Our mission at Cherryland is to provide our members with safe, reliable, and affordable power. However, we increasingly face a growing tension between continuing to invest in system reliability and managing our costs for our members.
We ended 2023 in the red. In response to that, we have frozen hiring and decreased some of our maintenance and tree trimming programs in 2024. But we can’t cut those things forever without negatively impacting our ability to keep your lights on. That’s why we are moving forward with a rate increase proposal that your board will vote on this month.
We are proposing a $4/month increase in our availability charge and a $.004/kWh increase in our energy charge. The average Cherryland member uses 700 kWh per month. If this increase is approved, the average member will see about a 6%, or $6.80, increase in their monthly bill in June.
With increasing cost pressures for wage and benefits, supply chain costs, and interest expense, this rate increase is simply necessary to help us cover our costs.
Labor is our second largest expense behind power supply. We run a really lean ship—we serve the most meters per employee amongst our co-op peer group across the country. But the people we employ are very technical and in high demand and we must keep up with market wages. Attrition is so much more costly than compensating our employees fairly. Your employees work hard and deliver exceptional outcomes and I am committed to keeping them here on your behalf.
While inflation in general has been high the last few years, it has been particularly high for the materials we use. Since 2021, Cherryland’s cost for electric poles has increased by 30%, transformers have increased by 111%, and underground wire has increased by almost 60%. All in all, our supply chain costs have increased by over 40%.
The third major cost driving our rate change is interest expense. In 2024 alone, we will have over $3.7 million in total interest expense, a 38% increase in our borrowing costs over the last three years.
Given all of those numbers, I feel very confident that we have done everything we can to keep our rate increase as modest as possible, at 6% for the average member.
While we will always be driven by providing the best value to you at the most affordable price, I also find it helpful to look at how our rates compare to other utilities. After this rate increase, our members will still be paying less than those of the neighboring investor-owned utility that also serves our region—in fact, they will pay 18% less during summer and 9% less in winter. In addition, we continue to provide some of the highest electric reliability in the state of Michigan, as I shared with you in my column last month. While no one ever wants a rate increase, I hope you can agree that your cooperative continues to provide high-value service at a very competitive price.
Implementing a rate increase is not something we take lightly at Cherryland. As we continue to navigate high utility inflation into the future, we anticipate the need for more frequent rate increases than we’ve had during the low inflationary environment of the last 10 years. We will continue to look for creative ways to save money anywhere we can that do not sacrifice the quality of service we provide to you.
You will find more information regarding this proposed rate change on pages 8 and 9 in this magazine and on our website. We also invite you to join us for a member meeting regarding the proposed change at our office on Tuesday, March 12, at 5:30 p.m.
Video Update March 2024
Cherryland Proposed Rate Change
Those of us on a Fixed rate income have to cover more and more to cover all the rate increases that everybody is implementing, i.e. Groceries, utilities, and etc. we cannot keep covering these rate increases while we only get a 3% increase on or social security and with that they increased the Medicare expense as well. I would like to think that Cherryland Coop will keep that in mind, and try to come up with a price for the senior citizens like myself who can no longer work due to age and disability. Thank you
It is never easy talking about increasing rates because we know it impacts our members pocket books. But, the reality is that our rates have to keep up with utility inflation or we can’t keep the lights on. We will continue to look for ways to keep our rate increases as low as possible. If you ever find yourself struggling to pay your bill, give our member services team a call and we can help connect you with local agencies that can help.
I have lived in places where power outages are frequent due to poor tree trimming policies. Cherryland has a good reputation for infrequent Outages and I attribute that to good tree trimming among other things. Keep up the great work! I appreciate your fiscal discipline.
Thanks, Chuck. We always hope that the value of the service we provide meets (and exceeds) our members’ expectations. Of course, it’s nice to hear it, too. 🙂
Save money by evaluating if the monthly magazine is worth the paper, printing and mailing. Ours goes right in recycling and if there are any members wanting to read the riveting content they might access it on line.
The magazine has both its detractors and its loyal readers. Regardless, it cost us $3.60/member/year for the magazine last year. As a member-regulated cooperative, we have several things we must legally mail you annually and we do that through the magazine. Notice of this rate change is one example but election information, notice of Michigan Public Service filings, etc are others. Most of those must be mailed first class mail and it would cost us more to send members those via letter/postcard with no added value that (some) members find in the magazine. We have looked at decreasing the number of issues mailed per year and that is something we continue to evaluate. Unfortunately, when it represents such a small cost annually, decreasing the mailing won’t impact member electric rates in a meaningful way.
