While on vacation, I once had to pay a cover charge at a bar. Once inside, I still had to pay for my drinks and food. I didn’t complain. I have worked with the concept for over three decades now.
In the utility world, our cover charge is called an availability charge. Whether you use 1-kilowatt hour or not, there is a cost involved in the poles, wires and transformers standing by waiting for you to flip a switch.
The bar scene was the same. They didn’t care if I ate or drank. They had my cover charge to pay for kitchen equipment, drink dispensers and wages, in the event I wanted a drink or an item from the kitchen at a moment’s notice.
As we move closer to the rate increase I mentioned a few months back in this column, we are focusing more and more on the availability charge. For residential service, it is currently $15 per month. When we look at our past cost of service studies, they tell us we should be charging $23 per month.
This is no surprise. In fact, you can probably find some reference to it in information surrounding our last rate increase in 2011. Back then, we had the option of going from $13 to $23 while moving the energy charge lower. While the visual impact of a $10 increase is obviously huge, the lowering of the energy charge would have made the overall impact very small.
At that time, the management team and your board of directors agreed that we did not want to make the big jump. Instead, we went from $13 to $15 with a minor adjustment in the energy charge. There was a consensus that we would increase the availability charge further when we needed revenue in the future.
So, while we talk about cost-based rates, Cherryland’s rates are not yet truly based on the cost of service. Our energy charge is higher than it should be because our availability charge is lower than the “all-in” costs of covering the equipment necessary to make electricity available at the flip of a switch.
Rates are debatable, arguable and, after the core numbers are crunched, very much a product of the philosophy of your board and management team. Other utilities have other viewpoints. It doesn’t make either of us right or wrong.
Another twist is the very small but rising tide of renewables and members who want to generate their own power. As a utility, if I cover my true cost of service in the availability charge, I don’t necessarily care what one individual member does in the form of energy usage. Everybody simply needs to understand that an increase in the availability charge is not an attack on a particular form of energy. It is the only way to maintain revenue to cover system costs should energy sales begin a downward trend.
Please just consider this “bar talk” for now. We are continuing to monitor our financial condition. There are no plans to jump our “cover charge” to $23 in one motion. When we are ready to make a recommendation to the membership, there will be an “open bar” for member comment and input prior to any cover charge decision.
This sounds like crap. Just a way to justify an already overpriced utility company rate increase.
So when you increase the availability charge, are you lowering the kw/hr charge ?
This remains to be determined. We are doing a cost of service study to determine our specific revenue requirements. At the same time, we also know that true cost of service rates would have a $23 dollar availability charge or higher. If we go to true cost of service, there will need to be a reduction in the kilowatt hour charge. If we ultimately decide to continue with a hybrid rate that has a piece of the availability cost in the energy charge, you could see a $2-$4 increase in the availability charge and no reduction in the energy charge. For a not for profit cooperative like Cherryland, it is a delicate balancing act because every dollar of profit/margin will go back to the members at some point in our future. So, we work hard at not generating large margins and putting a burden on future rate payers. When the cost of service is done and the board has agreed to a rate strategy, there will be a public announcement and a public meeting before any decision is final.
How about tasking yourselves with a ten percent cost reduction via efficiencies within the organization such as the automotive industry has been doing for years. It’s easy to raise costs with all kinds of excuses but reducing redundancies within a company is the real challenge. That is what you are paid to do and you are not doing your job. Passing your operational costs down to the customer without providing proof that the organization and labor force has been totally streamlined is not the way to operate. Be responsible and stop referencing reasons to justify cost increases and spend more time on cost effectiveness. Your explanations are falling on deaf ears.
