— from Ed Sutton —
Foster;
As I mentioned recently, I have been recording my energy usage about every 2-3 hours (except night-time), and can report the following for the first week (Monday, 6/22 at 10AM through 10AM on 6/29):
We are a household of two “older” adults. The house is totally electric; no propane; we don’t burn wood during any season.
We have no solar panels or other alternative energy sources. Therefore, we are probably a fairly typical OPALCO residential user.
The electric heat is turned off for the summer (June-Sept.) Appliances are typical; Refrigerator, and chest freezer run as needed. How water heater has been turned lower, twice, to conserve energy.
Each day we both shower in the AM; most kitchen usage is in the early evening (stove/oven); the three highest use of kwh are for the dryer (3-4 loads per week), stove/oven, and hot water (dishwasher, clothes washer).
Our highest usage is on the weekends.
So, we are generally typical for an older family of two!
This past seven days, we used 189 kw; most days of the week about 20kw per day; weekend about 45kw per day. At 0.097 cents per kwh, our average daily power bill is $2.62, an $78.57 per month. And, a facility charge is added to that !
The purpose of this exercise was to have a better sense of the cost of electric power in our home. I will state, strongly, that we will lessen our usage proportionate to any increase in our monthly cost of energy from OPALCO. I suspect that this is the real world for most residential customers. Living on a generally fixed budget is a bugger.
I would be very curious as to the comparison of our usage with the average for all residential customers throughout the County.
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Dear Ed:
Thanks for volunteering your usage as a model for the current rate and revenue situation at OPALCO. The usage you report is on par with your monthly average of 31.73 kWh/day in June of 2015. What is really interesting is how well your usage also illustrates the current revenue and rate conundrum. Your average usage for June 2014 was 40.1 kWh/day and in June of 2013 was 50 kWh/day. You, like most of our members, are using less electricity.
How that shift in usage affects the Co-op is reflected in the drop in revenue coming from each member like you. In 2013, your account contributed $2,567.33 in revenue. In 2014, we had a 6% rate increase in order to collect revenue to meet our expenses, however your revenue came in at $2,461.28, 4% lower than in 2013 and very much short of the revenue goals our rate increase projected. In 2015, we had a 9% rate increase in order to collect revenue to meet our expenses however, your declining usage is a perfect example of why we project another shortfall.
As a cooperative, our cost-of-service model drives our revenue targets. When we set the budget for 2015, we first secure our system service levels and reliability. Next, we determine what margin we needed to achieve, and then set the rates so that member-owners will cover that cost of service. When member contributions, collected as revenues, fell below targets in 2015 as they did at the end of 2014, members must make up the cost-of-service difference.
Using your example, we can expect that members’ energy usage will remain stagnant even as the cost of delivering electricity to you and our 11,200 other members continues to rise.
You wondered how you compare to other residential users. Your usage is a bit higher than the average (see chart below) – and trending downward. Using average kWh usage from the first six months of each year (since that is all we have for 2015 so far): in 2013, your average monthly usage was 2,820.83 kWh/month; in 2014 2,708.50 kWh/month and for the first six months of 2015 it is 2,163 kWh/month.
[Editor’s note the chart showing Monthly energy usage for average residential members and PAL members could not be displayed in this comment].
By the way, any member can track their usage and compare bills using the SmartHub tools.
The climate is changing for our small utility. Temperatures are warming, energy usage patterns are changing and the costs to purchase power and maintain our service levels are increasing. The revenue recovery add-on is a corrective measure to get us through this year, but we will continue to examine the trends (industry, weather and energy usage) as we build our budget and rate structure each year.
Thanks again for volunteering your usage profile which provides a definitive example of why our revenue adjustment charge is required.
Thanks Suzanne; that is an interesting comparison.
SO, the underlying question is how OPALCO corrects the spiral of decreasing revenue? A continuing increase in rates to the members cannot be acceptable in the long run because at some point a homeowner may decide that propane is a cost-effective alternative. Or, like my son, add solar panels to the roof.
Having served on numerous elected Boards as a director, I would suggest that you are avoiding discussion of the ELEPHANT in the room, that is, the OTHER side of the ledger, ….. EXPENSES.
Perhaps the challenge from the members should be that OPALCO cut expenses from the budget by some 5%. Nancy Loomis knows how such a process works having participated on a budget review committee at the Orcas Schools. I would be most incredulous if you all were to suggest that budget cuts were not possible.
