of the system, while others may be low-volume and inefficient. Variances in how our members use the system will also affect individual consumer impacts.
All the proposed rate adjustments will affect members differently based on their rate class and usage. The rate changes in 2024 and 2025 (years 2 and 3) will be revenue neutral for the average member. In most instances, a reduction in the energy (kWh) charges will offset increases in Demand and Base Rates. These adjustments will align with the cost-of-service study to reduce subsidization between ratepayers.
Although nearly 2/3 of every dollar Western collects goes directly to purchasing wholesale power, Western has taken many steps to keep expenses and rates as low as possible over the years.
Western's efforts to keep rates stable include:
- Leveraging technology to gain staffing efficiency, allowing the co-op to reduce the total number of positions required from 59 to 55.
- Lowered expenses, including a $2 million reduction in the next four-year construction work plan for nonessential projects.
- Maximizing FEMA reimbursement by recovering more than $27.5 million in Federal Emergency Management Agency (FEMA) claims since 2006.
- Extended Patronage Capital Retirement Rotation cycles to reduce the required revenue for operating the cooperative by more than $500,000 annually.
The Western Cooperative Board of Trustees has proposed a 3-year plan to redesign the rate structure. If approved, new rates would be effective Jan. 1, 2023, with additional rate adjustments in 2024 and 2025.
The average across the entire system and all rate classes requires a 6% increase in revenue. However, depending on your rate class and usage, individuals may experience more higher or lower bill impacts. For example, the average residential account will experience a 14% increase in 2023, but if you are a high-energy user, you may only experience a 3-4% increase in your overall bill. To view projected individual bill impacts, see below.
The 2020 merger between wholesale power suppliers Mid-Kansas Electric Company and Sunflower Electric Power Corporation (our wholesale energy suppliers) allowed Western to combine rates between the east and west into a singular rate structure requiring an average increase of 1.9% across the system. Western used the information collected from the 2020 rate merger and the usage in 2021 to create the data needed to determine an equitable rate structure for the future.
Western's Board of Directors and managers continuously monitor the cooperative's financial stability to determine if or when a rate increase is necessary. In order to establish the new rate structure, an independent, experienced rate consultant was hired to conduct a cost-of-service study and recommend changes to our rate structure.
Western remains competitive for some of the lowest electric rates in the state. In the 2020 residential rate survey conducted by Kansas Electric Cooperatives, Western ranked 5th lowest out of the 28 Kansas electric cooperatives. Even after the estimated rate increases, Western is projected to remain well under the state average for residential rates.
If the proposed rate structure is approved in November, the new rate structure will go into effect on Jan. 1, 2023. The bill you will receive in February with the January usage will reflect the new rate structure. This timeline would be the same for Years 2 and 3.
As a member of an electric cooperative, you have a voice. Western will hold several public meetings to discuss these proposed changes with our members and allow you to voice your comments and concerns. The Board of Trustees will hold an open meeting on Nov. 17 at 10 am to vote on the proposed rates. If passed, the new rates will go into effect on Jan.1, 2023.
Proposed Rate Redesign
Power Systems Engineering (PSE), an independent rate consultant, recently completed Western Cooperative's Cost-of-Service Study. The rate study calculated how much revenue is required to operate successfully, then identified how much each rate class is responsible for to meet the revenue requirement. Finally, those amounts are compared to the revenues that are currently being collected from each rate class to determine where deficiencies have emerged. This provides the information needed for the Board of Trustees to redesign the rates to ensure adequate and fair revenue collection.
The first step in the cost of service study is determining the total amount of revenue Western needs to operate. PSE’s initial models showed a $2.5 million deficit for 2023 and beyond. The Western Board of Trustees lengthened the patronage retirement cycle and reduced expenses to lower the required revenue. The decisions of the board reduced the shortfall to $1.9 million.
To reach the amount of revenue needed to maintain service levels, Western requires an average 6% rate increase among all rate classes. However, depending on your specific rate classification and energy consumption, your bill could experience a higher or lower impact. The board takes its duty to carefully review and set rates fairly because, after all, they are Western members, pay the same rates, and face the same cost pressures as all our members.
Cost of Service Study
While the required revenue study determines the total amount it costs to operate the cooperative, the cost-of-service study examines how and why costs are incurred. By analyzing the cost-of-service, we can fairly and appropriately assign costs to each rate class using proper rate-making principles.
Several factors drive cooperative expenses. For example, there are costs associated with power generation and usage. There are also costs incurred with the transmission of power from the power plants to our substations. Lastly, there are costs incurred in distributing the power to members. Distribution costs comprise Western’s expenses for poles, wires, transformers, trucks, facilities, substation maintenance, and line repairs. The cost-of-service analyzes these costs and assigns them to the appropriate categories.
All of these costs are also analyzed by function. Each month your energy bill is split between fixed charges (customer charge and/ or demand charges) and variable charges (energy charge/ kWh).
The cost-of-service study has revealed an imbalance between fixed and variable charges. The customer and demand charges include the expenses related to the facilities directly connected to your property, such as wires, meters, transformers, accounting, transportation, and maintenance. As we go into the rate design phase, we know there will be an increase and realignment of charges to create a more fair balance for all ratepayers.
Average Projected Bill Impacts
Base Rate Revenue By Rate Class
Rate Design and Member Impacts