Understanding Your Electric Bill: August 2022
Wheat Belt’s cash budget is roughly $23 million dollars annually. This $23 million is comprised of the following:
- Wholesale Power Cost - $13.5 million (59%)
- General Electrical Plant Maintenance (current) - $2.8 million (12%)
- Investment in Electrical Plant (future) - $3.9 million (17%)
- Administration - $2.8 million (12%)
As a public power district, we are a subsidiary of the state of Nebraska. Therefore, we operate independently as a non-profit organization governed by our seven-member board of directors who are elected via ballot in the general elections. As a subsidiary of the state, we are a public owned entity that does not have investors to satisfy – this is how we can keep rates as low as possible. Essentially the rates you pay go to wholesale cost of power, general electrical plant maintenance, investment in the electrical plant, and administration. It is the board of director’s and management’s job to ensure the district is being a good steward of your money – for ratepayers today and in the future.
Typically, each year we start the budget cycle which begins in August and ends in December. We consider large impacts to the budget such as changes to wholesale power costs, planned improvements to the electrical system and wages (these three items make up 83% of our cash budget). From there we spend time developing a budget based on historical spend, known changes and inflation.
This year, we are implementing a new budget process. One that builds from the bottom up, as opposed to a top-down approach. Power costs, investments to the electrical system and wages will continue to be our largest budget items. However, a bottoms-up approach will force us to look at expenses differently through justifying expenses rather than continuing to budget for something because we always have.
Our mission is to deliver electricity safely, reliably, and efficiently. This is one way we can analyze our efficiency and really look at how we are spending each dollar you send our way by being good stewards of your money.
A lot has changed at Wheat Belt in the past few years. We have several new faces on the Board of Directors. We have a new general manager, and we went from five senior manager positions to four senior manager positions (of the four, two are new to that role). With changes, we look at things differently…we have to because we are learning every day, asking questions, and seeking understanding.
Here's one thing we have learned: over a decade ago we had a lot of money in the bank…you could argue too much. So, to keep rates as low as possible we intentionally started to spend down our cash reserves. We did so effectively, spending our cash down to the minimum threshold per board policy. Once there, we adjusted rates slightly (2018 and 2021 rate increases totaling a 4% compounded rate increase). However, rates continue to be subsidized, meaning that over the past few years we have been borrowing more money to cover our capital purchases. What this means is customers 20-30 years from now will be paying for current customers’ share of today’s electric service. This is a decent short-term strategy, especially since interest rates were so low, however this is not a sustainable long-term strategy. Which brings us to the next point – Cost of Service.
Cost of Service
A cost-of-service study uses data such as energy usage, wholesale power costs, operating expenses, financial statements, installed electrical plant and forecasted information to guide rate design. The data is placed into a model and financial metrics (debt service coverage, times interest earned ratio, equity as a percent of assets, cash reserves, etc.) are used as levers to design rates. Once the data runs through the model and the Wheat Belt Board of Directors and management has provided the targeted financial metrics, the cost-of-service analysis is prepared (calculating the cost of service for the type of retail rate – small power, commercial, irrigation, etc.). From there, rates are designed and presented for review and approved by the Wheat Belt Board of Directors.
In September, we will be digging into wholesale power costs. Stay tuned to learn more.
Wheat Belt’s wholesale power supplier is Tri-State Generation and Transmission headquartered in Westminster, CO. In the corresponding graph, you will note that our power consumption (kilowatt hours) triples in the peak summer month compared to our lowest winter month. Our customers drive wholesale power costs by how much energy is consumed and when it is consumed (power is less expensive at night and in the morning).
Last month we told you our wholesale power costs are about $13.5M/year. There are two components of this bill:
- Demand (kilowatts) – the amount of energy required at any point in time. Think about the size of transformers, some are small and some are large. Accounts for 46% of the wholesale power bill.
- Energy (kilowatt hours) – cumulated kilowatts consumed over time. Accounts for 54% of the wholesale power bill.
Not all energy costs the same. At night and early in the morning energy is less expensive because there is much less demand. Wheat Belt has some time-of-use rates where consumers are in control of their electricity cost based on when energy is consumed.
On average, irrigation customers on time-of-use save $3,100/meter each irrigation season. Call our office to learn more.