|November 7, 2017
CHEC Conducting Cost of Service Study
has been almost ten years since Cape Hatteras Electric Cooperative
(CHEC) has had a cost of service study conducted, and rates have been
at their current level since 2009. But with system improvements,
increases in the cost of purchased power, (which represents
approximately 60% of the cooperative’s expenses), and CHEC’s upcoming
replacement of a transmission cable on the new Bonner Bridge, it has
come time to perform a cost of service study once again.
cost of service study is an in-depth analysis of revenues, expenses,
and future cost projections to determine how much revenue will be
needed to meet the financial obligations of the cooperative.
a cost of service study, rates are examined, and recommendations for
changes are made concerning the base charge, rate structures, and the
cost per kWh.
most cases, a cost of service study is performed more often than
ten-year increments, but low commodity prices and closely managed costs
have enabled CHEC to offer members stable rates for nearly a
North Carolina electric distribution systems have seen projections of
increasing purchase power costs, (primarily driven by Duke Energy coal
ash settlements), and CHEC is no exception. However, CHEC has
some additional financial pressures as well.
on Hatteras Island, facilities are subjected to extreme coastal
conditions, which rapidly deteriorate the electric infrastructure and
causes increased maintenance and depreciation expense. In
addition, the new Bonner Bridge will require the cooperative to install
new transmission cables to serve Hatteras and Ocracoke Islands. CHEC
has estimated that this will cost approximately $10 million. (At press
time, the cost to install the hanger and conduit system on the new
bridge had not been finalized by NCDOT.) Finally, all of the costs
associated with these required capital improvements will not produce
any additional revenue to recoup those costs. These are all
factors that will be considered in the upcoming study.
CHEC, in every cost of service study, difficult decisions must be made
to equitably distribute the revenue requirements over the various rates
and their components. For example, options such as a change in
the per kWh rate or an increase in the base charge could be used to
meet future revenue requirements. Objectivity is the key to producing
an accurate cost of service study, and with that in mind, CHEC has
contracted with Booth and Associates, a consulting group, to take
financial information and cost projections, and present the cooperative
with recommendations for future rates. CHEC anticipates the study to be
completed in the late fall of this year.
states that they will continue to look for cost saving measures to
minimize the impact of rate changes to their members in the future.