Have you ever wondered why every “as seen on TV” product commercial ends the same way? The familiar voice booms from your television’s speaker: “But wait, there’s more! If you order in the next 20 minutes, you’ll get two Bass-O-Matics for the price of one!” Well, the answer is quite simple: Just about everybody loves the idea of getting something for free, and professional marketers know that the idea of “two for the price of one” can make sales increase.
As you probably know, your co-op is a nonprofit company. Unlike most businesses, our model is based on recovering the costs of doing business — not maximizing profits that are returned to shareholders. The financial goal is simply to earn enough money to pay the cooperative’s expenses and leave just enough to reinvest some capital into the assets that keep the power flowing.
Would you be surprised if you found out that you get a two-for-one deal every single month from your co-op? That’s right; when you pay your electric bill, you are paying for much more than just the energy you consumed. While it may not be as exciting as getting that second pair of AmberVision sunglasses, there are really two things you pay for when you buy electricity: energy and capacity.
So when it comes time to figure out how much to charge for products and services, the co-op has to align its rates with its costs as closely as possible. This is tough because the cost of providing your service is extremely complicated. While the accountants would probably love for each member to pay his or her exact prorated share of each of the co-op’s costs in excruciating detail, I doubt you would want to get a 40-page bill each month any more than I would. So most utilities simplify this by levying a fixed charge (sometimes called a customer charge) and an energy charge.
The energy charge is the easiest to comprehend. When you turn on an appliance, for instance, that machine needs electrons to power the work it will perform. Those electrons are the “product” that most of us think of when it comes to electricity. Measured in kilowatt-hours, each month your bill shows exactly how much of this product you consumed and the price. This part of your bill is variable, changing from month to month based mostly upon your need for heat, air conditioning, hot water and refrigeration.
But how is that energy delivered to you? Without the large power plants, transmission lines, substations, transformers, poles and wires that criss-cross the country and the people who operate all of this machinery, you would never be able to turn on your washing machine or surf the Internet. All these components of the electrical infrastructure cost a tremendous amount of money — billions and billions of dollars in total. This is the second product you pay for each month. Let me explain that just a bit more.
For example, most folks are not able to pay for the entire cost of a house up front, so they borrow the money and pay it back over the course of living in the home. Likewise, it wouldn’t make sense to pay for a power plant that might operate for 50 years all at one time, either, so these costs are typically spread out through loans over the useful life of the equipment. Of course, payments on these loans must be made each month, just like the mortgage on your house. What most of us do not realize, though, is that the cost to build, maintain and operate this huge network of power plants and wires is practically the same whether you use a little or a lot of energy.
That is one reason your monthly bill includes a fixed customer charge. Essentially, the customer charge is a fee for having access to energy on demand, whether you consume any electricity or not. Think of it as being able to refuel your car while driving down the road without having to find a gas station.
And what makes this part of your bill even more crucial is the fact that mankind has not figured out a way to store significant amounts of electricity. Therefore, there has to be enough capacity to generate, transmit and distribute the right amount of electricity to meet the total demand at any given time. Stated differently, if you turn on every electric appliance you have at the same time, your co-op has to have enough ready energy to serve you without disrupting other users.
Building this instantaneous capacity is one of the things that makes electricity different from any other form of energy you buy. And, yes, you do have to pay for it. But without it, we wouldn’t enjoy the virtually uninterrupted supply of electricity that American society now requires. And few would argue with the benefits that electric reliability brings to our quality of life.
There is a lot more to your electric service than just the bottom line on the bill you pay each month. And, thankfully, you don’t have to call in the next 20 minutes to get the great deal.