I too live on a fixed income. I can barely pay my bills every month including my power bill which is really high and try to find ways to conserve my power so it’s not so high. I hope that Cherryland Electric will also take this into consideration that there are people and families that can’t work because of health issues and do live on a fixed income cannot pay anymore than they are now. They need to lower costs so that we can pay electric…or come up with a program for seniors on fixed incomes .
Hi Margaret – we understand and I assure you we never raise rates without considering how it will impact our most vulnerable members, including those on fixed and limited incomes. But, we also have to cover our costs in our rates. We are not adding new programs, people or anything else that is driving up our costs, we are simply trying to manage an incredibly complex inflationary environment. Our costs have gone up as much as 40% in the last 2 years. If we were not already tightening our belts to manage costs for you, we would be passing along a much larger rate increase than we are. But, there is only so much we can cut or tighten without sacrificing the quality of service we provide. As far as a senior rate goes, I answered that question elsewhere on this comment feed but here it is again — Our policy is to design rates to accurately charge people for the cost to serve them. This is know as “cost-based” or “cost of service” rate design. Our cost to serve a location do not vary based on the age of the person living in the home. If we were to implement a senior rate, the bills of those seniors would then be subsidized by other rate classes, many of whom also have fixed incomes and personal financial pressures they are managing.
I would really like to see a senior rate implemented.
We will pass this feedback along to our board of directors. For now, I’ll explain why we don’t currently have one. Our policy is to design rates to accurately charge people for the cost to serve them. This is know as “cost-based” or “cost of service” rate design. Our cost to serve a location do not vary based on the age of the person living in the home. If we were to implement a senior rate, the bills of those seniors would then be subsidized by other rate classes, many of whom also have fixed incomes and personal financial pressures they are managing.
Cherryland Electric Co Op’s to “CONSIDER” a decision to raise rates amid a period of high inflation and economic hardship for many consumers demands scrutiny. This review will analyze several aspects, including the rate hikes, executive compensation, and the organization’s status as a non-profit entity.
Firstly, the decision to increase rates during a time of economic downturn and stagnant wages is concerning. It suggests a lack of empathy or consideration for the financial strain experienced by consumers. Given the non-profit status of Cherryland Electric Co Op, one would expect a more conscientious approach to pricing, with a focus on serving the community rather than maximizing profits.
The disclosed salaries of key employees and officers, particularly those at the management level, raise eyebrows. While competitive compensation can be justified for top talent, the figures provided appear excessive, especially considering the organization’s non-profit status and the financial challenges faced by many of its members. The substantial gaps between the general manager’s salary plus “other compensation” is over $500,000/year raise questions about equity within the organization.
Moreover, the significant disparity between salaries and “Other” compensation for key employees is concerning. While some additional compensation may be warranted for certain roles, transparency regarding the nature and justification of these payments is essential for maintaining trust and accountability within the cooperative.
As a non-profit entity, Cherryland Electric Co Op has a responsibility to operate in the best interests of its members and the broader community. This includes ensuring affordability and accessibility of essential services such as electricity, particularly during times of economic hardship. The decision to raise rates, coupled with the seemingly inflated executive compensation, may call into question the organization’s commitment to this mission.
In summary, Cherryland Electric Co Op’s rate hikes, coupled with the substantial salaries and additional compensation awarded to key employees and officers, raise concerns about transparency, equity, and accountability within the organization. As a non-profit entity, it should prioritize the well-being of its members and the community at large, which includes carefully considering the impact of pricing decisions on those facing economic challenges.
I couldn’t agree more. As consumers, we are being asked today to pay more and more for everything while most of our paychecks remain stagnant. Our electricity bills were up 30-40% this winter for no reason. Now you are asking us to basically subsidize a raise for YOUR employees while my and my spouse aren’t getting one at our jobs. As well as the retired people on fixed incomes. I respectfully hope you will not take this decision lightly and that you will consider the implications of this potential action.
Hi Kathleen – as I point out in my article, most of our costs are coming from the almost 40% increase in our supply chain costs and 38% increase in our borrowing costs over the last few years. In comparison, the increase in our labor costs has been mild but it is a big part of our overall costs, too. We are not raising rates to raise wages, we are raising rates to cover the costs of keeping the lights on. I know that is hard to hear when there are so many other cost pressures today. All of us are feeling that pressure on our pocketbooks. I honestly don’t think it is possible for any employer in our area to keep wages at pace with inflation right now, especially with housing costs so high. Everyone’s dollar is getting stretched thinner.
