CFC: Created and Owned by America’s Electric Cooperative Network

Electric Rate ConceptsIn an Era of ChangeOregon Statewide Directors Workshop

Rod Crile

Regional Vice President, Member Services, CFC

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Three Step Process to Rate Making· Revenue requirements· Cost of service· Rate Design

· The first two are straight forward exercises but require assumptions to be made

· The last requires a lot of thought– Many outside influences

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

CaveatOregon is not, but

If your cooperative is in a state that is rate regulated, that regulator may have specific rules and/or preferences about the rate making process.

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Why Is Everyone Talking About Rate Design· Yesterdays rates don’t work as well when:

– Sells of Kwh are flat or decreasing– Sending proper message to distributed generators– Helping explain how we incur cost on their behalf

· Why hasn't everyone changed– Keep it simple– Member exceptence– Regulator– Decisions based on old rate design

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

What Members Need To Pay For

Some costs are fixed.Some are variable*.

*Variable cost are only incurred when a kWh is produced

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Mitigating Risk· Weather – volatility in kWh usage· Up front investment· Falling kWh usage· Members won’t understand rate· Covering fixed cost· Generating necessary margin· Sending the right message· Not charging the right people · Not rewarding the right people· Matching power supplier rate· Setting a new peak· Unnecessary generation expansion / spot purchases

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Traditional Residential Rate Design· Three part cost

– Consumer– Energy – Demand/capacity

• Generation• Distribution

– Margin

· Cost of Service– $36.00-Fixed– .02600-Variable– $10.00-Fixed

• 6.00• 4.00

– $5.00 -Fixed

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Traditional Residential Rate Design

· Two part rate design– Consumer* charge $22.00– Energy cost .12560– Had to make an assumption of how many kWh the

cooperative will sell

– Consumer charge $22.00– Block 1 – First 850 kwh .1400– All above 850 kwh .1000– May not send a very clear message

*Facilities, service, availability, fixed, distribution, etc.

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Moving Away from Yesterday’s Two Part Rate

· Keep raising the “customer charge” up to match cost of service– Which number?

• Just customer? $36.00• Customer and margin? $41.00• Customer, margin, demand? (assume 4 kw) $81.00• Are they all customer related?

– All at once?– Couple dollars a year?– Can have huge impact on low users – decrease for

high users

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Moving Away from Yesterday’s Two Part Rate

• Three part rate (bill demand separately)― Is your coop ready for this?― Are your members ready for this?– Very few doing it today– The industry is watching

• Those that are already doing it• What utilities are thinking about

– More/better communications on how cost are incurred

– Print the demand usage on the bill with no associated charge

– Starting to bill demand, but at a low rate $.50 per KW

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Moving Away from Yesterday’s Two Part Rate· Interim steps – to get where you want to be

– Communications – Break out charges differently on the bill

• Customer charge $22.00• Distribution cost per kwh $.0256• Generation per kwh $.040• Energy per kwh $.060• Total $.1256

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

· Interim steps – to get where you want to be– Margin stabilization – formulary rate

• Equity• TIER• Annual adjustments• Does not help rate design issues

Moving Away from Yesterday’s Two Part Rate

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Summary

· Communications is critical– Inside and outside the cooperative

· Technology– Properly bill the rate– Properly support the rate– Give the member the information they need

· Review rates annually are they:– Generating the required margin?– Getting the desired member response?– Matching the power supplier’s rate structure?

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Created and Owned by America’s Electric Cooperative Network

Created and Owned by America’s Electric Cooperative Network

Summary· Caution

– No one rate design concept is necessarily the correct one for your cooperative to adopt. Each system is unique and may be facing different circumstances

· Sources of additional information– 2013 – Electric Rate Concepts In an Era of Slow Growth– 2010 - Rate Strategies for 21st Century Challenges:

A Guide to Rate Innovation for Cooperatives

CFC: Created and Owned by America’s Electric Cooperative Network