Results of the 2021 Cost of Service Study, by Loren Howard
Last month, this Newsboy column reviewed at a very general level how a cost of service study is performed. This month we are diving into the details of the study. Please understand there is no way to review the intimate details of the study, but this is a review of a portion of the final results. The study used the financial information from 2020 to establish a baseline.

The above chart shows the actual revenue collected by rate class in 2020 and then, also shows what should have been collected by rate class in 2020. There is one exception which is that Schedule A included both residential and some small commercial accounts during all of 2020 but the study broke those accounts out separately. Starting in 2022, there will be a separate rate class for these small (Schedule A) commercial accounts. As you can see, some rate classes under-collected the revenue required and others over-collected. This is referred to as “cross class subsidization.” One of the main reasons for performing cost of service studies is to reduce, if not eliminate, these subsidies between rate classes. To that extent, future changes in REC’s rates will work toward reducing those subsidies.
The second chart from the study (pictured below) breaks out the elements of providing electricity including capacity, energy and consumer cost for both power supply and distribution. In general, capacity costs are fixed costs and revenue to cover these costs is collected through demand charges, i.e. kilowatts. Energy is collected through the energy portion of the bill, i.e. kilowatt-hours. Consumer costs are collected through the customer charge.

The bottom line with this study, as it was with the 2018 cost of service study, REC does not need a rate increase in 2022. That does not mean that the rates implemented in 2022 will not impact your bill.  It means that any rate changes implemented will be revenue neutral to the REC if electric consumption usage patterns remain the same. The REC Board of Directors considers revisions in the design of each of the rates in an ongoing effort to reduce cross-class and inter-class subsidies.
The cost of service study was presented to the Board of Directors at the August meeting and further reviewed at the September meeting. Changes in any of the rates is expected to be approved at the October meeting with implementation sometime after January 2022.