RATES & BILLING. Understanding Power Cost Adjustment (PCA) FROM FREESTATE ELECTRIC. Need Help with Home Energy Costs? FROM LANE-SCOTT ELECTRIC

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1 RATES & BILLING Need Help with Home Energy Costs? FROM LANE-SCOTT ELECTRIC The Low Income Energy Assistance Program (LIEAP) is a Federally funded program that helps eligible households pay a portion of their home energy costs by providing a one-time per year benefit. The 2017 application period is from Tuesday, Jan. 17, 2017, through Thursday, March 31, Applications must be received prior to 5 p.m., March 31, Online applications are available at The following summary describes basic LIEAP eligibility provisions. In order to qualify, applicants must meet the following requirements: An adult living at the address must be personally responsible for paying the heating costs incurred at the current residence, payable either to the landlord or the fuel vendor. Applicants must demonstrate a recent history of payments toward purchase of the primary heating energy. The combined gross income (before deductions) of all persons living at the address may not exceed 130 percent of the federal poverty level according to the guidelines listed in the chart below. For more information call or visit Persons Living at the Address 2017 Max. Allowable Monthly Income 1 $1,276 2 $1,726 3 $2,177 4 $2,628 5 $3,078 6 $3,529 7 $3,980 8 $4,430 9 $4, $5, $5, $6,234 Understanding Power Cost Adjustment (PCA) FROM FREESTATE ELECTRIC FreeState Electric Cooperative includes a line item on your electric bill called the Power Cost Adjustment (PCA). This was called the Purchased Power Adjustment or PPA in the eastern district (former LJEC). The PCA reflects the monthly difference in the co-op s cost of wholesale power purchased from Westar or KEPCo and the amount already included as part of the retail rates. The PCA is necessary because wholesale power costs are not only volatile, but they are also increasing. Most electric utilities use a similar mechanism to pass through changes in wholesale power costs. These changes are driven by higher generation fuel costs, increased consumer demand, rising transmission costs, extreme weather and generation fleet performance. With the exception of two small peaking generators, FreeState does not generate its own electric power, but purchases its power from generating companies that produce it from a variety of different generation sources, including coal, uranium (nuclear), natural gas and oil as well as hydroelectric dams and wind turbines. These are largely costs over which we have very little control. The charges passed along are exactly what the cooperative incurs to purchase the power. said Chris Parr, assistant general manager. The PCA a member sees on his/her bill is their share to cover the costs of generating the power they used. In addition, FreeState s electric rates have not been adjusted for five to seven years, depending on the district. These rates include a base amount of wholesale power costs the cooperative paid during the period, or the test year, used to determine the rates. This means that the PCA reflects the difference between the current wholesale cost of power and the amount incurred over five years ago. As long as wholesale power costs continue to rise, we will also see the PCA increase. This PCA will be reset during the next future rate adjustment in approximately three to five years. Parr added that the PCA can be favorably affected by reducing the cooperative s overall electric demand. One way the cooperative can force the PCA down is to lessen the demand by conserving energy during peak times, and that means every cooperative member has to do his/her part in conserving energy. The best time to conserve energy is between the hours of 2 and 6 p.m., especially in the summer months. The co-op s cost of wholesale power is more than 65 percent of FreeState s total expenses, so it s critical that the co-op recovers all of its wholesale power costs through its energy charges and the PCA. The formula charges all members the same cost per kilowatt-hour for changes in the wholesale cost of power. The total PCA amount is figured by multiplying the monthly PCA by the number of kilowatt hours used. For example, if the monthly PCA is $ /kWh and 1,000 kwh was used during the billing period, the total PCA would be a charge of $ This rate is based on the test year. If you have questions about the PCA or how you can conserve energy call us at KANSAS ELECTRIC COOPERATIVES, INC.