I can’t admit to having any experience in the auto industry. All I know is that the price of vehicles we buy have not been going down and they certainly are not the same as they were 6 years ago. Our electric rates have not changed since July of 2011. We look at our efficiencies on a regular basis. One such measure is meters per employee. Out of 900 electric cooperatives in 47 states, Cherryland ranks #2 with more than 600 meters per employee. We have also returned more than $20 million in cash to our members since 2009. These are profits/margins from prior years and these retirements reflect sound operation under long held not for profit electric cooperative principles. Finally, Cherryland serves some of the most rural areas of our region. Even so, we have lower prices than our neighboring investor owned utility. This was not the case 14 years ago. It has been a continuous team effort to hold the line on costs over this period while also improving our reliability. I stand by my reasons for the possible rate increase and provide them as a honest explanation of our situation rather than an excuse.
Thank you for the explanation on what this charge is and the information you provided surrounding it. I have often wondered. Communication is so important and you did a good job of it in this message.
I think true charges for true costs costs should be considered. If $23 is the “service in demand” charge” than so be it. And if those who choose to use electricity conservatively can save money by their use, so be it.
I am not in favor of increasing the fixed rates (availability charge) since this reduces the incentive of reducing energy consumption. We all should be trying to reduce energy consumption and the more you increase the ratio of fixed versus variable costs, the less people will be rewarded for reducing their consumption.
We do have a state mandate to reduce energy usage. Cherryland has also had an energy use advisor on staff for decades. This individual works with members on a daily basis to reduce energy bills. Our society is also more in tune with energy waste than ever before. Thus, when a utility is in a period of heightened conservation (a good thing), there still is a need to cover costs. Raising the availability charge guarantees an income stream whereas ever fluctuating energy usage may lead to lower revenue than forecasted. This could then lead to more frequent rate increases. I do understand your point and it is a valid one. When the board ultimately debates a strategy to take to the membership at a public meeting, I am confident your point will be a frequent topic of discussion.
I don’t go to bars, and do not supply my own power. This is no different than a tax increase to cover services I will never use. It doesn’t feel all that fair to me. The last thing I need is another increase in my monthly bills.
If Cherryland Electric received all its operating cost via an availability charge, what would it be? What would the kW/hr rate be under that scenario? And if it derived it operating cost from that 100%, couldn’t it reinstate net metering? It may be a way to encourage solar production in the area without passing the cost on to others.
Our last cost of service study determined that a true cost of service availability charge should be $23. We are currently at $15. I can’t recall what the kilowatt hour charge would have dropped to because it was never a serious consideration at the time. We are in the process of updating and creating a new cost of service study. We should have an accurate answer to your question by the end of September if not before. As far as net metering goes, a reduction in the kilowatt hour charge is not what you want to see if you are one of the grandfathered net metering members. You see, those members receive a full retail rate credit. If the kilowatt hour charge goes down, their credit will go down. I am unsure what you mean by “reinstate net metering”. We have net metering today. New net metering members receive a wholesale cost of power amount rather than full retail. This will not change. We do offer a higher rate for those members who put up a solar array and put it all onto the grid under our “buy all sell all” program. We also have a robust community solar program with credits higher than wholesale power costs. Stay tuned to your inbox and Country Lines Magazine for details as they become available. Today, all energy and availability options are wide open.
Tony, did the “cost of service” studies include potential loss of revenue for minimal use meter locations? Example: A farm that pays monthly availability charges, solely to run the well pump for two or three days during harvest. At $15 they may continue to roll and help Cherryland cover their fixed costs. At $23 per month they simply rent or buy a small generator and burn some diesel. If Cherryland loses hundreds of similar metered accounts, how does the revenue analysis square up? Often these studies are “static” in their analysis.
Keep up the great work. We are lucky to have Cherryland.
No, the cost of service study doesn’t really look at the loss of meters. Every time the availability charge goes up, we do see an increase in the consolidation of second meters. So, we do know there will be some lost revenue. Past experience indicates that the losses will be very small. And, thank you for the kind words. They are appreciated.
An unbalanced/too high available charge would adversely effect the seasonal resident/snow bird.