But, we are facing the costs I outline above and still with careful belt tightening and running the leanest ship we can, we are able to bring forward a rate increase that is 6% while we absorb costs that have risen closer to 40%. I assure, none of this is something we take lightly. Thanks for taking the time to comment and share your thoughts.
Our decision to raise rates amidst a period of high inflation is directly correlated to high inflation. Wages are not keeping up with inflation for anyone and it is especially difficult in our region with such incredible housing cost pressure. That said, utility inflation has been particularly high, outpacing consumer inflation significantly. As a cooperative, we have to choose between cutting back on our programs and services or increasing our costs. We’ve tried this year to find a middle ground that included both and that is why we are able to bring forward a 6% rate increase in the face of 40% inflation in our supply chain and borrowing costs.
Regarding wages, I will first reiterate that we are the leanest electric cooperative of our size in the United States. We keep our labor costs as low as possible through efficiency and ask a lot of our 60 employees in terms of doing work that might take 80 – 100 employees at another cooperative.
For executive compensation, it would appear that you are referring to the Cooperative’s 2021 Form 990 filing. “Other” compensation in that context refers to retirement benefits, specifically the employees’ decision regarding 401k contributions and the actuarial value of the co-op sponsored defined benefit retirement plan. Our RS plan is a multiple-employer plan that most of the nation’s 900 electric cooperatives participate in. That means that GMs like our previous one who worked for co-ops for over 40 years and at least 30 of that as a CEO have a lot of years in the plan which does tend to increase the benefit.
As far as executive compensation goes, our board utilizes national and statewide data to help determine the CEO compensation. That said, our previous GM had a lot of experience and had been with the co-op for many years so it is not unexpected that he would be compensated accordingly. GM/CEO compensation is reported directly to the membership every year in the annual report issue of our magazine.
I look at the compensation of our executive team the same way I look at compensation for our engineers, IT professionals, and lineworkers. We are in a highly technical industry and these are technical and highly skilled professionals who are in demand. Other co-ops and utilities would gladly take members of the team that is delivering industry-leading electric reliability with the lowest employee/meter ratio in the country and it’s my job to do everything I can to retain them at Cherryland. We pay according to the market for all of the positions we employ
I understand that you do not like to hear rates are going up and I assure you that I do not like to have to tell our members that rate are going up. However, we have to raise rates or we won’t be able to make the investments our system needs. As a co-op CEO, I believe it is my responsibility to communicate the reasons driving that rate increase with honesty and transparency which I have done. I would encourage you to attend our meeting on March 12 so that I can answer any questions you may continue to have in person.
This makes sense, and honestly, after several years of substantial inflation, this doesn’t seem like all that much of an increase. It’s also in line with the Cost of Living Adjustment people on Social Security receive, so it shouldn’t really change things all that much for them. The 2023 Cost of Living Adjustment was 8.7%, for example. The complaints about a comparatively smaller increase seem out of line.
Further, since so many have raised the idea: it doesn’t seem practical to have a senior rate in an area where there so many retirees. Concentrating the burden of rate increases on working pre-retirement people would be especially painful for younger people with families, who already have a pretty tough time making ends meet here.
Cherryland is a common good for all us subscribers. We’re all in this together, and we need to collectively invest in stable electricity (and other utilities like internet that also benefit from tree trimming) for this area to continue to succeed.
Thanks for the comment, Andrew. As a cooperative, our philosophy is to avoid subsidization across rate classes. We don’t often hear from those most likely to pay for that subsidization if we allowed it – our average, working aged member. As you point out, they are often too busy raising families and managing their lives and their voices often get lost in these conversations as a result.
Thanks also for your note regarding tree trimming and the other work we do to ensure system reliability. At the end of the day, that is always my goal – that our members feel the value of service they receive matches the cost they pay. I can’t promise costs won’t rise, but what we do have control over is how we use the money we collect from our members. And, we’re pretty proud of the qualify of service we provide.
Rachel, I have 3 suggestions.
First, you might want to look very closely at materials costs. Perhaps create a committee of key users of the materials to review alternate suppliers or alternative materials. For instance, could aluminum wiring be used instead of copper?
Second, I agree that a senior discount is probably a bad idea, given that low income is the key thing, not age, and some seniors are doing fine financially. I would suggest trying to piggyback on any state programs that determine eligibility for low income discounts. You don’t want the application process for a low income discount to be burdensome, but you do want there to be a little bit of a review process.