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3 RATES & BILLING Are You Paying More than Your Fair Share? FROM RADIANT ELECTRIC Did you know that some electricity purchases are exempt from sales tax? Are you taking advantage of all the eligible exemptions? Are you at risk for a sales tax assessment if your farm or business is audited by the Kansas Department of Revenue? Sales taxes, along with income and property taxes, are collected by state and local governments to fund public services and infrastructure like public buildings, roads, schools, parks, libraries, police and fire protection. While we are required to pay our fair share, no one should pay more than is required. Sales Tax Rates Sales tax rates vary across the state depending on where the purchase is made. The Kansas state sales tax is 6.50 percent, and most counties and cities charge an additional amount. Electricity Use State Local Residential Exempt Taxable Agricultural E.g. Barn lighting, outdoor area lighting, building HVAC in non-production areas, water heating for washing dairy equipment, maintenance shop use (air compressor, power tools, welder, grinder, engine heater, etc.), and fence charger. Depending on your location, county and city rates combined can be an additional 2 to 3 percent. Sales taxes can add 9 percent or more to your electric bill. Exemptions Not all electricity purchases are taxed the same. It depends on whether the electricity is used in a home or a business, for agricultural use, in a commercial or office building, for pumping oil, in a factory and consumed in production or in a notfor-profit nursing home, just to name a few examples. Furthermore, some uses are exempt from state taxes, but not local taxes. And if that s not complicated enough, some consumers can exempt only part of their use. It can be confusing! Most of the categories are self-explanatory, but agricultural use and consumed in production can overlap and are often misunderstood. Exempt Taxable Oil production Exempt Exempt Not-for-profit hospitals, nursing facilities & children's homes Exempt Exempt Commercial Taxable Taxable Consumed in production E.g. Manufacturing facilities, irrigation of crops, pumping water and grinding feed for livestock, milking and processing equipment, grain handling Exempt Exempt and drying, and building HVAC for animal confinement facilities. Schools, government & churches Exempt Exempt Agricultural Use Like residential use, agricultural use is exempt from state taxes, but not local taxes. Agricultural use is electricity used on the farm or ranch related to growing or raising of agricultural commodities for resale such as livestock, poultry, fish and bees, grains, feed, fruits, vegetables and plants. Consumed in Production Use While all electricity used on the farm or ranch qualifies as agricultural use and exempt from state taxes, some uses will additionally qualify as consumed in production and are exempt from both state and local taxes. In order for electricity to be considered consumed in production, it: 1. Must be essential or necessary; 2. Must be used in the actual process; 3. Must be immediately consumed; 4. Must be used in the production of tangible personal property; and 5. Cannot be reusable. Shipping, testing, repairing, servicing, maintaining, cleaning the equipment and physical plant and storing do not qualify for the consumed in production exemption. Exemption Certificate Other than residential use, all other exemptions are not automatic. You must complete and submit an exemption certificate to your electricity provider before you can receive exemption. You can download a copy of Form ST-28B from the Kansas Department of Revenue s website or request a copy from the cooperative s office. You do not need to submit an exemption form to claim the residential exemption. All other exemptions require a completed form. In some cases, you may have both exempt and non-exempt uses on the same meter. In that case, you must claim a partial exemption that must be accompanied by a utility study supporting the partial exemption percentage. Sales taxes can be complicated; your tax adviser can help you determine whether you are missing out on any sales tax exemptions. 64 KANSAS ELECTRIC COOPERATIVES, INC.

