How Holland BPW Keeps Utility Rates Competitive

Holland BPW’s rates are carefully designed to meet the essential needs of utility services and infrastructure while supporting community development, without the aim of generating profit. All revenues are invested back into the utility services we provide and our community. As a result, Holland BPW maintains some of the lowest utility rates in the state of Michigan. By planning for the future and prioritizing infrastructure maintenance and improvements, we aim to keep costs competitive while delivering exceptional service.

Electric Rates

Electric rate comparison charts by quarter show that Holland BPW rates for each customer classification are less per kilowatt hour than investor-owned utilities in Michigan. Rates are measured in cents per kilowatt hour.

Water Rates

Average monthly summer residential water bill cost (11CCF usage). Gray bars are Ottawa County communities, and the red bar is for Holland retail customers.

How are HBPW’s rates structured?

Holland BPW electric, water, and wastewater utilities are financially independent enterprises. Broadband operates under the electric utility with its own internal distinction. The significance of the utilities operating as separate units is that revenues and expenses are clearly attributed. Funds do not move fluidly between utilities. This structure is important for compliance with laws and transparency.

What do rates need to do?

Holland BPW follows the principle of Utility Revenue Requirement. The Utility Revenue Requirement is the total cost of providing service plus a reasonable rate of return. The tenets of the requirement ensure adequate funds are received to service the debt, pay the operating expenses, fund cash reserves, and provide capital for improvements. The debt coverage ratio requires that there is enough revenue to cover all debt obligations. The cash reserve policy requires Holland BPW to maintain a minimum amount of cash to ensure its financial stability. Meeting operating income targets means that there is enough revenue to provide for infrastructure renewal.

How are rates set?

To set rates appropriately, Holland BPW prepares detailed cost of service studies for each utility every five years. These studies help to ensure that each class of customer (residential, commercial, industrial) pays only for the costs attributable to their utility services. Sound fiscal management at HBPW begins with a zero-based budgeting process. Zero-based budgeting is a detailed process where we do not simply replicate the previous year’s budget. Instead, we determine budgets annually using actual expenses and future planned increases in market prices. Managers propose their department budgets, which are reviewed at multiple levels.

How does HBPW keep rates affordable?

Fiscal management continues with planning for five years of future capital expenditures. This helps us to maintain the most stable rates possible. Appropriate capital expenditure planning helps to prevent large infrastructure improvement projects from causing drastic utility rate swings from one year to the next.

Bonds are another important tool for keeping rates affordable, because they allow us to pay for assets while they are producing services for ratepayers. That means that once the asset is in use, the associated cost is recovered over time, instead of having a spike in costs all at once.

Tracy York, Holland BPW Financial Analyst, is heavily involved with all stages of the rate development and budget process. She balances keeping rates low for customers while maintaining the stability of each Holland BPW utility enterprise. She conducts a competitive analysis of all utility providers in our region. This analysis allows us to determine how Holland BPW’s rates compare with others.

Considerations

Holland BPW has cost-of-service based rates. Our rates are designed to recover the amount that it costs us to deliver the service. Some factors that affect rates include:

Infrastructure Improvements

Holland BPW continuously invests in the maintenance, upgrade, and expansion of our utility systems. As infrastructure ages, it requires more frequent repairs and replacements to operate efficiently and safely. These investments are critical to preventing outages, meeting regulatory standards, and supporting the long-term sustainability of our utility services.

What are some of the infrastructure improvements that we are planning for FY25?

  • Electric: Overhead distribution lines (new and overhead to underground conversions)
  • Broadband: Holland City Fiber expansion
  • Water: Distribution system improvements; meter replacements; new chemical storage building
  • Wastewater: collection system improvements

Operational Costs

Like any business, utilities have operational costs. These include expenses for fuel, labor, routine maintenance, supplies, and the technology required to manage and control the utility systems. Anticipated changes in market prices are important to capture in the budget planning cycle.

What are some examples of operational costs with market price increases?

  • Water: chemicals
  • Electric: fuel (natural gas), purchased power
  • Wastewater: disposal of waste solids

Regulation & Legislation

The utility industry is highly regulated. There are costs associated with ensuring compliance with safety and environmental standards. Legislation also has a financial impact on infrastructure, processes, and services. When new laws go into effect, changes can lead to new and increased costs for utility companies.

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