Energy costs are increasing so let’s take a look at your city bill, specifically the portion related to Vinton Municipal Electric Utility (VMEU). Your electric costs are based on several factors, but the 3 main factors are energy purchases (kilowatts purchased), demand energy and transmission costs. Following is a brief explanation of the three main factors:

 

• A kilowatt purchased is energy used to light your home, power your television, run the air-conditioner, etc. If a residential customer uses 1,000 kilowatts in a month, VMEU must purchase or generate 1,000 kilowatts plus any losses in our distribution system. Losses in our system come from wires to the home, wires rubbing on trees and transformers that step down voltage to serve the home. A 5% system loss is not unusual. So VMEU must buy approximately 1,050 kilowatts to provide your home with 1,000 kilowatts. In June 2010 energy purchased amounted to about 54% of our wholesale power costs.
• Demand energy is power used during a peak time of the day and month. In June 2010 approximately 33% of our wholesale power costs came from the demand energy peak that Vinton used. For example, during the week day most residents of Vinton are at work and their home energy use falls off. But come 5-6 PM on a week day and that all changes. People are returning to their homes, turning on lights, turning on televisions, lowering the air-conditioning temperature, making supper and numerous other activities that increase energy use. When the peak arrives from everyone using energy, the meter records that high peak. The peak is monitored every 15 minutes every day of the month. The day of the month that Vinton hits that highest peak is recorded on our wholesale power invoice at the current rate of $10.28 per KW. Our invoice showed a peak of 8,188 KW on June 22^nd costing the utility just over $84,131. The highest summer peak Vinton ever experienced was 10,600 KW. So keep in mind that when you come home and crank down the air-conditioning, turn on the fans, fire up the electric stove, open and close the refrigerator doors & turn on lights and televisions that you are helping set that peak demand that you will pay dearly for.
• Transmission costs come from getting electricity generated by nuclear, coal, diesel fuel, natural gas, wind turbines and hydro power plants to Vinton. Several years ago there was a big push to be able to buy power from any provider to foster competition and hopefully reduce rates. However, as when ever the government gets involved what used to be cheap ends up costing a lot more and getting energy from one place to another is no different. Even though Vinton has a choice in where and who to buy power from the problem is getting it here. That is where the transmission costs come in. As with energy purchased and demand energy, transmission costs are based on the kilowatts that Vinton uses. The more energy that Vinton uses, the higher the transmission costs on each bill. In June of 2011, transmission costs accounted for about 13% of our wholesale energy costs. Since ITC Midwest acquired the transmission system from Alliant Energy in December 2007, our transmission cost per kilowatt has increased almost 3 fold. Keep in mind that the Iowa Utility Board made ITC Midwest freeze the transmission rate for 2008 and so 2010 is a catch up year for the losses that ITC Midwest feel they incurred by freezing the rates for that one year.

 Now we can discuss the breakdown of your actual electric bill. Residential customers could see three possible line items on the city bill. They are:

      RE RESIDENTIAL

      RE ENERGY COST ADJ

      SL SECURITY LIGHT

 

I will start with an explanation about how security light rental charges are arrived at. The monthly rental rate is based on the following costs incurred by the utility to provide that service:

         Energy (electricity) used to light the security light. Energy costs figure out to be over 80 percent of the security light rental charge using a 12 hour  average night for summer to winter.

        New hardware costs such as the supporting arm, bulb, fixture and photo cell.

        Maintenance costs including deployment of trucks and manpower to troubleshoot and fix ailing security lights or to install new ones.

 

To explain the other two portions of your electric bill some background information is necessary. VMEU lowered the electric rates back in about 2001 after it was determined that the lower wholesale costs of a new purchase power contract were resulting in slightly elevated revenues. The contract for the "cheap" power ended December 31, 2004 at midnight. A new 5 year contract went into effect on January 1, 2005. Each year of the contract provided for increases in the cost of wholesale power and demand energy. Residential and commercial customers are not familiar with demand energy on the bill but industrial customers are. However, residential and commercial customers do contribute to the demand energy charges. Check my explanation of demand energy above to understand this. When the higher rates went into effect in 2005 the utility board opted to cover the increases from revenues acquired from the “cheap” power for almost all of 2005. Rate changes require advertising of the changes along with changes of all the rate literature that was published. To delay a full blown rate change the Utility Board decided to go back to using an energy cost adjustment to get back to at least breaking even and try to ride out the higher power costs with hopes that a new contract would result in lower prices once again. It was decided to use the “cheap” power as a base cost and use the energy cost adjustment (ECA) to control the spikes in power costs. A formula was created that used the “cheap” wholesale base cost to start the ECA at 0 cents. Then costs that changed on a monthly basis were added to the ECA formula to arrive at a new ECA each month. Basically the published rates were to cover the normal overhead like labor, material, equipment and other costs. The ECA is used to cover wholesale energy cost increases (above 2001 level), natural gas cost increases used to generate energy and heat the generation plant, lubrication oil cost increases and fuel oil cost increases to generate. Full blown rate increases have been necessary the last couple of years to cover the increases in material, labor and equipment since the original base rates were based on 2001 material, labor and equipment costs.

 The latest information I have is that our energy cost and demand cost should remain fairly consistent with what we are paying now through all of 2011. However, it is my understanding that ITC Midwest intends to increase the transmission costs again in January of 2011. 2012 holds the promise of lower energy and demand charges than our current rate but look for transmission costs to continue increasing, hopefully in a much smaller amount.