In 2017, eggs cost $1.47 per dozen, a gallon of gas in Wisconsin was $2.36, and the average cost of a new vehicle was $36,113 (a record high at the time). As of January 2023, according to the Consumer Price Index, eggs cost $4.82 per dozen. AAA Wisconsin reports the average price for a gallon of gas last month was $3.22. And according to Kelley Blue Book, the average new vehicle in December of 2022 cost nearly $50,000. It’s no surprise that many Wisconsinites are feeling the consequences of higher costs, and the last thing they want is an increase in their electric bill.
“Our co-ops serve mainly rural areas, including many people on fixed incomes who can ill-afford more increased costs,” said Steve Freese, Wisconsin Electric Cooperative Association (WECA) president and CEO. “This is a good time to be a member of an electric co-op, where funds pay for operations, not profits.”
The year 2017 was also the last time Clark Electric Cooperative implemented a rate change. Electric cooperatives, governed by members, are not-for-profit entities that work to adhere to members’ needs. Driven by community oversight, co-ops operate as efficiently as possible, return extra funds to the member-owners, and seek cost-cutting measures before considering rate changes or fee increases. As a result, all of Wisconsin’s electric co-ops have worked to avoid passing mounting cost increases on to members, many, like Clark Electric, going years without rate changes—until now.
“Almost every segment of the electric industry has been dramatically affected by supply-chain, regulatory, and inflationary pressures,” Tim Stewart, Clark Electric CEO and general manager explained. “We are seeing lead times extend and prices escalate. We have seen dramatic increases in material costs that include a doubling of transformer costs, over 30% increase in cable costs, 57% in pole costs, and 90% increase in conduit costs.”
After holding steady for six years without rate changes, as of March 1, 2023, Clark Electric raised its base facility charge by $6 per month, increasing revenues by 2.81%, and they are not alone. Almost every Wisconsin electric cooperative has exhausted other cost-cutting measures and is now looking to raise revenue through rate changes if it hasn’t already.
“It’s the last thing co-ops want to do, but they know members depend on them for reliable energy, including prompt power restoration after storms like the one we had in late December,” Freese said. “It’s a careful balance between frugality and maintaining an operation that ensures reliability.”
Another key factor affecting residential electric bills is the increasing cost of wholesale power, the single largest expense for electric cooperatives by far.
“In 2022, we saw our power cost increase 6.6% from 2021. We are expecting a continued increase in 2023.” Stewart said.
This cost is often partially offset by a fluctuating power cost adjustment (PCA) on member bills, but co-ops also work to minimize that.
“To offset the power cost adjustment to members, the board approved to utilize $400,000 from a fund that was set aside for future rate relief, such as the PCA,” said Oakdale CEO and General Manager Chris Tackmann. “So given the example of 1,000 kWh per month, the member saw a $10.82 PCA instead of $24.60.” Oakdale did not increase rates or fees this year, but Tackmann expects there will be an increase in 2024.
Last year, Vernon Electric Cooperative was able to absorb $250,000 in increased wholesale power costs, but not this year. So, like Clark, Vernon is now increasing its facility charge by $6, which equates to a 3.7% increase in revenue.
“Due to the significant cost of materials, raising the base facility charge for each rate class was the fairest way to meet the needs of the budget,” Craig Buros, CEO and general manager of Vernon Electric, explained. “The monthly facility charge covers your share of expenses to purchase, build, and maintain power lines, substations, and equipment to ensure the availability of power on your property. All members pay this basic electric charge for each electric account each month, regardless of energy used, therefore sharing the cost of the electric system.”
While no one likes to pay more for their electric bill, co-op members have reason to be a little less “i-rate,” as the increases co-ops seek are generally nominal compared to energy price hikes nationwide and Wisconsin investor-owned utility increases. According to the U.S. Energy Information Administration, residential electricity prices increased 3.8% in 2021, 10.7% in 2022, and another expected 3.2% increase in 2023.
Wisconsin’s largest investor-owned utilities have raised rates, sometimes by double digits. In December 2022, the Public Service Commission of Wisconsin approved a rate hike of 11% for We Energies residential customers and a 9% rate increase for Wisconsin Public Service, less than the utilities requested. Alliant Energy implemented a 6.8% increase effective January 1, 2023. And they’re not done.
Tom Content, executive director for Wisconsin’s Citizens Utility Board, recently warned, “Our expectation is that all five (investor-owned) utilities will be back in front of the PSC, looking for increases that would take effect in January 2024.”
While pandemic-related supply-chain issues, labor market challenges, cost of materials, and wholesale power prices are critical drivers of cost increases, policy-related issues are also factors.
Both Alliant Energy, which sells wholesale power to some Wisconsin co-ops, and We Energy Group cited clean energy investments in their rate increase requests to the PSC. For example, Alliant said it needed a rate hike to cover the cost of investing nearly $1 billion in solar generation to replace two coal-fired plants. We Energy Group, the parent company of We Energies and WPS, said the increases were needed in part to fund their transition to solar and other renewable energy resources. However, they expect the investments to save money in the long run.
“We are living in a world where we are moving away from reliable and predictable generation to more intermittent sources. The cost of energy will follow the basic laws of supply and demand,” said Nate Boettcher, president and CEO of Pierce Pepin Cooperative Services, which has so far managed increased costs with a lower budgeted margin and by utilizing deferred revenue.
Image courtesy of NRECA.
In allowing We Energies and WPS to raise rates, the PSC ordered them to reduce profit margins from 10% to 9.8%, or $46 million over two years. Electric cooperatives members don’t pay shareholder profits, as co-ops are not-for-profit. However, co-op operating costs are higher, as they serve mainly rural areas, with more miles of lines to build and service between accounts.
For co-op members facing higher electric bills while already struggling with cost increases seemingly at every turn, co-op leaders want them to know—they get it.
“We completely understand that inflation has had an impact on every member of our cooperative,” said Jesse Singerhouse, general manager and CEO of Dunn Energy Cooperative, which had a rate change on January 1, 2023. “I want our members to know that we are doing everything we can to keep costs in line and still deliver reliable power to their homes, farms, or businesses. Since we are a cooperative, our mission is our members, so we will keep focusing on them and do our best to minimize rate increases. And we’re here to help if you need it. We offer energy audits, rebates on more efficient appliances, and budget billing to help level your energy bills. We can also direct you to energy assistance programs. We serve our community—our friends and neighbors—and we are here for you.”—Julie Lund