Rate classes – What are they and why have them?

By Loren Howard

Electricity and its supply often seem to consumers of electricity a mysterious and sometimes frustrating commodity. It is mostly forgotten about or taken for granted until it is not available, but when the monthly bill arrives, it can be quickly the center of attention for a while. However, electricity is truly one commodity that provides enormous improvements in quality of life, life longevity and ease of everyday life. If it weren’t for that darn monthly bill, electricity would be great, but understanding that monthly bill seems impossible. Generating and delivering electricity is not a trivial process and fairly allocating the cost of delivering electricity also is not trivial. One component in the process of creating electric rates is the creation of customer classes. REC has different rates of residential members, small commercial members, large commercial members and irrigators. So why are there classes of customers?

In a perfect world, every consumer of electricity would have their own individual rate. Why? Well, virtually every REC member, for that matter almost every electric consumer, has a different situation. Thinking of just residential consumers— there are large homes, small homes, homes that use electricity for heating and homes that do not, homes 100 feet from the power line in the alley, homes a half-mile away from the power line and on and on. Having an individual rate for every electric consumer is not practicable. So, when designing rates, electric companies have grouped consumers of electricity into rate classes where the consumption of electricity has similar patterns. These rate classes are then used when allocating the cost of providing electricity.

REC has the following rate classes: residential, small commercial, large commercial, irrigation, seasonal and a few other smaller classes. When conducting a study of allocating costs these rate classes with similar electric usage patterns permit rate designs that fairly allocate the cost of providing electricity. REC regularly evaluates the existing rate classes and, if appropriate, creates or eliminates rate classes based on usage patterns.

In the next few issues of the Newsboy, each of these rate classes will be discussed in more detail.