First Rate Increase Since 1989

South Kentucky RECC Approved for First Rate Hike Since 1989
After holding electric rates steady for 17 years, South Kentucky RECC has been approved for a rate increase from the Kentucky Public Service Commission (PSC).

South Kentucky RECC residential rates will increase from $.06111 per kilowatt hour to $.06445 and the monthly consumer charge will now be $8 per month - an overall residential rate increase of about 8.4%, keeping with the assurance SKRECC CEO Allen Anderson made earlier that the increase would only be a single-digit increase.

The rate adjustment will begin appearing on members' electric bills in October, since it went into effect on September 1. This increase marks South Kentucky RECC's first increase in rates since 1989.

"Filing for a rate increase was an extensive and very demanding process," Anderson explained. "We had to compile a great deal of information-have our records and books audited, do a cost-of-service study that looks at every type of electric account we have, such as residential, commercial, industrial] and what our exact costs are for servicing them, and make sure what our margin needed to be on each type of sale."

Margins are required by the co-op's primary lending agency, the federal Rural Utilities Service (RUS, formerly known as REA). Co-ops like South Kentucky RECC are required to generate enough margins to service the debt requirements and to have sufficient operating capital for day-to-day operations.

"South Kentucky RECC and its employees do all they can to operate as efficiently as possible and have delayed the need for an increase as long as we could and still meet our debt obligations. Inflation has caught up with us, making this small increase necessary."

"Having a rate increase is one thing we always try to avoid, because we know that it impacts our members and our employees, as well," said Anderson.

In fact, the co-op avoided it for 17 years, but it is not an exaggeration to say that during that time every single expense and cost of doing business for the co-op has increased significantly-in some cases, many times over.

However, what is really important for South Kentucky RECC members to understand is that 83 percent of the company's expenditures are basically fixed costs, which include debt service and-the big one-the cost of purchased (or wholesale) power. Since the co-op does not generate electric power itself, it has to purchase the power for its members (customers). The source for South Kentucky RECC's electricity is East Kentucky Power Cooperative (EKPC), a generation and transmission (G & T) co-op that is owned by South Kentucky RECC and 15 other rural electric cooperatives in the state.

EKPC must remain solvent, meet state and federal standards, including required environmental regulations, and fulfill its obligations to its member cooperatives. From buying fuel (primarily coal from eastern Kentucky) to generating power to transmitting it to substations that serve the member co-ops, it is a large and costly operation.

The remainder of SKRECC's costs, the portion over which South Kentucky RECC can exercise more control, is on the delivery side: getting power to its members. That means line construction, right-of-way clearing, maintenance and repairs, equipment and labor, member services (office and accounting personnel, field technicians, etc.), and administration, among other costs.

In other words, South Kentucky RECC must balance its members' demands for a reliable, high-quality electric system against their desire for low electric rates. It's a constant dynamic for a company that is owned by its customers (and most of whose employees are members themselves).

"We don't want to sacrifice the advances we have made," said Anderson. "We have developed a good system that uses modern technology to make sure the electricity is there for the member when they need it, and that when we have to respond to outage problems, we can get the work done quickly. People depend on that system and expect it to perform - as they should!"

Help Easing the Transition
By any measure, it has been a great accomplishment for South Kentucky RECC to keep its rates in check since 1989.

Growth has been a main contributor to that record. Many of the communities served by South Kentucky RECC have experienced an increase in population and, to some extent, commerce and industry. While it costs more money to serve more people, the co-op's average density-the number of customers per mile of line-has increased, which lowers per-capita overhead costs.

"But there's been a slowing of growth since 9/11," Anderson observed, "and overall we've had really mild winters and mild summers, which affects sales."

These trends affected our financial condition enough to require a rate increase. And as Anderson points out, "We'd rather start the process now, and hopefully have a milder impact than if we delayed and delayed and then had to ask for a larger amount."

It is important to know that, South Kentucky RECC offers an array of programs that can help members manage their energy costs. These include energy-efficiency programs, such as Button-Up, Tune-Up, and home energy audits that have helped hundreds of members reduce electricity consumption and save money.

The co-op also offers a levelized billing option, which will assist members when budgeting for their electricity costs.

Members can call South Kentucky RECC to learn more about these and other opportunities to save money and perhaps increase the value of their homes.

It's also worth remembering that electricity remains a good deal especially in Kentucky, which has lower average electric rates than any other state except West Virginia and Idaho.

"We're very proud to have gone from 1989 until now without raising our rates," said Anderson. "I hope the membership will be appreciative of this time that we've been able to hold rates steady, and have confidence that it will always be our top priority to properly balance providing reliable electric service, while keeping costs as low as possible.