You need to take these concerns by many community members very seriously. If your model is not yielding the desired results then it is time to try a different approach. “A definition of insanity is repeating an action over and over and expecting a different result”.
AND I WILL REPEAT AGAIN, hoping for a different result…. your Board Directors need to meet with their constituents and discuss these issues, SOON !!!
One of the issues here, and I know it to be an issue in most of the industrialized world, is that utilities do not charge a facilities charge that really covers the cost of being ready to deliver power on demand. This is partly because people are used to paying for product delivered and expecting overhead to be covered in that price, and partly to encourage conservation as building new generating capacity is a huge expense. In this market that means the part time people and those of us using less power because we burn gas or wood are being subsidized by the high power users. I would like to know what the facilities charge would be if it covered all the expenses except the actual cost of power delivered. While I recognize it as an impractical rate structure to implement, the reality check may be useful.
Michael,
You are correct. For a chart that can get you close to what you are asking, see the May board revenue shortfall analysis, here: https://www.opalco.com/wp-content/uploads/2015/05/Revenue-Shortfall-Analysis-20150528-Board-Meeting.pdf
Look for the “Billed Versus Actual Cost as a % of Total Cost” slide, on page 12.
In short, a top heavy usage charge leads to over-billing in cold winters and under-billing in warm winters. Rates should not be confused with the actual bill. A rate can go up, while the bill can go down, because a top heavy usage charge is so sensitive to weather.
By the way, had the board kept the rates at 2014 levels, with an even smaller facility charge, the revenue shortfall and TIER would be even worse. The board did a good thing, since raising the facility CHARGE reduces TIER volatility and more closely represents the actual Facility COSTS.
Foster Hildreth told me that the cost of the power that we use is 4 cents, so the balance of your monthly billing is for delivery, maintenance, administration and so forth.
Interestingly, OPALCO does not have a facility charge for new connections/customers. If that had be a policy for the past several decades as the community has grown, there would be a significant Capital Reserves budget to replace submarine cables or add transmission lines.
By comparison, Eastsound Sewer has an $8100 connection fee, and EWUA
is some $13,000 which allows for development of new wells and so forth.
I shudder to think what our monthly bill will need to be to fund capital replacement projects.
Ed,
All capital costs to build new services are 100% paid for by the member… Co-ops call this “contribution in aid of construction” or CIAC.
For example, when I purchased land and built a home, I paid OPALCO for my transformer and hookup. That’s the cost of service approach co-ops operate under. When I sold the home, the next person who bought it didn’t pay for the transformer. It had already been paid for by me. The cost to OPALCO of switching the account to the new owner is much smaller, hence the lower charge for the new owner.
Cost of service is a core feature of co-ops nation wide. Co-ops are different from how Eastsound Water approaches cost of service and capital projects. For example, the submarine cable replacement project (see: https://www.youtube.com/watch?v=fT-fj-_ha_Y) benefits more than just new members. Co-ops use a “postage stamp” principal, that shares the cost of the system beyond your transformer among all members, according to a comprehensive Cost of Service Analysis (COSA).
Ed – the Cost in Aid of Construction (CIAC) to connect a new electric service ranges from $3,400 (transformer, meter, parts and installation) to $12,000 (including new junction, line extension and the like). Each member pays their way.
Ed –
You are right that Nancy Loomis knows how the school board budget review process went. She brought OPALCO’s comprehensive budgeting and notable driver process to the school board and that is what created a successful result.
On expense, OPALCO has very little discretionary expense and staff has scaled back or delayed as many expenses as possible in this period of shifting revenues. Our budget is built to provide a reliable level of service (staffing, equipment, maintenance and construction) for 20 islands – and it isn’t cheap.
We are in an “all hands on deck” position as we prepare to replace submarine cables and are expanding the reach and capacity of our grid to control and monitor a 21st century electrical distribution system. We need every staff member to run this operation and keep service levels on par with member expectations.
This fall as the 2016 budget is developed, we will be looking for solutions, cost savings and asking our members tough questions such as “How important is funding energy efficiency rebates? How should Project PAL be funded to better cover the need? Should OPALCO continue to subsidize member solar incentives?”
Ed,
You mentioned the Eastsound Water and East Sound Sewer.
