Frequently Asked Questions
The “fuel adjustment” has been a part of our city bills since the late 1970s. Technically known as a FECA (Fuel Energy Cost Adjustment), the adjustment is part of a process in which the city recovers its fuel costs associated with our own generation, as well as recovering the FECA associated with purchasing energy from our suppliers. A base cost equivalent has been calculated to cover a reasonable forecasted expense for these costs. If the actual costs are higher than this multiplier, a fuel adjustment is added to each city customer’s bill based on kWh usage. Conversely, if the actual costs are lower than the multiplier, a subtraction is made for the fuel adjustment on your bill. This “refund” has happened in the past, but now, with the higher fuel costs associated with generation, there is rarely, if ever, a “refund” per se.
Here is an official description of the Fuel and Energy Cost Adjustment from a Professional Engineer during a rate review in 1984.
“The Sterling retail electric rates are based on the total cost for both the fuel consumed at the Sterling power plant and for all purchased electricity. The annual average base cost is equivalent to $0.0310 per kilowatt hour (kWh).”
“Whenever the monthly average cost of fuel plus purchased electricity differs from the base cost of $0.0310 per kWh, all Sterling billings of the succeeding month shall be increased or decreased accordingly as the actual cost of fuel plus purchased electricity was above or below the base cost.”
“This fuel and energy cost adjustment shall be made each month and shall apply to each kWh sold to all Sterling customers. The difference between the actual fuel plus purchased electricity cost and the base cost shall be multiplied by 1.25 to compensate for distribution losses.”
Fred D. Diehl, P.E.
At some point in the years since that 1984 report, the City has lowered the annual average base cost equivalent of $0.0310 down to $0.0250 per kWh, probably during a period in the late 1980s or early 1990s when fuel prices were falling, or more and cheaper base load energy was being acquired. Also, the 1.25 factor for distribution losses has since been lowered to 1.20.
As mentioned earlier, the fuel adjustment on our bills has seemed to get out of hand over the past year, or two. Just as the price of gasoline has increased for driving your car, the price of fuel for producing electricity has also increased. The reason is, of course, as mentioned, the higher costs associated with generation, and the increased costs of purchased energy from our suppliers. The first real shocker for the adjustment came in the summer of 2006. The municipalities were “prepared” and knew it was coming, but not at such a level as what appeared on our fuel calculations. What turned out to be almost a 50% adder to the electric cost on our bills shocked the City of Sterling into taking immediate measures to not let that happen to our customers two months in a row.
The Energy Management Group was contacted for help in devising a program to incorporate a 12-month rolling average to calculate each month’s fuel adjustment. With this program, the unusually high fuel adjustments in the summer could be averaged with the low fuel adjustments during the winter months to effectively lower and level out the hair-raising charges during the hot months and high energy usages. In essence, the city still collects the same amount of fuel adjustment dollars as without the program, but at a slower rate than before during the summer, and at a quicker rate than before during the winter.
Many customers have asked why we don’t just incorporate the fuel adjustment into the electric charge and be done with it. That would do away with one charge on our city bills, but because a “buried” fuel adjustment varies from month to month, the electric rate would appear to be changing each month. The electric rates for the city cannot be changed without an ordinance to permit that to happen, so for the foreseeable future, we will have to see the fuel adjustment listed as a separate charge on our billing.