Danville City Council has voted to approve an increase in the energy charge or base electric rate, allowing the power cost adjustment to be reset to zero. The changes will raise electric bills by 1.62 percent or $2.30 a month for the typical residential customer beginning July 1.
The increase is the second this year, but it is the first increase in the base rate since July 2008. In February, an increase in the power cost adjustment rate raised electric bills by $10 a month for the typical residential customer. The increase in the power cost adjustment was the first since August 2010.
The rate changes were made not to increase utility profit, but to avoid running out of cash. Danville Utilities purchases most of the power its customers need from the wholesale market. In August 2010, City Council approved an electric rate stabilization plan to hold charges constant.
At the time, the city projected the cost of operations initially could exceed the revenue the plan provided, but costs and revenue later would become balanced through lower wholesale power purchase prices and electric generation by newly constructed power plants.
Not only did these assumptions fail to materialize, but also the amount of electricity needed to serve customers by utilities in the eastern United States during record-breaking cold temperatures this winter overwhelmed the transmission grid and resulted in large congestion charges. For many months, Danville Utilities has not charged enough to cover its actual costs.
These factors led Danville Utilities in February to administratively increase the power cost adjustment from 1.6 cents per kilowatt-hour to 2.6 cents per kilowatt-hour. The use of unspent capital improvement totaling $2.2 million was used to delay a scheduled increase in May.
On Tuesday night, City Council increased the energy charge or base rate for residential customers from 8.8 cents per kilowatt-hour to 11.6 cents per kilowatt-hour. The power cost adjustment will be reset to zero, effective July 1. The changes were recommended by rate consultants and the Danville Utility Commission.
Other classes of customers, including commercial and industrial, also will see changes in the base rate they pay.
For residential electric customers, bills consist of three components:
• A fixed customer charge to cover the cost of maintaining meters and electric infrastructure, managing accounts, and billing and collections,
• A per kilowatt hour energy charge approved by City Council to cover the cost of electricity consumed during the billing period,
• A per kilowatt hour power cost adjustment charge set administratively either upward or downward to reflect the average cost of purchasing and/or producing power that is either above or below the average cost already covered in the energy charge
For commercial and industrial electric customers, bills includes all three components, plus a demand charge to cover the system infrastructure and the costs associated with delivering to the maximum amount of energy a company requires. The demand charge is based on the peak 15-minute electric consumption level each month.
Danville Utilities provides natural gas, water, wastewater and telecommunications services in Danville and distributes electricity to approximately 42,000 customer locations in a 500-square-mile service territory covering Danville, the southern third of Pittsylvania County, and small portions of Henry and Halifax counties.