Thirdly, I would strongly suggest making all of the rate increase a per kilowatt cost, rather than increasing the fixed cost. This gives people in financial difficulty the option of reducing their costs by reducing usage. Also, usage will tend to be correlated with income (bigger houses tend to use more power, etc.).
Thanks for the well-thought out comments and suggestions, Nick. We will pass these along to our board and keep them in mind as we continue to grapple with this tension between managing cost pressures through cutting costs versus raising rates.
While I understand the need for increase and I’m not opposed to it, what does concern me is the reduction of tree trimming. An outside source was contracted, I believe, to go through the neighborhoods and trim, which they did for the most part. However, I have been in contact for the past 3 yearswith Josh E, who coordinates the trimming, letting him know of the issues near my power supply. The crews came through the Lillian, Alice, Beverly, Peggy, neighborhood, etc, but failed to address the overgrowth I’ve been reporting for years. While the overgrowth is not on my property, it could eventually affect my service. Any suggestions? Thank you
Hi Jim – we are not planning to reduce our tree trimming overall, just changing the timing to manage the costs. We will be back up to full speed right of way maintenance next year. That said, I would like to have our Right of Way supervisor reach out to you directly to discuss your concerns for your neighborhood (side note I walk all the time in your neighborhood, I live adjacent to there). Anyway, you’ll be hearing from Dan soon to set up a time to look at your trees.
I am not in support of a fixed rate increase. It’s already too high. If a rate increase is warranted, I suggest it be based on usage.
Hi Paul – this rate increase includes both a fixed rate increase and an increase to the per kWh energy charge. Our approach to rates is to recover costs accurately from where they are incurred. Thus, the fixed rate is set at an amount that reflects our costs to provide power before a kWh gets used and the energy rate is set at an amount that reflects volumetric costs that fluctuate based on usage. Right now, a lot of our cost pressures are on the fixed cost side of our business. However, I do anticipate that moving forward we will see more cost pressure on the volumetric rate, especially if power supply costs increase. Thanks for the feedback.
Rachel,
I understand the desire for cost allocation that reflects where costs occur. I have managed such cost allocation programs for large organizations.
But… in the end cost allocation has to serve a purpose. Better reflecting, consumers’ ability to pay is a very important purpose. Unless you have an outside regulator of some sort who demands it, in the end, how you allocate costs is up to management.
I can anticipate two objections:
First that cost allocation which reflects costs accurately is important philosophically. I think it is helpful to keep in mind that there are external costs, pollution, etc. that are not reflected in organizational accounting. Those costs are real. If those costs were included, it would tip cost allocation towards usage.
A common objection is that increasing the cost per kilowatt will incentivize conservation, which in turn will reduce revenues, and make the co-ops financial position more difficult. I would remind everybody that electrification is certain to increase power usage and revenue. For instance, I just replaced our propane furnace with a heat pump. I’m likely to get an electric vehicle fairly soon.
I don’t think the co-op needs to worry about electric volumes and revenues falling.
I am curious to know what you have done to contain costs or hopefully cut unnecessary costs?
The answer is not only to increase fees to your members.
Thank you!
Hi Paul – as I discuss in the article, we have frozen hiring and slowed tree trimming and pole maintenance this year. But, most of those are temporary fixes to what will clearly be persistent cost pressures. Hence, the need for a rate increase. We are also looking very closely at our system investment plans for the next five years and looking for things that could be delayed or cut to continue to manage our costs. However, many of these cuts will have impacts on electric reliability and generally speaking our members have indicated that is something they will not tolerate.
I would also point out again that our rates are 10 – 20% lower than Consumers Energy. And, we are the leanest electric cooperative of our size in the U.S. (this is measured in meters served per employee). At the same time, we have some of the highest electric reliability in the state. We do ALOT with a little but that also means we really don’t have a lot of easy fat to trim when costs go up.
If you are interested in learning more, I hope you will consider joining us at the member information session on March 12.
Continued:
Furthermore, if the co-op relies more on cost per kilowatt, revenues will benefit more from increased usage, so that’s a win-win.
There truly is no approach to ratemaking that won’t frustrate some part of our membership, but our current approach is fair from a cost-based perspective.
This year’s rate increase includes both a fixed rate increase and a volumetric rate increase. For higher users, the increase in the energy rate will result in higher increase – e.g. a 1500kWh user sees a $10 increase ($4 in availability and $6 in energy) versus a 500kWh user who see a $6 increase ($4 in availability and $2 in energy). So, this rate increase is doing what you have proposed while also ensuring our costs are recovered in the way they are incurred.