We really don’t look at snow bird versus permanent residence. What we look at is the cost to have electricity available at the flip of the switch whether you live there for one month or twelve months. When the availability charge is below true cost of service as it is today, the rest of the membership subsidizes those members who don’t use enough energy to make up the difference in the actual fixed charge vs the true cost of service charge. That may or may not be a snow bird situation depending on how much energy you use when you are up north. Our goal is to be fair to everyone. Cost of service rates do that.
My RV lot in Fort Myers is $8.44 per month when we’re home. Here my pole barn is over $25.00 per month when in Florida. Big difference
Walk a mile in Fort Myers and count the number of RVs. I am betting that there are probably more than 11 per mile. Cherryland serves mostly rural areas in northern Michigan with an average density of 11 meters per mile. The availability charge would be much different if we had 22 meters per mile. Your pole barn is at $25 because it is on our general service rate and likely uses a small amount of electricity. Services such as garages and pole barns have a higher availability charge in order for the cooperative to recover more of its fixed costs in this charge. On a residential or general service account, we have 2 places to recover costs: 1) availability charge 2) the energy charge. If there is low energy usage, there needs to be a higher availability charge. Every meter needs to support itself or it needs to be subsidized by the rest of the membership. Every utility in every state faces this decision.
Your answer to your operating cost is to punish the people who use less energy than others, ridiculous. I have electric utility accounts in two other states and your availability charge at the current rate is higher than both of them. I am not sure what my options are here but I will be looking into the availability of other providers.
Availability charges are often linked to density. At Cherryland, we have 11 meters per mile of line. If you could provide me the city or county of your other meters, I could give you a better explanation for the difference. In Traverse City, I believe you will find 30-40 meters per mile. In more dense population areas, this number is often higher. Cherryland’s availability charge would be much less if we had more meters per mile. In the rural areas we serve, we simply don’t have a large population base. (probably one reason we all like to live up here)
I own and operate a restaurant/bar.
Cover charges are not a way to have a padded maintenance fund as you have started it does not cover my paper ,pens, paper clips and office supplies.
It is a charge for entertainment provided by the owner to the customer as a service that has a cost.Providing a service to the majority of your customers that will find it as enjoyable and entertaining.
A band that has a good following of people that wants to hear them play because they are talanted and sound very close to the bands they are covering hence the words “COVER BAND” . There is your explanation for cover at a bar .
This is a very touchy subject for many service members. As you have stated many members are rual and that brings up a very good point that most members rely on cherryland as a provider where there is no other option to choose from. so we rely on good judgment and responsibly to the members. For a member on a fixed income such as a member who is retired the delicate balancing act between availability cost and usage cost is very different.
I do understand both sides and I do understand both concerns.
By owning a bar and being a member I try not to pass on extra expenses on to my customers. If it is a service that they want then I provide the service and charge based on projected percentage of consumers and the number of customers the band says they will bring as there following and if there following is greater then expected then the band gets a percentage of the profit from the cover so that would be a win-win for both sides. I would ask that as a whole with inside spending and future projects that you take in account during your decisions that a good percentage of your members don’t not have expendable incomes and have a hard time making ends meet. Everyone needs to responsible with regards to usage and spending.
My Suggestion would be that cherryland has an emphasis on using cost efficient lighting such as LEDs for the members in their homes for lighting. If Cherryland rolled out a program for rebate to change over lighting from incandescent or fluorescent to LED’s in th home or office.
that would be a popular program for the the elderly or members of hardship.
Cherryland could provide LED bulbs that they would buy in bulk so that members could receive LED lighting at a reduced cost.
That type of program would probably be well received rather than an increase in a stand by service (availability charge)!
If you have a rebate program I am not aware of it.
Please post the program if or when it will be available for the members.
Your points are well presented and understood. I only used the bar reference in an attempt to explain the availability charge in a new way. Over the past 30 years, I have written this column in many similar formats and was only searching for something in a new and different way. Here is a link to our rebates:https://cherrylandelectric.coop/energy-saver/ Cherryland has had an employee on staff to review member high bill complaints for decades. We have been offering rebates and energy saving incentives since 2008. These programs have been well received and we have reduced energy usage across our membership significantly over the years.
