Whenever we at Grand Valley Power discuss electric rates, you’ll likely hear the term “cost-of-service study.” At its basic premise, this study helps us understand what it costs to provide electricity to our members — and that’s true, but there’s a bit more behind it.
A cost-of-service study blends accounting, finance, economics, and engineering to give us the best picture of how the cooperative incurs costs and how those costs should be fairly recovered. While the analysis is rooted in data, there is also an element of art. It is because of the need to balance this art and science that the Grand Valley Power Board of Directors established three guiding principles to help inform rate decisions:
- Equity: Members should pay rates that reflect the costs they impose on the system.
- Transparency and understanding: Rates should be simple and clear, so our members can clearly understand their bill and make informed decisions about their energy use.
- Balance: The board balances simplicity, equity, transparency, and financial stability in every rate decision.
These principles serve as a guide, helping the board navigate complex data while staying focused on what matters most: fairness and clarity for our members.
Grand Valley Power completes a cost-of-service study every two to three years. Because these studies involve detailed financial analysis, engineering data, industry trends, and local economics, we partner with a consulting firm that specializes in performing these studies for electric cooperatives across the country. Their expertise provides valuable perspective on different rate structures and how they work in other communities while helping us determine the best approach for Grand Valley Power.
One of the most effective rate trends has been the three-part rate design like Grand Valley Power fully implemented last November. This structure includes a fixed grid connectivity charge, Time of Use energy charges, and a distribution demand or peak draw charge. Cooperatives across the country, particularly those that purchase wholesale power from another provider like Grand Valley Power does from Xcel Energy, are increasingly adopting similar structures. The goal is not to follow industry trends; rather, it is to align our retail rates with the actual costs of delivering reliable electricity. Cost-of-service studies support financial stability and the cooperative’s ability to maintain and invest in reliable infrastructure.
The Grand Valley Power Board of Directors will review the next cost-of-service study later this year. One focus will be evaluating whether the distribution demand charge implemented last November is recovering distribution system costs as intended.
While we formally conduct a cost-of-service study every two to three years, rate oversight does not stop there. The board reviews the cooperative’s financial performance every month, including margins and projections. Rather than take a “set it and forget it” approach, the board continually monitors whether rates are performing as intended or if adjustments are needed. Rate adjustments could be necessary because of major system repairs, rising equipment costs, or increases in the cost of transmission that brings power to our system.
One of the greatest strengths of the cooperative model is that Grand Valley Power’s board and staff are part of the same communities we serve. We experience the same economic pressures from rising fuel prices and grocery costs, and the increased costs to run local businesses. We understand the impact these rising costs can have on members’ budgets. Because we are also members of this community, that perspective shapes every rate discussion.
By blending sound financial policy, clear guiding principles, and data-driven analysis, Grand Valley Power works to ensure the board has the information to make thoughtful, responsible decisions on behalf of you, our members.
Chrystal Dean is the Chief Executive Officer at Grand Valley Power.
