Cost of Service Study and Recommended Rate Design May 11, 2009 - - PowerPoint PPT Presentation

Cost of Service Study and Recommended Rate Design

May 11, 2009

Presented by

• C. H. GUERNSEY & COMPANY

Engineers • Architects • Consultants

PEDERNALES ELECTRIC COOPERATIVE, INC.

2

Cost of Service and Rate Design Study

Objectives:

• Ensure members are charged fair rates
• Ensure PEC reaches financial objectives
• Ensure non-discriminatory approach for all

members

• Balance needs of PEC with impact on members
• Better align PEC with industry standards
• Encourage energy efficiency
• The ability to react to changes in power cost

3

Cost of Service and Rate Design Study

Review:

• Use standard industry and regulatory practices
• Select a test year and make adjustments that are “known,

measurable and continuing in nature”

• Prepare a financial forecast to determine the revenue

requirement

• Develop a cost of service study, allocating the adjusted

cooperative expenses to the rate classes as those expenses are incurred

• Design rates
• Develop a line extension policy based on allowable

investment aligned with rate design

4

Cost of Service and Rate Design Study

How costs are incurred:

PEC builds facilities & provides service based on:

• Serving each meter no matter how small or how large
• Building facilities to serve the peak load

PEC purchases power and passes through to members its power cost based on:

• The cost of power is determined by the wholesale supplier’s

rate

5

Cost of Service and Rate Design Study

PEC specific considerations:

• Ability to grow equity, reflecting changes in the

reporting of contributed capital

• Incorporation of forecast for “low” growth
• Ability to pay capital credits
• Establishment of new guidelines for proper

implementation of power cost recovery

• Line extension policy review

6

Cost of Service and Rate Design Study

Key Findings:

• Since last rate study, PEC expenses have increased

significantly driven by area growth and inflation

• Current PEC establishment fee and line extension

policies are not industry standard

• Current PEC service availability charge is significantly

lower than needed to recover fixed costs

• The PCRF (power cost recovery factor) is not clearly or

directly tied to power costs

• Service availability cost for Large Power members does

not sufficiently consider load factor, efficiency and load size

7

Revenue Requirement Adjusted Test Year – Proposed Rates

Fixed 16% Labor 10% Non-Labor 8% Power Cost 59% Margin 7%

Note: Percentages within cooperative electric industry norms

8

Billing Change

• Existing rates and Original Proposed rates

– Rates included both the PEC Delivery Charge and Power cost with four alternate rate designs

• First Revision

– Power cost and PEC Delivery Charges separated with two alternate rate designs

• Recommended

– PEC charges, base power cost and power cost adjustment separated into pieces to allow the member to clearly identify how much of the bill is:

1) Service Availability Charge 2) Distribution Energy Charge 3) Base Power Cost at the time rates were established and 4) Power Cost Adjustment (changes in power cost relative to base power cost)

9

10

How the Power Cost will work:

• Base power cost is $0.072077 per kWh for

secondary customers – this is fixed until the board authorizes the next general rate change Power Cost Adjustment:

• LCRA is lowering the wholesale rate which will be

reflected on PEC’s July 2009 LCRA Bill

• Base power cost will remain $0.072077 per kWh

for secondary customers.

• The reduction in the wholesale rate will flow

through to members directly through the Power Cost Adjustment

11

12

13

14

Every kWh the member conserves, lowers his or her bill by $0.104201 PEC gets a reduction of $0.032124 in reduced delivery revenue PEC’s delivery costs do not go down Every kWh the member conserves, lowers PEC’s margins by $0.032124

15

PURPA

• PURPA requires the cooperative to consider rate

designs that encourage energy efficiency.

• It also requires the cooperative to consider that it

“remove the throughput incentive and other regulatory and management disincentives to energy efficiency.”

• PEC is committed to promoting conservation and

energy efficiency.

• Recovering distribution wires costs through

energy charges is a disincentive to the cooperative to promote energy efficiency.

16

17

18

19

Note: Recommended billing includes Base Power Cost of $0.072077 per kWh. The Power Cost Adjustment factor will also be applicable to lighting

20

Line Extension Policy

• Proposed procedure

– Adjust Establishment Fee and add Line Extension policy providing for Contribution in Aid of Construction (CIAC) – Proposed Accounting: CIAC reduces capital costs (depreciation and interest) which, over time, improves equity and lowers upward pressure on rates

• Cost of Service Study determines allowable

investment PEC can make to serve each rate class

• Consistent with other Texas cooperatives

21

System Impact Fee / Contribution in Aid

• f Construction
• Member pays System Impact Fee of $200
• PEC allows $2,000. For the typical residential

customer this includes:

– 1 span of overhead single phase primary line – The cost of a single phase transformer – Service line from the transformer to the meter – The meter

• Member pays full cost in excess of $2,000

22

FUTURE CONSIDERATIONS

• Time of Use (TOU) rates
• Wind / Renewable rates
• Distributed generation