Cooperative Electric Rates 2013 Power System Engineering, Inc.

Transcription

1 Cooperative Electric Rates Ideas for Responding to Current Challenges Facing Electric Cooperatives Jeff Laslie Senior Financial Analyst Power System Engineering Phone: Kate Frank Vice President of Corporate Services South Central Indiana REMC Phone: Topics Covered Rate Structure Challenges and Response Challenges Flat or Declining Unit Sales Distributed Generation Response Improved Planning Rate Structure Development Policies Recent Experience at SCI Data Collection Board Interaction Policy Development 1

2 Caveat Every cooperative has different challenges, philosophies, capabilities and regulatory requirements. Hopefully, this presentation will touch on issues relevant to yours. The Challenges Increasing Costs Distribution Power Supply Declining Unit Sales Energy Efficiency Conservation Distributed Generation Technology, Notably Solar, is Becoming More Efficient and Commercially Feasible Emissions Issues, Smart Grid, Net Metering Requirements Regulatory Mandates Efficiency Programs Renewable Mandates Reliability, Smart Grid, Security, etc. Rate Study Process Test Year Total Revenue Requirements Class Cost of Service Study Residential General Service Large Power Rates Rates Rates 6 2

3 The Impact Revenue Requirements Declining or Erratic Margins Due to Fixed Cost Recovery through Energy Based Rates Applied to Declining Unit Sales Improved Planning Need for Predefined Rate Setting Process and Rate Policy Statementst t Quicker, More Frequent Rate Increases Cost of Service Study Possibly More Types of Service More Focus on Time Differentiated Costs More Data from AMR and MDM Systems The Impact Rate Structure Concern about Recovery of Fixed Costs via Volumetric Charges Increased Interest in Time Differentiated Rates Increased Benefit of Unbundled Rates (Distribution v. Power Cost) Distributed Generation Rates, i.e., Net Metering, Net Billing, Value of Solar Ideas for Responding to These Challenges 3

4 Rate Policy Statement Purpose Establish Targets to meet Strategic Financial Goals Provide Guidelines and Direction for the Ratemaking Process Set Objectives for Rate Design Basic Fundamentals (i.e. embedded cost of service, rate design goals) See Rate Strategies for 21st Century Challenges (NRECA/CFC) 10 Rate Policy Statement (continued) Supports Strategic Planning Goals Technology Planning Economic Development Efforts Capital Growth Strategy Energy Efficiency Goals Supports Equity Management Planning Defines objectives to meet strategic financial goals Margins are direct result of rate design 11 Rate Policy Statement (continued) Components Purpose Statement Definitions Key Variables/Elements that Affect the Plan Rate Design Principles Consideration of External Issues Targets/Goals Implementation/Communication Plan Mandated Monitoring and Review Schedule Doesn t need to be lengthy (1-2 pages) 12 4

5 Formula Rates Annual Review of Financial Results Adjustment to Revenues Based Predetermined Criteria and Formulae Straightforward Adjustment to Rates to Implement Revenue Adjustment Examples FERC Formula Rate TIER/DSC Ratemaking 13 DSC Ratemaking DSC Ratemaking DSC = Annual Debt Service Margins Annual Debt Service Payments Utilities make annual DSC Filing (TIER Also Used) If Annual MDSC > 1.75, Propose Reduction If Annual MDSC < 1.75, propose increase May include a Quiet Zone Where No Adjustment is Proposed, e.g., 1.75 MDSC Target, But No Adjustment Unless MDSC is Less than 1.50 or Greater that 2.00 Regulated Versions May Include Various Customer Protections and Protocols KS and MI Commission Have Applied Versions of DSC/TIER Ratemaking 14 DSC Ratemaking Kansas Corporation Commission (KCC) recently approved PSE proposed alternative ratemaking plan filed on behalf of Southern Pioneer Electric Company More efficient, responsive, less costly regulatory approach for relatively small utility Prior full rate case resulted in over $400,000 in costs (legal, commission, consultant) DSC Ratemaking similar to TIER Ratemaking in MI Reference KCC Docket 13-MKEE-452-MIS 15 5

6 Monthly Customer Charges To what extent should costs be recovered in Customer Charges vs. Energy Charges? The more costs you can recover in the Customer Charge the less dependent your revenue and margins are on energy sales (i.e. decoupling) This is a simple yet complex decision Higher Customer Charge = More Stable Margins Increases Rates to Small Users Can be Politically Difficult 16 It s Simple On the one hand it s simple: All scenarios would produce the same revenue as the present Residential rate. Just pick one. Cost of Service Result Current Rate Facility Energy Charge Charge ($/cons./mo.) ( /kwh) $ $ $ $ $ $ $ $ It s Complicated On the other hand, it s complicated Dramatically different impact on individual consumers based upon consumption level Cost of Service Result Current Rate 18 6

7 Time-of-Use (TOU) Rates Time-of-Use rates vary demand and energy charges by: Month or season Time of day Generally reflect changes in production costs: Peaking capacity costs are different by month or season Daily energy costs are different for on-peak and off-peak times: Mix of generation on line Purchases 19 Example of Time-of-Use Rates Customer Charge Energy Charge On Peak Period Energy Off Peak Period Energy $25.00/mo $0.180/kWh $0.060/kWh 20 Residential Demand Charge Combines Customer Charge with more appropriate and stable size component Could be a way to unbundle the bill Requires ability to meter monthly demand kw May require more customer education Include distribution, power supply and transmission? Usage Low Average High Standard Rate Customer Charge $ /mo. $ $ $ Energy Charge $ /kwh $ $ $ Demand Charge Customer Charge $ /mo. $ $ $ Distr. Demand Charge $ 3.25 /kw Energy Charge $ /kwh $ $ $

8 DG Rates DG is not a new phenomenon, in fact, this is how the electric industry started in the early 20 th century Has evolved with central station power, customer emergency backup DG, peak shave DG, PURPA (QF) Today we are at a point where new commercially feasible technologies have expanded d the possibilities Central station power and related environmental impacts are under fire increasing the cost Distribution per unit costs tend to be increasing also 22 DG Questions and Major Issues Momentum behind DG: Increasing energy efficiency Emissions/cost impacts of fossil-fuel plants Implementation of smarter grid Fuel diversity and energy independence Remove financial barriers Should not provide an unwarranted incentive What is the utility s obligation? What is the customer s obligation? How should utility costs be structured and priced? 23 Solar Production vs. Summer Power Supply Peak Implications for power supplier and distributor. 24 8

9 Solar Production vs. Winter Power Supply Peak Implications for power supplier and distributor. 25 DG: Summary Rates should be designed to reflect the cost of service provided net of any benefits including diversity Rates should not create artificial barriers to DG Consider that rates should encourage 1) operation of DG during on-peak hours, 2) utilization of utility power during off-peak hours Rate structures and tariffs should be clear and may benefit from TOU or unbundling 26 2 Lessons Learned - Co-op Perspective Data Be able to retrieve it! Make training available. Board Members: Get their input, involve them in the process. Rate policy & approving rates is a Board responsibility. Staff provides information to the Board to allow them to make an informed decision. Find out who on the Board is up for re-election. 9

10 Lessons Learned - Co-op Perspective Smooth the way going forward Create a Rate Policy Statement Explains cooperative s strategy Incorporate a Formulary Rate Plan into Rate Strategy Adjustment triggered if one or more financial metrics fall outside a predefined range. More consistent financial performance for the co-op. Can help moderate rate changes for members. 10