Minimum Charge Provision

July 2005

Up until last month, all of our rate schedules included a provision for an annual minimum charge. The large majority of you have never been affected by the minimum charge provision as even a relatively small user of electricity will purchase more than the minimum requirement.

The minimum charge provision was a rather complicated calculation that could affect you in one of three different ways. You had a minimum usage requirement based on:

  1. The transformer size serving your account,
  2. The length of tap line serving only your account; and
  3. The original investment required by the Cooperative to serve your account.

Recently, your board of directors amended our rate schedules to eliminate the minimum charge based on either transformer capacity or length of tap line. The only minimum charge remaining on our rate schedules is that which is based on our investment to serve a new account. We require a new account to be subject to an annual minimum purchase requirement for the first five years after we have made service available. The annual minimum requirement is $800 for a single-phase account and $1,600 for a three-phase account. This gives the Cooperative some protection from someone asking us to make an investment in a line extension and then elect not to purchase electricity at that particular site. Clearly, the requirement is much less than is typically used, and it is not common that a new account is impacted by this provision.

The transformer and tap length minimums also were in place to help ensure that the Cooperative would recover investments to serve specific accounts. However, in recent years, we have increased the monthly facility charge, which actually serves the same purpose. Also, we have tightened our Line Extension Policy limiting the amount the Cooperative will spend on a new account to $4,000 for single-phase service and $8,000 for three-phase service. Any cost over this amount is paid by the owner. This again protects the Cooperative from installing long expensive line extensions which never can be recovered through normal sales of electricity.

The vast majority of Nodak’s service area is rural. Almost all of this rural area is declining in number of active accounts. When we extend lines to a new account, it is seldom that the investment will be useful for a second or third service in the future. On this basis, it is necessary to make sure we do not spend more to serve a new account than can possibly be recovered over time through the sale of electricity. In this regard, we try to deal with the issue up front at the time the line extension is made. One of the results is that we feel comfortable eliminating the use of minimum charges after five years of continuous service.