As you know, OPALCO, and co-ops in general, have low income programs and conservation programs they invest in to help members reduce their energy use and pay their bills. Talk about the investment that water and sewer make for low income and conservation initiatives.
If I am a low income person, what kind of assistance or break on my sewer and water bills do I get? What portion of the budget do you give back to members to help them save water and reduce sewer waste – rebates, free shower heads, etc.?
Suzanne says…”the Cost in Aid of Construction (CIAC) to connect a new electric service ranges from $3,400 (transformer, meter, parts and installation) to $12,000 (including new junction, line extension and the like). Each member pays their way.”
Yes, each member pays to get connected to the system, but what pays for the upgrades, updates, maintenance of the system that is already in place (submarine cables).
I think this cost is what my father was referring to when talking about the connection fee. Since this is not the way OPALCO works, then it means all those costs are paid for by all members via the facility charge, and it doesn’t matter if you are a large consumer of electricity or very small, everyone shares equally.
Chris, See my comment above about “postage stamp” co-op principal and Cost of Service Analysis. Remember, the facility CHARGE is a fraction of the actual facility COST, so the difference is made up in the USAGE Charge. Because of that, heavy users do pay more for the facility than light users. And the usage charge is tiered so the more you use, the hight the rate.
For a chart that that shows the difference between charges and actual costs, see page 12 here: https://www.opalco.com/wp-content/uploads/2015/05/Revenue-Shortfall-Analysis-20150528-Board-Meeting.pdf
Who is working on an environmental waiver as we can’t afford $4600.00 per member for the extra environmental work so that we don’t crush some poor eel grass. I am an environmentalist but this is nonsense.
Sorry, I meant $460.00 per member for every new cable. This is worse than digging near an old midden (garbage pit) and needing experts to determine if a bone is a dogs or humans.
How many full time employees are there? How many part time employees are there?
Harvey- The current number of full-time Opalco employees is 55. The quickest way to get that information is by going to http://www.opalco.com/find-documents and viewing the RUS Form 7s. In 2004 there were 42 employees, in 2009 there were 51, and there are currently 55. We don’t have any part-time employees.
Theresa, Thank you for your quick response.
Huh, I’m reading that first response from Suzzane and it really sounds like a free market economy situation. I’m certainly no market economist. Just dabbled in the thinking. I just watched a video series once.
Raise the price the demand goes down. At some point revenue drops.
Lower the price the demand increases. At some point revenue increases.
Always seeking that point of equilibrium of the demand and supply curves.
OPALCO caught in the cross hairs of manipulating the market to optimize the revenue. Not criticizing just observing ( and participating ).
So Mr Sutton uses this much. OPALCO raises price to meet goals. It will cost Mr. Sutton that much so he lowers his usage ( interestingly at the behest of OPALCO). Mr. Sutton pays less. OPALCO misses their goal. OPALCO raises price again. One wonders what happens next……
One wonders what happens if OPALCO lowers the price. Would demand increase? Would Mr. Sutton feel comfortable enough to use more. Would the increase in demand be enough in revenue to ….
Just wondering. Certainly it is not all that simple.
Sure wish it was.
Rick Boucher
Orcas
Rick, I enjoy that you brought up the free market perspective. Though OPALCO is a co-op nonprofit, it competes in a free market that includes other energy options – propane, fuel oil, and gasoline.
In that larger context, OPALCO energy is the lowest cost energy in the county. And some of the lowest cost and cleanest in the country. For a comparison of how much it takes to heat, and drive on OPALCO energy versus propane, oil and gasoline, see pages 14 through 29 here: https://www.opalco.com/wp-content/uploads/2015/04/Perspectives-on-Energy-in-San-Juan-County.pdf
As you will see, if ones goal is to save money, even with the new rates, OPALCO has the lowest cost energy. Cleanest too.
And, as far as I know, of all the energy companies in the county, OPALCO is the only one that values conservation by incentivizing (through rebates and education) its members to reduce waste and only use what they need. In the co-op world, the fact that Ed Sutton is trying to use less energy, is a good thing.
When designing rates, OPALCO balances keeping the energy the lowest cost in the county, while still paying for the cost of serving 20 islands. For more on some of the thinking that goes in to striking that balance, see the comment and enclosed link above, posted by me on July 1, 2015 at 1:08 pm.