Unfortunately the focus on the “reliability” clause has the unintended consequence of punishing those who are doing all they can to conserve electricity. I would rather see raises be for actual use, not access fees forever. Frankly I found your bar analogy to be unrelated to this situation. You didn’t have to go into the bar.
True, I didn’t have to go into the bar. It was a simple attempt at explaining the affordability charge in a different way. I don’t see cost of service rates as punishing those who want to conserve. When a utility doesn’t have cost of service rates, everyone ends up subsidizing those who conserve the most. So, I see cost of service rates as fair to all members and an end to one rate class or one member subsidizing another.
I do not see a reason for an increase, I have been with Cherryland Electric for many years and have seen
nothing but more and more charges on my bill. We conserve on electricity daily. I am retired and can verily
keep up with bills now.
I am sorry. We simply haven’t raised our rates since July of 2011. Six years of inflation and increases in almost everything we buy have outpaced our growth in sales. We will do all we can to keep the increase to a minimum. If you chart inflation over the past 10 years and the change in Cherryland’s rates, I am confident you will find that our price for electricity has gone up far less than the rate of inflation.
I’m not an expert in cooperative history, but I think I remember that part of the philosophy behind electrical service cooperatives was to spread the infrastructure costs out into usage fees so rural individuals could afford electricity. The problem with rural electricity was that just providing access was too expensive so the cost was folded into usage fees (per kwh). Big users paid more but it helped electricity to be more affordable for small users and the large quantity of users made it more affordable for everyone. It seems your new pricing strategies are moving away from fundamental principles of rural cooperatives.
I can’t claim to be an expert in cooperative history either. I have worked in this business since 1983. Over this time, I have seen cooperatives with many different types of rate philosophies – none of them wrong, illegal or immoral. Different boards, different management simply have different strategies when it comes to rates. I have never heard of rate subsidies as being a fundamental principle of rural electric cooperatives. Cooperatives try to be fair and affordable. It is my opinion that we should always be trying to remove any subsidies from our rates. We don’t have to do so overnight but it should be our goal over time. As I have written previously in this blog, inflation has gone up faster than Cherryland rate increases over the years. Thus, I think the cooperative is being fair and affordable no matter what the final outcome of this increase happens to be.
Subsidies are a good thing when they encourage behavior that benefits everyone such as conserving electricity, or when they help the little guy, the hardworking, disadvantaged Americans who are the backbone of this country, as long as the subsidies aren’t too much of a burden on the big spenders. Wealthy Americans are valuable to our nation also and socialism is burdensome.
When we first became Cherryland clients a year ago, I balked at the idea of a $15 a month availability charge. I thought we should only be paying for the consumption that we’re using, I had never heard of such a thing using other electric providers during our time as renters previously. NOW, a year later, I have to say I have changed my tune. As I have read snippets from the newsletters that you mail to our house (I never do read them cover-to-cover!) I have been exposed to the good that you do in the community where we are now members! Your company changed my tune even further when I realized that you provide scholarships to our community for education, and a lot of them! Wow! Amazing! We rented and used other electric service companies in East Lansing, Stockbridge & City of Traverse City before we became homeowners using Cherryland Electric, and I had never heard of an electric company offering scholarships to students in the community before! What a sense of pride to pay $15 a month knowing that Cherryland is helping decrease the effects of climate change with the solar-powered grid you maintain! What a great comfort knowing that when we next come up with an extra $600, we can “subscribe” to a solar panel with Cherryland and help reduce global warming even further! My point of view is, please continue to educate us on what you are doing for our community, and if Cherryland increases the availability charge $8 per month in order to support these great services, and at the same time decreases the cost of our actual consumption, I will continue to be a happy and proud member, and I may even try to reduce my energy usage further knowing that my consumption charge is smaller!
Thanks for the kind words and thoughtful comments. They are appreciated.
