By: Tom Sobeck, PIE&G President & CEO
At their recent member regulation special meeting held on March 28, the board of directors acted upon management’s recommendation for the need to increase electric rates. A review of the cooperative’s financial performance from 2022 indicated the need to increase rates by approximately $3.7 million. We realize that’s a big number, and the increase will be distributed among all rate classes.
The cost of electricity continues to climb due to several factors, including increased costs of materials and generation. The most noticeable change in rates for residential members will be an increase of $6 on the monthly availability charge. The last increase in this charge was in 2013. This charge is often misunderstood, but it does provide a fair and equitable method to recover our costs from every member receiving service. The cost to deliver electricity to a meter in northeast Michigan has nothing to do with the amount of electricity delivered or used by members. Rather, it represents the costs of maintaining and operating the distribution system. That includes annual tree trimming, system maintenance, outage response and restoration, wages, and, yes, technology and infrastructure improvements. Nobody likes to talk about rising costs and rates, yet it is an unavoidable fact of doing business. All businesses strive to balance competing interests of setting a fair price for goods and services against the true costs of providing a consistent, quality product or service. Our industry is no different. Costs do increase, and performing routine maintenance to meet both reliability standards and member expectations is always the most difficult challenge we undertake. Allocating the increase via the monthly availability charge ensures two goals: It provides an equitable division of operational costs to deliver reliable service, and it establishes a stable, consistent cash flow to operations.
Regarding the first goal, PIE&G’s costs to provide services are not associated with our energy sales. That is why the monthly availability charge paid by everyone provides the fairest way to recover these costs. The availability charge is equitable because the cost to serve each meter point is the same, regardless of the amount of energy used. Thus, all members should pay their proportionate share of the co-op’s costs to deliver electricity. Regarding the second goal, the monthly availability charge provides a stabilized cash flow throughout the year, regardless of sales volume (the amount of energy sold). This allows the co-op to meet its financial obligations and provides consistency in operations.
It’s important that our members understand and acknowledge the importance of our recent investments to replace our inadequate 65-year-old building with the new headquarters facility and modernize our distribution system with Advanced Metering Infrastructure (AMI) technology. Together, these state-of-the-art improvements projects totaled approximately $30 million. No business can make needed investments of this nature without affecting the rates charged to consumers. At the same time, a utility cannot increase efficiency and reliability of service without making these crucial investments. The decision was uncomfortable, but leadership at PIE&G believes the choice is clear—an increase in rates is prudent and reasonable to achieve both reliability of service and long-term affordability. I respect our board of directors for its courage and commitment to the future viability of our cooperative.
As always, please contact with me directly with any questions or concerns. I’m happy to discuss them with you.