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So What is a Rate Design Study?

All goods and services carry costs associated with providing them to end users. And, more times than not, that cost has a built-in margin called profit. But electric cooperatives are different. We are not-forprofit and the rates charged for power are only designed to cover the cost of providing electric service with any margin becoming property of the membership. To determine costs, electric cooperatives perform a rate class cost-of-service study (COSS).

A COSS begins by grouping members based on their similar usage patterns — called RATE CLASSES. For example, the largest rate class in terms of number of accounts at FreeState is residential. The next step is to divide costs into three groups outlined below — THIS PROCESS IS CALLED FUNCTIONAL ASSIGNMENT. 

*POWER SUPPLY COSTS include the purchasing of power from wholesale suppliers. Ours are Evergy and Kansas Electric Power Cooperative (KEPCo). 

*TRANSMISSION AND DISTRIBUTION COSTS include ownership and maintenance of all transmission and distribution plant needed to deliver electricity to where it is used, including lines, poles and service facilities. 

*MEMBER COSTS include preparing, sending and collecting monthly bills, technology and metering expenses, and member relations costs. Costs are then classified into three groups: 

*CUSTOMER COSTS are needed to distribute electricity from generation sources and that includes transmission, distribution, transformers, wires and delivering energy to each member. 

*ENERGY COSTS vary based on the amount of kilowatt-hours (kWh) of electricity used. 

*DEMAND COSTS vary based on the intensity at which electricity is used at a given time, which is measured in kilowatts (kW). ALLOCATION is the final step where costs are allocated to each rate class based upon how many members are in each rate class, how much energy is used by each rate class, and how intense that usage is during certain times when parts of the grid are stressed.

WHY DO WE NEED TO REVIEW RATES? 

Cooperative expenses are driven by many factors including generation and usage, transmission and distribution. Distribution costs result from infrastructure expenses like poles, wires, trucks, facilities and repairs. The COSS analyzes costs to make certain they are categorized appropriately and allocated equitably among rate classes. The COSS provides the FreeState board of trustees and staff information and reveals imbalances between cost classes. FreeState can then consider ways to realign rates and ensure equity for all members. 

WHAT ARE THE NEXT STEPS? 

When the COSS is complete, the findings will be presented to the FreeState Board of Trustees for evaluation and consideration of the provided recommendations. FreeState trustees evaluate the COSS from a business perspective and, since every trustee is also a member of FreeState, a membership standpoint. The board will not take any action without member input, and no changes will take place until January 2025 at the earliest. As we move through this process we will continue to communicate with members each step of the way.