That said, it’s not as simple of a win-win as it looks on paper. When we increase the energy charge, our revenue is much more exposed to fluctuations in weather which is the biggest driver of our sales. In mild years our revenue is extremely sluggish if we are overly dependent on the energy charge and that is why it is so important that the availability charge covers fixed costs that don’t vary with sales.
Thanks for the dialogue, these are all things we consider as we design rate increases and will be things we continue to evaluate into the future as our industry evolves.
Rachel,
Any thought to retiring the cost of borrowing. My parents never bought a car that they hadn’t already saved for. That always cut down on the fluctuations experienced in the prime rate. Just one consideration to decreasing the fixed cost.
Lyn – if we were to try to finance all of our system investments with cash, it would raise rates precipitously because we would have to collect the revenue annually to cover the full cost of those projects. This would unfairly burden current members who would be fully paying for projects that may deliver benefit for the next 25 years. By financing and depreciating those investments, we spread the cost across all of the members who will benefit – both those today and those in the future. But, it also means we are exposed to the cost of borrowing which can be difficult as interest rates increase. One of the ways we do lower our borrowing cost burden is to slow down our capital credit retirements – those are the returns you’re used to getting every December. When we slow those down, we have more cash on hand to help finance part of our system investments without needing to borrow from a lender. Thanks for the comment, it’s definitely something we are looking at as we plan our approach to capital credits in this high interest rate environment.
I don’t mind paying the rate increase. Inflation. I get it. However the availability charge went up steeply last year. Wish you would leave that alone.
Thanks for listening
Thanks, Tim. We’ll pass this feedback along to our board. It’s always challenging to have to raise the availability charge two years in a row. Unfortunately, many of the cost pressures we face are directly tied to our fixed costs which that charge is designed to recover. Still, we will keep this in mind as we plan for future rate increases.
Some people cannot afford companies that subscribe to ESG principles.
If it comes down to virtue signaling and putting bread on the table, I hope you think of the poor people first!
As a member-owned, not-for-profit electric cooperative, our only priority is our members and doing what is best for the people we serve. We will do everything we can to manage our costs in an incredibly challenging political and regulatory environment and in a very volatile economic period.
So why do you continue to push wind and solar generation?
No electricity is generated when the sun doesn’t shine and the wind doesn’t blow.
You still need fossil fuel backup?
Which is an additional infrastructure cost for your customers to bear!
Our power supply portfolio is 20% renewable and 60% carbon-free (mainly from nuclear energy). The remaining mix is natural gas and coal. Our entire approach to power supply is to have a portfolio that provides our members with competitive and stable rates, electric reliability and increasing decarbonization as we must also comply with changing regulations. Today, our members rates are 10 – 20% lower than Consumers Energy and our reliability is some of the highest in the state. So, by the metrics I use, we’re doing an excellent job balancing our power supply portfolio.
That said – you are correct that the more renewables that are incorporated into the grid, in general, the more the grid must adapt to manage the intermittency of those resources. Our approach has been to make larger commitments to nuclear energy. Nuclear has the advantage of running 24/7/365 at very stable prices. The state will also continue to need adequate natural gas peaking plants or some other form of battery backup to operate when the sun isn’t shining and the wind isn’t blowing. I believe our members are very well served by our approach (which is different from other utilities in the state) but I also know that we are all tied into the same grid system and that means that if the grid itself isn’t stable, we all suffer. This is an issue I have advocated on in the past and will continue to do so into the future.
Thanks for the comment.
More Boilerplate.
2 years ago the tree trimming crew were here to trim some branches away from the power line. After a short meeting I told them to
cut the trees down rather than trim them as they would have to come back in a few years and start the process over again. I like my
trees but LOVE our Cherryland Electric Power. I can still remember my grandmother speak on how having electric power brought into
their home in the late 40’s change their lives . She lived to be 97 and I believe having electric power in their farmhouse had much to do with that. Our son and his family live downstate where have to pay a higher rate per kwh during peak hours. They are eagerly waiting for the time they can move back up here and have Cherryland as their power provider. Thanks for the great service !
Thanks, Dale! We appreciate the kind words and will certainly pass it along to everyone who works hard every day to keep the lights on. I love hearing the story of your grandmother; it’s easy to forget how impactful getting electricity was. We take it for granted now.