4 RATES & BILLING Electric Rate Change Necessary to Fight Rising Costs and Financial Obligations FROM VICTORY ELECTRIC In our society, we often strive to be above average, but where our electric bill is concerned, most of us prefer to be below average. Being in rural western Kansas, our number of members per mile of line is fairly low, which means our costs per member are significantly higher to provide electric infrastructure and deliver electricity. Yet compared to the 30 other electric cooperatives across Kansas, Victory s current residential kwh rate is the third lowest. Compared to Kansas investor-owned utilities, we are slightly cheaper, which is great considering their customer density and number of meters per mile of line is a lot higher. To maintain the quality, reliability and stability of the services we provide, it is necessary for us to adjust our pricing structure. While virtually all aspects of today s cost of living continue to rise, we pride ourselves on avoiding routine price adjustments. Members haven t seen a rate increase for six and seven years, respectively. The last time rates changed was in 2010 for our MKEC system and 2011 for our rural legacy system. In a world of rising costs for nearly all consumer products, six to seven years is quite an accomplishment. Victory Electric is proposing a 6.7 percent average increase to go into effect April 1, This rate change will be reflected starting on the May 2017 electric bills. The board of trustees and employees of Victory Electric work every day to achieve operating efficiencies to help keep costs low. As your local, not-for-profi t electric cooperative, our primary goal is to minimize the effects of any rate increase while maximizing service in a cost-effective reliable manner that you can count on. In addition to keeping the member s best interests in mind, Victory s member-elected trustees are also responsible for ensuring electric rates are adequate to maintain the cooperative in solid financial condition. Last fall, Victory Electric s board of trustees elected to hire an outside, independent consultant to conduct a Cost of Service Study (COSS). The COSS is an important tool used in setting utility rates. The COSS fairly and equitably breaks down the costs of providing service to each rate class. Each rate class has unique load and service characteristics that impact the costs for that class. The COSS findings offer useful guidelines to assist the board in responsibly allocating costs to each class of members in a way that avoids any Shane Laws class paying more than their fair share. Careful oversight is maintained at every step in the rate change process. The consulting firm was instructed by the board and management to develop their study using standard methods developed by regulatory authorities across the country and the same methods used by the Kansas Corporation Commission (KCC) when Victory Electric was still regulated. The decision to implement a rate change wasn t easy for the board of trustees and management. We understand members don t want to pay more on their electric bill, but we also have a responsibility to our members to keep the cooperative in a solid financial position to meet financial and loan obligations and keep up with rising costs, inflation and other external pressures. In particular, in the seven years since our last rate change, we have seen a significant increase in property taxes. In 2010 our property taxes were $1,573,865, and in 2015 we paid $2,518,096, an increase of $944,231, or 60 percent. At the time of our last rate change, our margins were $3,128,315, and in 2015 margins were $1,693,958, a decrease of $1,434,357. So you can see the $944,231 increase in property taxes attributed to 65.8 percent of the decrease in margins. In addition to property taxes, we have seen increases in the cost of materials (e.g. poles, wire and transformers); escalating environmental compliance costs (e.g. Lesser Prairie Chicken or the Clean Power Plan); and expenses relating to storm damage (the tornados in May 2016 cost upward of $300,000 in damages to our infrastructure). All of this has an impact on our Continued on page 67 KANSAS ELECTRIC COOPERATIVES, INC. 65

5 RATES & BILLING What is an Electric Rate Study? In a sense, an electric rate study is an attempt to predict the future, or at least, the answers to a few questions: What revenue will be required to fund the operations of the cooperative into the foreseeable future? What is the fairest way to collect that revenue through rates? What external factors will have an effect on the cooperative s financial condition? What are the projected sales of the cooperative? Is the cooperative growing? What plant upgrades are needed? Is each customer class paying its fair share of costs? Are the rates properly recovering the costs of providing electric service? The study has several stages. First, existing data is used to determine the revenue required to operate the cooperative. Next, a cost-of-service study is performed to assign the costs of providing electric service to individual customer classes using traditional ratemaking principles. Lastly, rates are designed to meet the cost recovery obligations, to recover the revenue fairly from each customer class, and to meet any other strategy or goals identified by the board. Revenue Requirement The revenue requirement is simply an analysis of the cooperative s existing sales, revenues and expenses in order to predict future revenues and expenses. If we could accurately predict the future, this would be an easy process. Instead, the traditional rate process utilizes a test year. The test year is simply a twelve-month period that is used to predict future periods. Usually, the most recent year is selected as the test year. But, as everyone knows, not every year is the same. If unusual events occurred during the year, those events are normalized to more accurately reflect a typical year. Examples of normalizing a test year would be adjusting for unusual weather such as ice storms, prolonged heat waves and drought. The analysis also examines how much operating margin the cooperative should recover in rates. Operating margin is simply the difference between what the cooperative receives for providing electric service and the operating costs of providing electric service. This operating margin must be FROM ROLLING HILLS ELECTRIC sufficient for the cooperative to cover its interest expense on long-term debt. As a non-for-profit cooperative, any remaining margins are then allocated to the members at the end of each year on a patronage basis. Cost-of-Service Study The cost-of-service study, as the name implies, is simply an analysis of the cooperative s costs of providing electric service. While the revenue requirement study examines what the costs are, the cost-ofservice study examines how and why the costs are incurred. The answers to these questions provide guidance in order to fairly allocate these costs to the appropriate customer classes using traditional ratemaking principles. The costs and expenses of the cooperative are examined in a number of different ways. For example, there are costs associated with the generation and transmission of power and energy. These costs are paid to our power supplier, Kansas Electric Power Cooperative (KEPCo). There are also costs incurred for electric distribution plant used to deliver the electric power and energy to you, the member, such as the costs for substations, poles, lines and equipment as well as trucks, tools, and employees. An attempt is made to assign and apportion those costs according to the appropriate category. These costs are also analyzed by function. Your bill includes a customer charge. The customer charge is identical for each member of a particular customer class. The cost-of-service study will identify the appropriate costs for the customer charge. The remainder of your bill is typically represented by an energy charge per kilowatt-hour used. This charge includes a component for your demand (the amount of power you require at a given point in the month or year) and energy (the amount of energy you consume). In some classes, demand and energy are separated into two different charges. The electric distribution plant that is included in rate base, the revenues derived from electricity and the expenses incurred are then assigned to the different customer classes at the cooperative. Allocating the rate base, revenues and expenses to 66 KANSAS ELECTRIC COOPERATIVES, INC.

