What is a kilowatt-hour?
A kilowatt-hour (kWh) is the standard unit of measure for electricity use and is equal to 1,000 watt-hours. For example, a 100-watt light bulb running for one hour uses one-tenth of a kWh. If electricity costs 10 cents per kWh, it costs one cent per hour to operate that bulb.
How Rates Work
Below is an explanation of the four primary factors that influence your electric rate.
Power Costs – These are energy and capacity costs.
- Energy costs are for the fuels used to generate power, such as coal, natural gas, and renewable resources like wind and solar energy. A global increase in competition for these fuels and other materials is responsible for increasing the energy portion of wholesale power costs.
- Capacity costs are fixed costs paid for the availability of power from power plants. They are directly related to the costs of construction and maintenance. Increased environmental regulations and reduced output due to those regulations are two factors impacting the capacity of wholesale power costs.
- Power Cost Adjustment (PCA) refers to a variable TCEC built into the rate structure so rates could be adjusted when the energy and capacity costs change. Using the PCA helps the cooperative to avoid large, permanent rate adjustments.
Operating Costs – The smallest portion of the cost of providing power and the only portion TCEC can influence. These costs include building and maintaining power lines, power restoration, communications, billing, member service, metering, administration, employees, and everything else it takes to run a business.
Fixed Costs – These are the expenses the cooperative incurs regardless of sales to members. The cooperative has very little influence over these costs, which include depreciation, amortization, property tax, gross receipts tax, interest on long-term debt, and other deductions.
Margins – When revenue exceeds expenses, a cooperative has margins, which are required to meet financial obligations. Because TCEC is a not-for-profit electric cooperative owned by its members, we allocate our margins to the membership in the form of patronage capital. The allocation amounts are based on a formula that considers the amount of revenue paid to the cooperative by the member. Patronage capital reduces the amount the cooperative has to borrow because TCEC retains and uses patronage capital for operating capital. It is used until the financial condition of the cooperative, determined by TCEC’s board of trustees, permits the co-op to issue a refund in the form of capital credits.
Service availability charge
A fixed fee that recovers a portion of the cost required to deliver power to your home or business. This charge is intended to recover the investment in the infrastructure which includes metering, poles, wires, substations and transformers. The actual cost of this infrastructure is higher than what we recover through the service availability charge. The remainder of this expense is captured in the energy charge.
A charge billed on a fixed rate per kilowatt-hour (kWh) based on the amount of electricity you use. The rate per kWh is defined by service type in the Rules and Regulations. The energy charge recovers:
- A portion of the wholesale cost of the electricity used. For oil wells, large power and irrigation the demand component of the rate recovers some wholesale costs.
- A portion of the cost to build and maintain the electric distribution system that is not captured in the service availability charge.
Power cost adjustment (PCA)
Also based on the amount of electricity used, this charge is billed using a variable kWh rate. The PCA rate is calculated based on wholesale supplier costs using a formula defined in the Rules and Regulations of Service. The PCA helps our rates always reflect the real cost to serve you – no more or less.
February 2021 Weather Event Rider
A rate rider is a temporary charge added to your monthly bill. In August 2021, members will see a new line item on their electric bill for the February 2021 Weather Event Rider. The cooperative incurred about $35 million in power supply costs during February’s extremely cold weather. The weather event rider is intended to recover that amount plus interest. To lessen the financial burden on members, TCEC extended the rider over approximately 10 years. Read more about the weather event in the August 2021 Member Matters article from CEO Zac Perkins.
Gross Receipts Tax
The state gross receipts tax is paid by electric cooperatives in Oklahoma based on the amount of energy sold. It is currently two percent. One advantage of being served by a cooperative is that the gross receipts tax goes back to the local school districts based on miles of electric line in each district.
Municipalities charge TCEC a franchise fee for the use of city streets and public ways to provide electric service to the residents and businesses within the city’s limits. TCEC collects this fee as a passthrough charge on electric bills for members with electric service in those towns. Each municipality sets its own franchise tax percentage.