PPEC makes plans for a cost of service study

George Carter

The Cost-of-Service Study (COSS) is used to determine the cost to provide service to members, which is further broken down into four main categories: purchased power, operational and maintenance expenses, depreciation, and taxes.

Purchased power is the cost for electricity bought from Buckeye Power, PPEC’s wholesale power supplier. Operational and maintenance expenses are things like repairs to poles and wires, salaries and benefits for employees, truck and vehicle maintenance, and other expenses needed to operate the cooperative. These are referred to as “controllable expenses” because management and the board of trustees can control if, when, and how these costs are incurred. The other expenses (power cost, depreciation, and taxes) are called “fixed expenses” because they are going to be incurred regardless, and the board and management have little control over them.

PPEC’s board, management, and employees work hard to control costs because they know how those costs impact members’ bills. The chart above shows PPEC’s controllable costs are nearly one-half of other utilities’ controllable costs.

As PPEC starts the COSS project, members can rest assured knowing the cost to provide your service is as low as possible, and that PPEC takes the responsibility of providing competitive service very seriously.

 Members are divided into rate classes, or types of service. Residential homes are a separate class from large industrial users; outdoor lighting is separate from livestock facilities. Rate classes are designed by the way power is used, so users in a rate class are all very similar. The following are typical rate classes: residential, small, single-phase commercial, large, three-phase commercial, and industrial and outdoor lighting.

Every three to five years, the cooperative undertakes a COSS to ensure all ratepayers are treated fairly. As costs change, the rates must be updated to ensure every type of member is paying the appropriate rate and that subsidies between rate classes are minimalized. PPEC uses the COSS to better understand how the rates are performing and if changes or increases in rates are needed.

The COSS is an important tool to ensure proper rates are charged. The cooperative never likes to increase member rates, and while PPEC continues to have low, competitive rates throughout our service territory, future rate increases seem to be inevitable. The COSS will assist the board and management on the potential for rate increases as the 2018 budget preparation process approaches.