6 RATES & BILLING each of the customer classes allows the cooperative to then project the rates of return of each customer class. This rate of return provides a measure of performance of one class compared to the others. Members frequently question why a rate for one type of service is different from another type of service. The amount of energy you use, when you use it, and how your use varies all have an effect on the cost to provide you with electric service. Those varying costs are examined as part of the cost-of-service study. Rate Design Rate design is the procedure that the board uses to develop a strategy for recovering the costs to provide electric service to the members. The overall objective of the rate design process is to set fair and equitable rates for each customer class. Previous aspects of the study identified the costs to serve each customer class and what the nature and function of each cost was. These costs were then assigned to the customer class that contributes to the cost. Rate design now seeks to establish rates for service that will recover those costs. In addition to purely recovering costs through rates, the board of trustees will examine other factors such as the competitive position of the cooperative in relationship to other energy suppliers, the equitability of rates paid by different classes and the effect of rate changes on each of the customer classes. While rate design is an art, the board cannot lose sight of the objective of recovering the cost to provide service in doing so through rates in an equitable fashion. Implementation At the conclusion of the rate design, findings will be presented to the board of trustees for review. After the board of trustees has reviewed the study, the board will recommend that notice be provided to the membership of the time and place of the meeting of the board of trustees where the board intends to discuss and vote on any suggested rate changes. This notice will appear in these pages of this magazine and members will be given an opportunity to attend the meeting, ask questions or hear the discussion of the proposed changes by the board of trustees. Electric Rate Change Necessary to Fight Rising Costs and Financial Obligations Continued from page 65 finances, and a rate change is inevitable to maintain a solid financial footing. You may ask how rate changes can be avoided. The simple answer is that they cannot. Costs will rise, technology and infrastructure upgrades will be necessary and energy use will continue to increase. However, they can remain stable longer if you take steps to conserve energy. Every kwh the cooperative s members avoid using is one the cooperative doesn t have to buy and deliver. This newsletter and our website provide many great ways to save on electricity and better manage your energy use. Changing rates is not the only way our cooperative is working to fight rising costs. We continually look for ways to operate more efficiently and keep costs down. For example, the cooperative has refinanced debt, streamlined internal processes, hired consultants to reduce property taxes, and invested in technology to help reduce costs. One technology upgrade that required a large initial investment has already begun to pay off, and that is the AMI system and digital meters that allow for remote disconnection, connection and reading of meters. This saves the cooperative because servicemen and meter readers don t have to travel to those meters to make changes or obtain readings. We invest in technology to improve reliability, operations and efficiency. We also live by the cooperative difference as a cooperative, we are not driven by profits and making a return for shareholders. Rather, we are servicedriven and operate as close to cost as possible. Our focus is on keeping the business financially strong on behalf of all members, in order to continue to provide safe, reliable service at the lowest practical cost. You will soon receive official notice of the proposed rate change and informational meetings where you can ask questions and talk to co-op trustees. You can attend a public listening meeting on Wednesday, January 25 or Wednesday, February 15, or a special board meeting on Friday, March 24 where the board will discuss and vote on the rate change proposal. If you have questions about this rate change, please visit our website at victoryelectric.net for an extensive Q&A document, or feel free to call our office at and we will do our best to help. Thanks, Shane KANSAS ELECTRIC COOPERATIVES, INC. 67