Rachel & each of us members (those commenting and those reading),
Thanks to all of us for belonging to this shared adventure and cooperative enterprise which ultimately serves to make our lives more comfortable and sustainable. For example, as we get older and more feeble and less able to chop wood for the fireplace or stove (as in former times). Aren’t we thankful to be able to continue living indepently in our own homes thanks to this wonderful gift of electric? This online place of discussion and dialogue and the kind considerate questions, comments, suggestions, and replies by Rachel and fellow members helps each of us examine what we have and how we make best use of what we are sharing with ourselves and each other. I encourage some of those who made some astute and positive suggestions to consider joining the board by filling the coming vacancies for all of us to benefit. We have a good thing going here.
Thanks, Paul. I agree, I love electricity and am very grateful not to have chop wood to cook food and boil water. Glad you are finding the blog discussion useful, my goal is to be available to members in ways that are easy and convenient for them. Looking forward to continuing engagement here and through other forums as well.
Thank you for taking the time to spell out the rate increases and what is driving this. As a consumer this makes me more informed and understanding of this course of action. I would normally not comment on anything like this, but since you have taken time to reply to each post, I actually feel valued as a member of the Co-Op.
Thanks, Geoff. Always nice to hear from a happy member.
Hi Rachel,
Are you able to share Cherryland’s 2023 financial statements?
Thanks!
Paul
2023 financial statements will be included with the annual report that gets mailed to all members in May. We will also have the annual report on our website once it is complete. We are working on it now and also still finalizing our audit over the coming weeks.
Rachel,
I understand the need to balance your financial books with rate increases. That’s essential to running a business, even a non-profit co-op.
I strongly object to the form of this proposed rate increase. Instead of jacking up our fixed cost, you should be decreasing the fixed cost and only increasing usage rates.
CEC is supplying a product–electricity. You should charge us for the electricity we use with overhead costs folded into the product cost. People who use more product should pay for proportionally more overhead costs. The fixed rate charges penalize customers who conserve electricity.
I’m not proposing this out of selfish interest. My wife and I drive an EV. We will pay significantly more if our rates go up than the average non-EV driver because charging our EV requires a lot of electricity. I’m advocating for fairness here. If I use more of CEC’s product, I should pay for more of CES’s overhead cost. It’s very simple.
I see from comments above that I’m not alone in this sentiment. Please reconsider dropping the increase in fixed charges.
Thank you.
Roger – thanks for the feedback. The fixed charge does not penalize anyone but we do understand that it impacts electric users differently depending on how much they use. That said, our fixed costs aren’t related to how much they use. That’s why the fixed charge is so important. It’s also why we call it an “availability” charge. It is the basic cost to make electricity available at a location regardless of how much electricity they use. And, while our rate philosophy is something we are constantly reassessing, our current rates are fair in that everyone pays their share of the fixed cost to have electricity available at the flip of a switch. And, then the energy charge recaptures the volumetric costs that are higher for higher users and lower for lower users.
As an EV owner, you may be interested in our time of use rate. That is an even better way to infuse fairness into the volumetric charge by passing through rate signals that reflect pricing that fluctuates throughout the day and by season. I’m an EV driver myself and find it pretty easy to manage my charging around peaks to avoid adding stress to the already stressed grid and increasing the cost for all Cherryland members. You can find more information here: https://cherrylandelectric.coop/time-of-use/
Maybe you shouldn’t have wasted money on solar panels that are covered in snow most of the winter. Yes this year was an exception
Mike – are you referring to the solar panels in front of our office? Those were funded entirely by members subscribing to the community solar program so there was o cost to Cherryland’s members who chose not to participate.
That said, our power supplier, Wolverine Power Cooperative, does have some solar in their portfolio and is developing more. Solar has the advantage of producing during summer when the demand for electricity is higher for air conditioning load and also while there are build costs, there are no ongoing fuel costs. It’s not a perfect form of electric generation but it is useful in a power supply portfolio in the right amounts that match when and how solar panels perform.
Rachel,
Can I make a suggestion regarding the question of fixed vs variable charges? Could you prepare a set of data series as follows?
-kWhs supplied for the heating season, for the last 10 or 15 years;
-kWhs supplied for the cooling season, for the same period;
-heating degree-days (degree days equal the actual temperature minus the standard temperature where heating isn’t needed, usually 65 degrees) for the heating season and same period; and
-cooling degree-days for the cooling season and same period.
This would help us (and you!) understand the extent of the need for insurance against unusually low annual power demand.
What do you think?
