Power Rate Questions and Answers
Power Rates can be complicated to understand. In essence the power bill has two main components, one rate component covers the cost of power (hydro or diesel fuel). The other rate component could be called the facility rate. That portion of the overall rate covers operating costs, and investments in poles, generation and all other plant equipment in service that is used, directly or indirectly, to generate electricity. For the sake of these examples, we assume each rate component makes up half of a power bill.
Here are a few Questions and Answers to help further clarify power rates:
Who sets the rate for power utility companies?
The Regulatory Commission of Alaska (RCA) determines rates (both the cost of power and the facility rate) deemed just and reasonable based on the public record established during rate case testimony and hearings. AP&T may not adjust or change rates without regulatory approval and review.
How often are rate reviews conducted?
Typically the utility submits a filing with the Regulatory Commission of Alaska to make changes to its rates. There is no set schedule, however the Regulatory Commission of Alaska has the legal authority (though rarely uses it) to request that a utility submit a rate filing at any time.
Why do utility rate changes occur periodically instead of gradually over time?
Unlike most private sector businesses, utilities cannot arbitrarily adjust the costs of the product (power) they provide. It is very costly to go to the Regulatory Commission of Alaska and request a rate change, so utilities have to exercise careful discretion on the cost of the filing and the level of change they are requesting. Once a rate is approved by the RCA it does not change until the next rate filing.
What is a more accurate way to see how facility rates have changed?
To accurately assess increases or decreases in rates they should be averaged over the time period since the last rate change. For AP&T customers, that period is from 2009 until 2014. As an example: if the RCA were to establish a facility rate change of 18% in 2014, the actual annual increase would be: 18% divided by 5 years or 3.6% per year. Remember the facility rate in this example is only half of the energy bill so really the total energy bill would only be increasing by 1.8% per year.
How can customers more accurately benchmark rate changes?
A good way to benchmark rate changes is to compare them to other basic cost of living changes in your community. For instance, how much has the price of gas, or home heating oil changed? How have basic food prices and other service costs in your area changed over the same period of time?
What is the single biggest cause of a rate change?
Many of the costs of providing energy are not directly related to the sale of energy. As the volume of power used in our area goes down, the costs of providing energy does not follow the same pattern. Maintaining the existing power grid and other inflationary costs often drive the costs up while volume of sales go down. The Regulatory Commission meticulously reviews both sides of the utilities business equation as they consider rate changes.
When establishing rates how are rate payers protected?
Unlike other free market businesses, utilities are not allowed to determine their profit ceilings. The Regulatory Commission of Alaska limits the percentage of profit for utilities. Additionally the RCA is not obligated to approve the level of rate change requested and can reduce or increase the rate based on their public interest findings.
How do individual (private) power systems affect power pricing for our area?
In determining any rate change, the Regulatory Commission of Alaska will look at power taken off the utility system as revenue lost and compare it to the expenses needed to operate the system as required under RCA standards and may adjust the rate accordingly.
Does that mean individual solutions for power costs should not be undertaken?
Just as AP&T is vigorously pursuing energy costs solutions, we understand completely customers doing the same. It is our responsibility in fairness to all our customers to explain the critical role that volume plays in keeping rates stable. Losing large volume customers can (and most likely will) have an effect on customers rates. Any large volume loss or a series of smaller volume losses through independent systems can have measurable effects as well.
Are there solutions to reducing the high cost of producing power?
At present AP&T is exploring every possible avenue to at least stabilize (if not reduce) these costs including biomass, hydro, gas, and solar. Internally, we will continue to do all we can do to control operational costs. The Regulatory Commission of Alaska requires a baseline set of operation rules and procedures. All utilities must absorb the cost of those requirements. Where power outages can be life threatening in the cold winters, the costs of these procedures is not the same as Anchorage or the Valley where equipment and linemen do not have to operate at -60 below zero and customers have home and businesses that can freeze up in a matter of hours. (When compared to the average for other utilities our outage frequencies and down time periods are very minimal.)
How is the Public Notified of Pending Utility Rate Cases?
Alaska Statute AS 42.05.411 defines these requirements. A public utility may not establish or place in effect any new or revised rates, charges, rules, regulations, conditions of service or practices except after 45 days’ notice to the commission and 30 days’ notice to the public. Notice shall be given to the commission by filing with the commission and keeping open for public inspection the revised tariff provisions which shall plainly indicate the changes to be made in the schedules then in force and the time when the changes will go into effect. The commission shall prescribe means by regulation whereby notice is given to the public before or no later than 15 days after the filing that is reasonably adequate to notify customers affected by the filing.
How is the business structure of AP&T different than some utilities?
A primary difference is that we are an employee owned business. As neighbors and consumers in your community we share the concerns echoed by many of you regarding the high cost of energy in our rural Alaskan communities. Our very livelihoods and reputations are invested in working toward the goal of providing safe, reliable and affordable energy service to the very best that our collective ability allows.