7 RATES & BILLING Rate Restructure Frequently In March, Sumner-Cowley Electric s Board of Directors approved the new rate restructure proposal that provides your cooperative a 3.6 percent increase in revenue. Beginning in May of 2017, members saw these changes Cletas Rains on their statements. Sumner-Cowley has put together the following FAQ to help members understand the rate adjustment and its various components. How do Sumner-Cowley s residential rates compare with other utilities? Sumner-Cowley s rates are competitive with other utilities serving this area. According to the most recent data published by the US Energy Information Administration, Sumner- Cowley s residential rate is lower than the average residential rate in the state of Kansas. What is Sumner-Cowley doing to hold down costs? Sumner-Cowley strives to operate efficiently while sticking to our mission of providing affordable, high-quality and reliable electric service. This means we are always looking for ways to manage costs, which is why Sumner-Cowley hasn t raised rates since Sumner-Cowley has minimized rate increases by managing costs and implementing a number of cost-saving measures such as: freductions f in staffing freductions f to the Board of Directors foutsourcing f the Operations Department finstalling f and operating a Peak Shaving Generator which has resulted in savings of $250,000 in purchased power costs since Why is my increase different from the notice amount? The official notice states that this rate adjustment will result in an overall revenue increase of 3.6 percent as compared to 2014 s actual revenue. This does not mean your bill will increase by 3.6 percent. Instead, this number represents the additional revenue needed to cover the costs of running your co-op. Who decides when a rate increase is needed? Sumner-Cowley s Board of Directors set the cooperative s electric rates. Directors are Sumner-Cowley members who pay the same rates as you. They are elected by you and other members each year. Directors want to ensure electric rates are adequate to maintain the health of Sumner-Cowley, provide the necessary revenue for delivery of reliable electric service and avoid the subsidization between rate classes. We certainly want to avoid rate increases, but we also need to ensure the longterm financial health of the cooperative. Who determines the amount of the rate change? Sumner-Cowley s member-elected Board of Directors is responsible for ensuring electric rates are adequate to maintain the cooperative s financial health. In the summer of 2016, Sumner-Cowley s Board of Directors chose to hire an outside, independent consultant to conduct a Cost of Service Study (COSS). The COSS is an important tool used in setting utility rates. The COSS fairly and equitably breaks down the costs of providing service to each rate class. Each rate class has unique load and service characteristics that impact the costs for that class. The COSS findings offer useful guidelines to assist the board in responsibly 68 KANSAS ELECTRIC COOPERATIVES, INC.

8 RATES & BILLING Asked Questions FROM SUMNER-COWLEY ELECTRIC allocating costs to each class of members in a way that avoids any class paying more than their fair share. What is the Facilities Charge? The Facilities Charge represents the fixed costs incurred by Sumner-Cowley on a monthly basis and is listed as a separate line item on Sumner-Cowley s billing statements. Some of these fixed costs include the price of connecting to the electrical system, metering, billing, service maintenance, customer service and other costs associated with providing power to the member. These fixed costs remain relatively stable regardless of the amount of kwhs used by the membership. The name, Facilities Charge, has nothing to do with the Cooperative s headquarters or any other facility owned by the cooperative. Why is the Facilities Charge different for residential, commercial, and industrial members? Different kinds of users require different configurations of lines, transformers and substations. Each configuration bears very different costs, which are allocated appropriately to each rate class. That way, no rate class is paying for the needs of another rate class, which is fair and equitable Why did the Facilities Charge increase? The Facilities Charge increase was necessary for Sumner-Cowley to achieve rate equity among ratepayers. If one member uses only one kilowatt-hour of electricity and another member uses 100 kwh, Sumner-Cowley still incurs the same cost to build the line, maintain the distribution system and deliver electricity to both customers. It takes just as much equipment to deliver one kilowatt-hour as it does 100 kilowatt-hours of energy. An increase in the Facilities Charge was needed to recover a portion of the cost of delivering electricity to all members and help maintain the