What is a Fuel Cost Adjustment and Why Does It Matter?

Arkansas Valley Electric members may experience higher-than-normal electric bills over the next few months due to the historic winter weather in February. Although the majority of your bill will be in relation to how much electricity you used during those days, there will also be an impacting factor of the Energy Cost Adjustment.

The Energy Cost/RTO Adjustment, which can be seen on your bill, varies from month-to-month. Energy Cost/RTO Adjustment, according to aecc.com, “is implemented when the cost of producing electricity increases.” AECC continues, “Your electric cooperative must add the temporarily high surcharge to your bill to cover the additional costs of generating electricity. The rising costs of fuel, primarily natural gas, that is used to generate electricity is the primary driver behind rising electricity costs.”

The Fuel Cost Adjustment is a line item on your Arkansas Valley Electric bill that usually does not get much attention. Here is a brief explanation of the fuel cost adjustment:

If the amount paid by Arkansas Valley Electric to its wholesale electric supplier for the energy purchased differs from what is built into the base electric rates, then this fuel cost adjustment is applied to each member’s bill.  This adjustment factor (charge or credit) is multiplied by kilowatt hours used in the current month.

The base electric rates are based on the projected cost of energy. Arkansas Valley Electric purchases its energy from Arkansas Electric Cooperative Corporation (AECC).  The fuel cost adjustment usually has been negligible, even in the face of the rising natural gas prices that have occurred for the past couple of years. For the several years, the monthly fuel cost adjustment has been very close to zero, and many times has been reflected on electric bills as a small credit.  There is no mark-up included in the fuel cost adjustment.  It is a direct pass-through from AECC to the final electricity consumer.

AECC has a diverse mix of generation, and the majority of the organization’s electricity comes from coal and hydroelectric generation facilities, some of the most price-stable fuels.  Some areas of the country rely on natural gas for a majority of their generation resources, so their electricity prices have increased to an even greater extent.

This issue is not exclusive to Arkansas, the United States as a whole is experiencing higher energy prices.  What can you as and individual do for relief?  Invest in energy efficiency in the form of highly efficient electric heat pumps with well-sealed ductwork, proper amounts and types of attic insulation, stopping the air leaks in your home and other commonsense approaches to saving energy.