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4 May 2011

Flathead Electric's residential rate increase is higher than 3.5 percent

We received Flathead Electric’s letter a few days ago. “Flathead Electric Cooperative will be implementing an average annualized rate increase of 3.5% across all rate classes as a result of increased wholesale power costs.” Later on, we’re told that “The majority of residential members will experience an increase of less than $3.50 per month.”

Notice how the letter begins by describing the rate increase as a percentage, then switches to a dollar figure for residential increases. That’s because, as displayed on the graph below, the percentage increase for residential customers is well above 3.5 percent.

Note, too, that the total cost per kilowatt hour is very high for customers using less than 600 kilowatt hours per month. Yes, the energy charge is only $0.05125/KWhr for those using less than 601 kilowatt hours per month, but when the $20.78 per month base rate is factored in, the true cost per kilowatt hour is much higher.

The base charge allegedly accounts for fixed costs, such as maintaining powerlines. But it’s the same for a widow on Social Security who uses 400 kilowatt hours per month as for Mr. Moneybags who burns 7,500 kilowatt hours per month in his 25,000-square-foot cabin in the mountains. That’s the kind of fairness found in a flat rate income tax system: the rich and poor alike have the right to pay equal shares regardless of their ability to pay.

FEC’s base charge represents an economic philosophy, not an economic imperative. Eliminating the base charge and levying just a per kilowatt hour rate (with the increasing block structure) is an option — and if the goal is to lessen the impact on low income customers, it’s the socially fairest option.