financial health of your co-op. When can we expect the next rate increase? Sumner-Cowley has not implemented a rate increase since It is very difficult to predict any future rate increase. We promise to do our best to minimize the impacts of these issues by being proactive in our planning, offering education and training on energy efficiency programs and focusing on maintaining the reliability, quality and integrity of our systems. How I can manage my bill? Sumner-Cowley offers a number of options to help you manage your power bill. Some of those services include: fbudget f billing fthe f SmartHub app which allows members to monitor and manage their energy use fa fdiy Energy Audit Checklist (available online or at our office) What did Sumner-Cowley do to inform members about the increase? Sumner-Cowley strives to give member-consumers as much notice as possible through a variety of methods. This may include newsletter articles, bill stuffers, news releases, etc. Sumner-Cowley started informing members about the need for a rate adjustment in August Since then, each issue of Kansas Country Living has provided information related to the rate adjustment. KANSAS ELECTRIC COOPERATIVES, INC. 69

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10 RATES & BILLING FROM DS&O ELECTRIC RED ZONE A BILLING EXPLANATION BY JUDY BARTEN, ASSISTANT MANAGER Were you ready for the Red Zone? DS&O s new residential rates went into effect June 1 st. These rates include a period called the Red Zone. The Red Zone consists of kwh usage during on-peak hours, which are 3:00 6:00 p.m., Monday Friday during the months of July and August. It is during these times that energy is its most expensive. As our CEO, Tim Power, wrote in last month s newsletter, the time we really need your help is when we issue a Peak Alert. When we broadcast a Peak Alert (via radio, web site, Twitter), we are expecting temps to soar and usage to be at or near a peak for our system. It is then that we need you to reduce your usage even more during those Red Zone hours. Over the past four months DS&O has been trying to inform all its members of the new residential rates and the Red Zone hours. DS&O has written articles in this magazine, included the information in billing inserts, mailed a separate mailer and visited with members to inform them of the new rates. Your July 29 th or Aug 15 th billing will reflect the new rates by breaking out the kwh you used during off-peak hours on one line and on-peak hours on another. Both of these lines will show their respective kwh charge. DS&O staff hopes that by being able to see the difference in the rates for the time of usage, you will be encouraged to manage your usage during the Red Zone. A sample of the time of use billing is shown below. One way for you to monitor your usage on a more real time basis than the monthly billing is through DS&O s SmartHub. If you have not already done so, please download our SmartHub app on your smartphone or tablet. Once you have set up your account you will be able to login at any time and see your previous usage by the month, day or hour. By monitoring your usage along with keeping a log of your activities and when they were performed, you can figure out which appliances are the big users in your household. Once you know this, you will be better prepared to shed load during the Red Zone. If you would prefer to not have to worry about the Red Zone, remember that DS&O has a prepay rate. The availability fee for this rate is $38.00 per month and the kwh charge for all energy consumed in July and August is $ Usage for all other months is billed at $0.122 per kwh. There is no Power Cost Adjustment with this rate. If you have questions about SmartHub, the prepay program, your first Red Zone bill, or other question about the Red Zone, please do not hesitate to contact the office at from 8:00 noon or 1:00 5:00, Monday Friday. Service Details Number of KWHs used during Off Peak Times. KWH charge for Off Peak Hours. Designated rate class. IE: R-1 Residential Rural R-2 Residential Urban Location: Service Address: 123 Elmo Drive RC R 1OFF Meter Reading Details Meter Detail of Charges R 1 Off Peak 6/25/ Power Cost Adjustment Previous Reading 7/24/ $ Total Usage 1049 KWH Charge Off Peak Days Served: $ KWH Charge On Peak R 1 On Peak 6/25/ $ Previous Reading 7/24/ Availability Charge $ Total Usage 150 Dickinson County Tax $ 2.06 Total This Service $ Number of KWHs used KWH used between the hours of during On Peak Times. 3pm to 6pm Monday thru Friday. Note: Refer to your rate class for correct charges. Table shows example charges only. KANSAS ELECTRIC COOPERATIVES, INC. 71

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