Tony A.,
Wow! You sure have gotten a lot of comments already, and you’ve been busy dutifully responding to them.
My thoughts: An accurate availability charge ($23) makes very good sense. I don’t like increases any more than all the rest of your customers, but a “hybrid” increase in availability charge & rate charge is logical and justified. I’ve been a Cherryland Electric customer for many years and I can attest to the fact that overall Cherryland customer costs are highly competitive and service dependability is among the highest. I don’t want to pay more for electricity but I cannot honestly argue against it. An increase is both reasonable and overdue.
Thanks for the kind words and taking time to share your thoughts. I enjoy (mostly) responding to member concerns and questions.
There is a significant disconnect between your “availability charge” and a “cover charge” for a bar or restaurant. I have a choice if I want to go in the bar or restaurant, I have no choice on electric provider.
You are absolutely correct. It was simply an analogy used in an attempt to get some people to understand why we have an availability charge.
We don’t feel there should be an availability charge increase. Our electric is high enough as it is. The fact that you refer to customers as the same as someone who will pay such a charge at a bar is insulting! There is a big difference between paying a cover charge at a bar verses making sure your family has electricity so you can take care of them. You have a choice whether you would want to be stupid enough to pay a bar a cover charge. You don’t have a choice not to pay your electric bill! Consumer’s energy charges outrageous prices for their utilities, and they have a bad name, DON”T start being like them! Cherryland has always had a good name, good service, affordable prices for power. Unless a huge storm were to destroy a huge area of poles, transformers and such, we say that is there can’t be a huge increase in cost for “availability”. Just like with our company, we have expenses that we incur with running our business, but we don’t pass them on to our customers every time we have an unexpected expense. If we did that, we would have never been in business the 38 years like we have. We lock in prices with the companies we buy from, ensuring prices don’t get out of control, so we hope your not going to use this increase in costs of equipment parts and such as a reason you need to do this, it is a lame one. People need electricity for their homes, you might say you have us by the neck, but people are being over charged with just about everything they need to survive, and it has got to stop! Your paycheck is only so big. It can only stretch so far, and then you are backed against the wall. Stop giving Co-Op checks every year and use that money to help sustain your costs, don’t give people checks leading them to believe your money management team is doing a great job, when in reality they must not be if your wanting to increase everyone’s bills.
First, the use of the bar was simply an analogy to get people to understand the concept of the availability charge. I apologize if you found it not helpful. I appreciate the kind words about Cherryland’s service. At Cherryland, we have not passed on increases for 6 years now. At some point, it simply has to happen and we are nearing that point. I have never said I had anyone by the neck. Affordability for everyone has been a part of our mission statement for years. We don’t take it lightly and I believe our past history of very, very minimal rate increases is proof of that. Cherryland is a cooperative that is owned by every member we serve. We can’t claim to be a cooperative and then not return money we owe past members. We will have to respectfully agree to disagree on the money management issue. I remain proud of the Cherryland team and their stewardship of the member’s money.
Availability charge is just an attempt to screw customers that actually do the right things and get LED bulbs, insulate their homes, use other energy saving techniques. This is just saying so I see you’re using less energy and your bill went down we need to stick it to you to pad our income.
Their “credit” for changing to energy efficient devices is a joke. I switched my entire home to LEDs and didn’t get a dime from them.
Oh and shouldn’t we get that fee waived when we lose power on average 6 times a year? I mean the power wasn’t available when we needed it!
If a bar charged a “cover charge” and when you went in there were no drinks and the band never showed up you’d be pissed!
We do not pad our income. Any excess profits generated are ultimately returned to our members.We have had one rate increase in the last 7 years. You are welcome to divide the $18 availability charge by the days in the month and request a refund for the hours you don’t have electricity available. For example, a 30 day month comes to 60 cents per day. 60 cents divided by 24 hours comes to 2.5 cents per hour. Our average outage time is 2 hours. Thank you for taking the time to respond.