NASHVILLE, Tenn.—It's not an easy concept for consumers to understand, but for co-ops the reality is that while energy is often cheap, power is expensive.
"Historically, we've bundled our cost into the kilowatt-hour component. This has sent a bad signal because our members don't understand the difference between the cost of energy to serve their household versus the cost to create electricity," said Eric Hobbie, president and CEO of Prairie Power in Springfield, Illinois.
"The question is energy versus power. We have to communicate the difference between the 'cost to serve' versus the 'cost of energy,'" Hobbie said during a Feb. 26 NRECA Annual Meeting forum.
While growth and consumer demand are both flat, the markets are being oversupplied. Hobbie questioned the value of excess energy, saying the price of energy would not drive demand.
"A two-for-one sale won't cause people to turn on more lights in their house," he said.
Timothy Fox, a vice president at the research firm ClearView Energy Partners, LLC, told the forum there's a "discrepancy between energy prices and what the members are seeing."
Fox explained that while demand is flat with increased energy efficiencies, moments of peak demand are growing. He attributed this to natural gas, renewables, oversupply, state programs and customer demand.
"Natural gas sets the price, but renewables—which are often subsidized—are reshaping the load," Fox explained.
David J. Tudor, CEO and general manager of Associated Electric Cooperative in Springfield, Missouri, said utilities have traditionally taken a long-term view and that often runs counter to the lifestyle of today's consumers.
"The challenge is always going to be time. In today's world where media moves so quickly and most of our members at the end of the line want instantaneous gratification, that doesn't fit with co-ops living with a 55-year view," said Tudor.
"We need to look at rates and set objectives, but that doesn't mean we should abandon our assets just to follow the herd."
The speakers said the answer lies partly in restructuring rates and partly by communicating with the members to educate them about the true cost to serve.
"We're sending the signal that energy is virtually free," said Hobbie. "We have to seriously look at our rate structures, and we have to look at how we signal that to the members. We have to create transparency from the cost to serve versus the cost of energy."
Tudor agreed that communication is key, calling social media "critical."
"That's where our new consumers are," Tudor said, explaining that new members don't watch the news or read newspapers.
"Those younger members are replacing our older members, and they think in terms of social media."