You clearly understand our industry well. 🙂 We do track degree days month over month and year over year. I don’t have 15 years of data handy. But, even if I did, it wouldn’t likely change anything with our current rate proposal. From a financial health perspective, we have to make sure the co-op is covering its costs every year regardless of the weather. Still, there will always be bad years and our lenders drop our worst year out of 3 when evaluating our credit worthiness. So, we are more likely to look at the last two years than the last 15. And, for this year in particular, we have to manage the fact that our Cherryland margins for last year were negative (over $1.5 million). That was driven by sluggish sales but just as much by the fact that our costs have gone up and our rates haven’t kept up. That’s why it is vital that we raise rates this year.
One thing that may be slipping through the cracks in this conversation is what happens when sales are robust – we are a not-for-profit cooperative. If we collect more than we need to in any given year, we return it back to our members in the form of capital credits. This is how we manage the opposite side of the insurance coin – good years = good capital credit returns to the members. But, this year, our members will have a negative allocation on their bills in June and we will book that negative allocation against future positive margins.
The last thing I will reiterate about this tension between fixed and variable charges is that it is our rate philosophy to recover fixed costs using a fixed charge. That isn’t really about insurance against bad years as much as it is about making sure all members pay their fair sure of the fixed costs of the cooperative. As fixed costs go up (which is where we see the most inflationary pressure right now), the fixed rate gets raised to cover those costs. As volumetric costs go up (most likely for us in future power supply market increases), the volumetric rate goes up. And, always, if we were to collect more than we need to pay our costs, we would return it to our members in capital credits.
Sorry for the long answer, but it’s a good question so I wanted to give it the attention it deserves.
Hi Rachel,
I’ve read most of the comments and I understand that you have addressed this suggestion already. However, I highly recommend increasing the energy charge more instead of the availability charge. I am suggesting this since “power supply” is the largest expense and increasing the energy charge should also encourage members to use less energy.
Also, has CEC increased the fees for new installs? (or fees in general)
The cost seemed low to me when I had the service installed 2+ years ago. I see that the wire cost has increased greatly in recent years.
Last, is CEC serious at encouraging members to invest in home solar? I don’t believe your current programs are very attractive to many. The credit per kWh seems low to me. Also, would CEC waive the availability charge if the system produces/sells XXX kWhs to CEC per year?
Thank you for taking time to answer each members questions or concerns.
Hi Ben,
I’ll answer your second two questions since they haven’t been answered elsewhere here.
(1) We have increased our new service fees, in fact new fees went into effect January 1 of this year. They were raised to reflect increases in our installation costs. The same inflationary pressures that are increasing the cost of system maintenance are at play in new service costs so we have adjusted our fees to reflect that.
(2) We offer 4 different solar programs/rates to support our members who want to install solar at their homes or businesses. Last year we added a new rate that is designed to allow net metering for larger arrays that are installed at commercial locations with larger electric loads. Our net metering rates are all designed to encourage members to size their array to their load – the greatest ROI is for the solar production they use on site which directly offsets our full retail rate which will go up with this rate increase. They receive a lower rate for excess solar they sell back to the grid because that sell back rate must compete with our average cost of wholesale power through our power supplier. And, that’s the balance we are trying to strike. If we can buy those kWhs for cheaper, we have to be cautious with a subsidy on the rate. Despite all this, what I hear from most solar installers who work with our members is that they still promise an attractive ROI on solar installs on our system which leads me to believe that our rates are not an impediment to that effort. Regarding waiving the availability charge for members with solar arrays on their home or business, that is counterintuitive to the role of the availability charge. The availability charge recovers fixed costs that the co-op incurs regardless of whether a location uses a single kWh. With net metering/solar members it is even more important that we get the availability charge right because they are generally purchasing less kWhs from the co-op because they are generating some on their own. Still, they choose to remain connected to the electric grid for reliability reasons and to keep their lights on when their solar array isn’t producing power and that means they have to pay the fixed costs to make power available when they need it.
Thanks for the questions, hope this information helps explain how all of our rates are interconnected with one another and our overall goal to simply avoid subsidization across rate classes and recover costs as fairly as possible, in the way they are incurred.
Hi Rachel – thank you for the detailed reply.
