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The electric industry is complex, and most utilities don’t take the time to explain how your electric bill is calculated.  NEC’s pending rate case with the Arizona Corporation Commission (ACC) has been recommended for approval by the ACC staff, and is anticipated to be effective in May 2019.   NEC’s goal is to be transparent with its members, so the following information is designed to explain how a residential service is billed, and why NEC has made multiple adjustments to its rates through the ACC in recent years.

Electric service is billed in three components:

1) Service Availability Charge, which partially recovers the costs of having infrastructure in place     to allow energy to reach a member’s home or business

               2) Energy Charge, for the electricity used

3) Purchased Power Cost Adjustment (PCA), to pass through the actual cost of wholesale power purchased by NEC.

The Energy Charge, which historically has represented approximately 80% of the cost of a 1,000 kWh per month bill, will decrease for our residential members when this rate case is approved. The combination of the lower Energy Charge with a higher Service Availability Charge will result in the 1,000 kWh per month bill increasing only $6.43 from NEC’s 2012 rates, an increase of 5.26%.  

               

 

Service Availability

Energy Charge

 

2012

$19.50

$102.87

$122.37

2019, pending

$31.00

$  97.80

$128.80

 

So, while the Service Availability Charge in 2012 was $19.50, and the new rate adjustment will raise it to $31.00, when these two components of the billing rate are combined, the increase since 2012 is reasonable. In fact, a comparison of NEC’s pending rate, to some of the other electric utilities in Arizona, clearly shows that even with the highest Service Availability Charge in the state, NEC’s overall residential rate is lower than Arizona Public Service and virtually the same as Tucson Electric Power. [See Chart]

 

The Energy Charge per kWh represents the wholesale cost of power, plus a markup, to provide revenue to support operations and maintenance expenses, and historically, utilities have relied heavily on the Energy Charge. NEC is no different, and a significant portion of NEC’s operating revenue is derived from energy sales.  However, since 2008, NEC’s energy sales have decreased annually, and are down a total of 10%. Recognizing that this decrease in energy usage would not allow for sustainability of NEC operations, the NEC Board and management made the decision several years ago to increase the Service Availability Charge, in multiple increments over time, in an effort to stabilize revenues. 

Think of it this way – if 80% of your income was sales based, and 20% was fixed, decreases in your sales would have a significant impact on your ability to meet your financial obligations.  NEC is no different in that respect, so decreasing our reliance on energy sales, allows us to stabilize our revenues in order to meet our financial obligations and continue to provide services to our members.

Many of NEC’s members are seasonal residents, and use energy for only a portion of the year. Even when the seasonal members are not here, NEC must continue to maintain the entire electric system. As a result, the year round resident members are, in effect, subsidizing a larger share of the system maintenance costs. Consider this: when you buy a car, it’s available for you to use whenever you need it.  You only have to buy fuel when you want to drive it. The car is like NEC’s infrastructure to deliver power to homes and businesses: it’s there whether it’s used or not, and regardless of the energy used, we have to continue to maintain the entire system.

The PCA component of utility rates in Arizona, is designed to allow a utility to recover 100% of its total wholesale cost of power, which may fluctuate, contractually and based on the energy market.  A fixed amount of the wholesale cost is built into the Energy Charge, and when combined with the PCA, each member pays 100% of the wholesale cost of the energy they use. Consider this: If the wholesale cost built into the Energy Charge is $.08 and NEC is able to purchase power for $.075 cents, then the member receives that $.005 cents as a credit on their bill. If NEC has to purchase power for $.085, then the $.005 is added to their bill.

The total cost of power for NEC’s members was $30,618,373 in 2014.  NEC’s wholesale power contract in 2014 had cost escalators, which would have caused wholesale power cost to continue increasing each year, thereby increasing the cost passed through to the members. CEO Chuck Moore found an opportunity to negotiate an exit from that wholesale power contract and enter into a new one with a different provider, which allows better control of power costs.  NEC negotiated a reduced wholesale power cost for 2016 and the new contract went into effect in 2017. With NEC’s proactive approach to managing the opportunities for cost reductions in this new contract, the power costs in the first year dropped by $8.3 million, a 24% decrease.  The investment NEC made to secure these power cost savings was in the form of legal fees: in 2014 and 2015, NEC’s total legal fees were just over $3 million. The savings generated from negotiation of these contracts is returned to you, our members, through the PCA on your NEC bill.  For the example provided earlier with a 1,000 kWh per month bill, the PCA credit is currently $10 per month. The total PCA for NEC members for the last four years has been:

 

2015

2016

2017

2018

$7,041,613

($1,784,498)

($2,558,729)

($2,849,812)

 

The charge to the members in 2015 was over $7 million, which was paid directly to our previous power supplier. In just one year under the new contract, the swing from the 2015 charge, to the 2016 credit was $8.8 million!  Not a bad return on a two year investment of $3 million.

Back to the example of the total bill for 1,000 kWh per month: with the new Service Availability Charge, the lower energy charge, and the PCA credit, an NEC member’s bill, under the new pending rates, will actually be lower than it was in 2012, by $26.82, a decrease of 18%.

                               

 

Service Availability

Energy Charge

PCA

Total

2012

$19.50

$102.87

$23.25

$145.62

2019, pending

$31.00

$  97.80

($10.00)

$118.80

 

CEO, Chuck Moore is extremely proud of NEC’s Board, management, and employees for their contributing efforts that allows NEC to keep these significant amounts of money in our communities.

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