Electric Rate Concepts
In an Era of Change
Oregon Statewide Directors Workshop
Rod Crile
Regional Vice President, Member Services, CFC
CFC: Created and Owned by America’s Electric Cooperative Network
Created and Owned by America’s Electric Cooperative Network
Three Step Process to Rate Making
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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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Caveat
Oregon 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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Why Is Everyone Talking About Rate Design
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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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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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Mitigating Risk
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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
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Unnecessary generation expansion / spot purchases
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Traditional Residential Rate Design
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Three part cost
– Consumer
– Energy
– Demand/capacity
• Generation
• Distribution
– Margin
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Cost of Service
– $36.00
-Fixed
– .02600
-Variable
– $10.00
-Fixed
• 6.00
• 4.00
– $5.00
-Fixed
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Traditional Residential Rate Design
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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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Moving Away from Yesterday’s Two Part
Rate
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Keep raising the “customer charge” up to match cost of
service
– Which number?
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Just customer?
$36.00
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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 Created
low users
– decrease for high
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users
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Moving Away from Yesterday’s Two Part
Rate
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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
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More/better communications on how cost are incurred
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Print the demand usage on the bill with no associated charge
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Starting to bill demand, but at a low rate $.50 per KW
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Moving Away from Yesterday’s Two Part Rate
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Interim steps – to get where you want to be
– Communications
– Break out charges differently on the bill
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Customer charge
$22.00
•
Distribution cost per kwh
$.0256
•
Generation per kwh
$.040
•
Energy per kwh
$.060
•
Total
$.1256
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Moving Away from Yesterday’s Two Part Rate
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Interim steps – to get where you want to be
– Margin stabilization – formulary rate
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Equity
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TIER
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Annual adjustments
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Does not help rate design issues
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Summary
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Communications is critical
– Inside and outside the cooperative
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Technology
– Properly bill the rate
– Properly support the rate
– Give the member the information they need
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Review rates annually are they:
– Generating the required margin?
– Getting the desired member response?
– Matching the power supplier’sCreated
rateandstructure?
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Summary
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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
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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
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