At CHELCO, we are always looking for ways to ensure your electric service remains safe, reliable, and affordable. Recently, we completed a comprehensive cost-of-service study (COSS), which plays a key role in determining our members’ rates. Let’s dive into what this study means for you and why it matters.
What is a Cost-of-Service Study?
A cost-of-service study (COSS) is an analysis performed by co-op finance staff and external consultants to determine the true cost of serving members. It allows us to assess our rate structure by identifying what each rate class (residential, commercial, large power) contributes to the system’s overall costs. Essentially, it answers the question: “What does it cost to serve each type of member?”
Our goal in completing a COSS is simple: to ensure rates fairly reflect the costs of service so that subsidies between classes are minimized or eliminated.
What Factors are Considered in a COSS?
A COSS examines several factors that shape the overall rate structure for a cooperative. The study uses information about the costs required to deliver electric service to our members, including what it costs to build the infrastructure that delivers electricity to your home or place of business.
Then, we must examine what it takes to maintain that system, including having the resources available to restore power when the lights go out. We also analyze when members use kilowatt-hours or place demand on the system to understand the drivers of our wholesale power costs.
All of this plays a part in determining how we allocate costs across the membership.
Why does the COSS Matter?
Rates are designed not only to cover expenses but also to fund capital expenditures and the payment of capital credits. As a cooperative, CHELCO allocates margins to its members but retains those funds to help offset borrowing.
This helps keep rates lower by reducing interest expenses, but in time, margins are returned to members. This process is known as a capital credit retirement. Current rates must be designed to fund the retirement of those credits—that’s what makes us a cooperative!
Benefits of Cost-Based Rates
Implementing cost-based rates, determined through the COSS, ensures fairness in the way we charge for electricity. If rates don’t reflect actual costs, future members bear the burden through added debt and interest expenses. Recovering costs in the year they occur is fair to all members.
The Bottom Line
Ultimately, the cost-of-service study is an essential tool for designing fair and equitable rates while promoting long-term reliability and affordability.
At CHELCO, we take great pride in the trust and responsibility that you, our members, have given us. That’s why we strive to make sure our rates are affordable, fair, and transparent. The COSS is one of the many ways we work toward that goal.
With our study complete, we’re reviewing expert recommendations to ensure rates remain fair to all members. If any changes arise, you’ll hear from us first.
Thank you for your membership and for your continued trust in our cooperative.
Proud to be CHELCO!
