Undoubtedly, the most unappreciated and misunderstood part of anyone’s electric bill is the facility charge, the monthly fee that is there no matter how much electricity we use. From a rate perspective, it’s one of the most frequent things we get questioned about, so I thought I would use my space here to shed some light on this part of your monthly bill.
There are two basic components to most power bills – the fixed monthly charges and the charges that vary with how much electricity you use. Facility charges are the fixed part of the rate that is there to help ensure equity among ratepayers. If you think about your own property – whether it is a house, farm or business – you will realize that for each of them Nodak has made a significant investment to bring power to that location.
In addition to these site-specific investments to bring power to your home or business, there are also investments needed to serve everyone and are shared by the entire system. All this initial infrastructure cost must be somehow recovered in our rates and be constantly maintained to provide safe, reliable power to our members.
In addition to the electric infrastructure investment, there are a whole host of expenses we incur that have nothing to do with how much electricity each member uses. One very simple example: at the end of each month, we read your meter, calculate and audit your bill, and have it printed and mailed to each consumer. This is a relatively small cost, but illustrates that with some expenses, regardless of how much electricity you use, it costs approximately the same to perform this function for all members in each rate class. Because of this, we include those expenses in the facility charge for each of those rate classes.
If we didn’t include these costs in the facility charge, they would have to be included in the cost of power so Nodak could bring in the proper amount of revenue each month. If we used that approach, the average energy user would pay about the same as they do now, while those who use very little electricity would pay significantly less than their share of the fixed costs of operating the business, and large users would end up paying many, many times more than their fair share of those costs.
I like to think of it in terms of billing you for the power cost in one part of your bill and billing you for what it costs us to deliver the power in another area. The facility charge is meant to cover what it costs to deliver the power to you, and the rest of the charges are meant to cover the cost of the electricity we purchase on your behalf.
Obviously, the cost to deliver power to members can vary significantly. In high-density urban areas, we typically have multiple accounts fed off the same transformer, and we use much less distribution line per metering point than we would for a rural account that has its own transformer and significantly more dedicated distribution facilities. Conversely, some of our largest accounts have an entire substation dedicated to a single account because they have such large power requirements. For this reason, we have different monthly facility charges for the various rate classes based on the cost we incur to deliver power to members of that rate class, independent of how much power is consumed.
Consequently, urban accounts pay a lower monthly fee than rural accounts do, while commercial accounts require a higher monthly fee due to the more expensive metering and large transformers required for those accounts. All this is done in an attempt to bill each rate class an amount closely resembling what it costs to serve that particular rate class.
Hopefully, you can see that a lot goes into designing rates that are both fair and equitable among our members and between different rate classes. Nobody really likes the facility charge, but it is necessary to ensure we have rate equity.