Question, can you tell me why pickup truck #72 was at Toms in Interlochen today around 11:30? It appears that an employee was using a CEC truck to shop for lunch? The worst case scenario would be that he drove the 8 miles round trip from the office to pickup his lunch. I am guessing my increase on availability charge was to cover the fuel for this personal trip for lunch today? Yes, I know this most likely wasn’t the case but it bugged me needless to say when I saw this today. Best case, the employee was near by and between service calls. I also understand the need to allow employees to use company vehicles to ensure quick responses to high priority calls. I hope and suggest the CEC has a policy in place to limit personal use of company vehicles.
Ben,
I used to work in Fire/EMS in this area, i recognize your name and I’m pretty sure you used to work for GT Rural Fire Dept. What is the difference if you take a fire truck or ambulance to the gas station to buy a coffee or soda pop and/or you use the apparatus to go to Tom’s to get lunch? As a Green Lake Twp. tax payer i could complain about that, but I don’t. Although I am flustered about the rate increase, I support my electric cooperative in this rate increase to allow them to proved a good quality service to their members.
-James
Hi Rachel & Board of Directors,
I hope you have a productive meeting on Tuesday and take into consideration all of the comments and suggestions you have received. I also hope you “think out of the box” to address this financial predicament. Unfortunately, I am unable to attend because of another commitment.
Based on the proposed rate and fee increases, it looks like our monthly bill will consist of 60% fixed/40% variable charges(seems backwards to me).
Thank you for all you do for the members.
Reduce the availability charge back to $15
Pay for what you use please.
While I understand the reasoning behind the proposed increase in fees and rates, and that said increases are not taken lightly, I feel like we are now starting to be priced out of power. Especially for low usage customers like myself, at 254 kWh/month average at my primary residence.
There are a multitude of factors that go into Cherryland’s expenses, and while I applaud the actions of reducing expenses, there must be more than can be done. The answer to the financial deficit cannot solely be a rate and fee increase, especially one that will tip the cost of energy over other options.
I’ve calculated the cost per kWh of a natural gas generator, Cherryland, and Consumers Energy. These calculations include and factor in any additional fees levied by the companies.
Existing Cherryland cost $0.2393 kWh
Existing Consumers Energy cost $0.2315 kWh
After rate increases from both companies
New Cherryland cost $0.2607 kWh
New Consumers Energy cost $0.2357 kWh
Cost of natural gas generator $0.246 kWh
Consumers Energy has the model of a per kWh distribution fee, alongside an $8 /month access fee. Shouldn’t Cherryland have the same model? Over half of my bill is the existing $28 availability fee, and after the increase, will be an even greater percentage.
I pride myself on energy efficiency and energy savings, but this fee disproportionately affects low-power users, instead of high-power users. While some costs are equal when it comes to the transmission, distribution, and maintenance of a power system, I do not believe that it is nearly to the cost of $32 /month per customer. Why does Consumers Energy charge an $8 “access” fee, and Cherryland is $28, or $32 availability fee?
I would suggest a per kWh model, like Consumers Energy’s. Their latest increase is nowhere near the cost that Cherryland is proposing.
I have multiple properties, including one that is being developed into a residence. With the continual rate and fee increases, I was planning on having that residence be mostly off grid with solar and a natural gas backup generator, but now I will be completely off grid. Why pay $32 a month to just have power available. I will not go into how uneconomic it is to sell back power to Cherryland from your own personal solar system, as that is another discussion entirely. I never thought that running a generator for my house would be cheaper than the grid.
Unfortunately, many customers probably do not have the land, resources, or capital to invest in an alternative energy source. They will be stuck with whatever increases are passed on.
TLDR summary,
-Rate and fee increase will push Cherryland well over the other electric utility in the area.
-Increase will affect low-power users more.
-It would be cheaper to run a natural gas generator for your power needs, if you are a low-power user.
-Increase is much higher than Consumers Energy rate increase.
Hi Marc-
Thank you for the detailed comment and analysis. You are correct that the difference in our rate structures affects the bill-to-bill comparison with Consumers. For my column, I used our average residential bill of 700kWh/month and at that level we are 10-20% lower than Consumers (before their rate change goes into effect). At 250kWh/month we are higher than Consumers. The reason is deceptively simple. Fixed cost allocation is deeply impacted by service territory density. The more meters a utility serves per mile of line, the more people that utility can spread that mile’s cost across. We serve about 12 meters/mile. Consumers is well above 20 meters/mile. Here locally, it looks like they serve very similar territory to us, but if you take into account the dense urban areas they serve statewide, they just have the advantage of spreading their fixed cost across more meters. That’s why we take so much pride in the competitiveness of our rates in comparison to theirs. Hope this helps explain things a little better. Thanks for the comment.