Rate Case FAQ

GENERAL

What is the difference between Customer Charges and Energy Charges?

The energy charges are a direct pass-through for MEC. It is not marked up or adjusted. MEC is required to provide proof to the ACC that the costs they show are true and accurate. The Customer Charge is the only way for MEC to pay for their fixed costs. The fixed costs include infrastructure, maintenance, vehicles, equipment and more.

Does this rate change for costs already incurred or future costs?

Rate cases are only allowed to collect on costs already incurred by the utility as demonstrated in the most recent audited test year. They do not cover future costs. MEC has expended nearly $45 million over ten years for electrical improvements, cybersecurity, safety, and maintenance to ensure annual growth and increased load is met with reliable electric service for our members.

How does MEC compare with other electrical utilities for costs and rates?

This past year MEC was ranked 801 of 815, positioning MEC in the top 2% for being the best at holding down operating costs nationwide, and in Arizona MEC ranked the lowest in controllable expense costs to members (11 of 11).

Currently, MEC has the second lowest Customer Charge, and total monthly cost, compared to other member-owned electric providers in Arizona. With the proposed rate case, while the Customer Charge increases, the overall total cost drops, and MEC remains lowest in the state among member-owned cooperatives.

The average member uses 959 kWh of power per month. Currently, with MEC, that will cost $102.14. Under the new rates and charges, that would cost $99.10. So, let’s compare that to other electrical investor-owned utilities in the area.

For Unisource, the cost would be $121.59. For Nevada Energy it’s $132.58 and if you had APS the cost would be $145.07.

MEC is member-owned and works diligently to keep costs as low as possible for our members.

What all does the Customer Charge pay for?

The Customer Charge is the only part of your electric bill that goes to MEC.  The energy charges (kWh) are a passthrough for MEC to pay our wholesale power providers for the electricity and transmission purchased. The Customer Charge is the only method allowed by the ACC to collect or cover all the direct expenses for the cooperative including operations, maintenance, equipment, taxes, payroll, vehicles etc. As a not-for-profit, MEC does not make a profit or pay shareholders dividends or earnings. To qualify for the lowest interest rates possible, MEC is required by our lenders to bring in slightly more income than expenses to demonstrate our ability to collect sufficient revenues to make our payments and to provide for a very small margin for emergencies (unforeseen expenditures). To the extent that MEC does end up with positive margins at the end of the year, those margins are allocated to the members in the form of Capital Credits.

What changes would I see on my bill if the rates are approved?

Currently residential customers pay for energy on a tiered rate based on usage – the higher your usage is, the higher tier you shift to and the higher rates you will pay. That won’t change except that the rates in each tier are coming down. What will increase is the Customer Charge. This charge is currently a monthly charge of $18.75 for residential members. If the Rate Case is approved, it will move to $24.31.

Why should MEC raise the Customer Charge?

In the past 10 years, MEC has spent nearly $45 million in improvements just in the infrastructure to ensure load growth and reliability. Additionally, MEC has allocated an additional $2.9 million in IT security infrastructure including cybersecurity. These are fixed costs that need to be recovered. This increase in the Customer Charge is to recover those additional fixed costs.

Didn’t we just have a rate hike?

The last rate increase was in 2012 after a Cost of Service Study showed that fixed costs and energy costs needed adjustment. The Arizona Corporation Commission approved an adjustment, but not the requested adjustment causing a shortfall in covering the full costs of service over time. Again in 2016 after a Cost of Service Study, MEC adjusted the Customer Charge to reflect the true fixed costs by decoupling fixed costs that were in the energy rate and moving them to the Customer Charge, so every member paid their fair share of fixed costs regardless of the energy usage. The Customer Charge went up and the energy charge went down in accordance with that change.

Why are new rates needed?

Costs everywhere are rising including the costs on electrical materials which has caused our costs to rise and budget margins to drop below 1%. We didn’t want to change rates during COVID-19, and when we completed a Cost of Service Study, the results showed that the fixed costs (Customer Charge) and energy costs needed adjustment.

SOLAR

Don’t members with solar reduce MEC’s fixed costs?

No. They do reduce the energy load, but only when solar is producing. At night and during cloudy times, solar isn’t producing, and solar members still rely on the transmission lines, poles, equipment and more. Those are the fixed costs included in the Customer Charge.

How does this affect members who have solar?

Our members who have solar are impacted the same as those without. Whether you are residential or commercial, the customer charge will change, and the rates will change, but there are no proposed changes to the solar tariffs.

BUSINESS

How will this affect my large business?

The Cost of Service Study showed that large commercial and industrial members do not need an increase in their Customer Charge and like all members will receive a reduction in their energy rate. The average large business member uses 61,131 kWh per month, and with the proposed rate changes will save approx. $375 per month.

How will this affect my small business?

The proposal is for the small commercial business Customer Charge to be raised from 23.75 to 34.58, however, the rate per kWh to drop from $0.103487 to $0.096777. What does that mean? The $10.83 increase in the Customer Charge will be offset when a small business uses about 1,600 KWH in a month. The average small commercial member used 953 kWh per month last year, so that would mean the business’ Customer Charge increase of $10.83 would be somewhat offset by the $6.39 decrease in energy costs resulting in an increase of $4.44 for an average month.

Historically, the Customer Charge for small business has been very low - roughly the same as a residential member, meaning the charges have been less than equitable. The proposed rate case brings small businesses closer to paying their fair share.