Customer/members of Empire Electric Association will soon be facing some decisions on how and when to use electricity to minimize their monthly bill.
EEA is creating a new rate structure for its customers that will result in fairer distribution of infrastructure and operating costs across its membership. The new rate structure will also allow EEA to better respond to changes in electric power markets and serve new electric demands such as plug-in electric vehicles.
When Empire Electric is facing a decision regarding budget, rates, or new infrastructure, the decision-makers are best served by remembering the unique circumstances that created EEA.
The EEA website tells the story as follows:
“In 1939, a group of forward-looking leaders in southwest Colorado took advantage of the lending capability of the Rural Electrification Administration. REA was created to extend electricity to the underserved areas of the country.” To qualify for the REA loan, EEA had to be formed as a cooperative with customers as owners and controllers of the association.
As EEA has grown in membership and service options over the past 81 years, customers have left much of the operations and decision-making to the experts that manage and operate the utility. But they still hold the power to vote for the Board of Directors who ultimately make the decisions that affect each member. One of those decision points is coming in 2021.
Andy Carter, EEA’s member engagement manager, said in an interview with the Four Corners Free Press, “EEA is changing its rate structure because it is good for the cooperative overall while giving members more control over their monthly bills.”
While the change in rate structure may increase some members’ monthly bills, the goal is to make the change revenue-neutral, meaning that it will not increase the amount of money that EEA receives monthly from its members.
Rather, the goal of the new rate structure is to better match what a member pays for electric service to the cost of delivering that service to their home or business.
“The new rate will have energy (kWh) prices that vary depending on the time of day that the energy is used, plus a maximum demand charge based on the highest 15-minute energy use interval in the billing period.,” Carter said.
“The existing rate is a flat energy charge that does not vary and the only opportunity to save on your bill is to reduce usage.”
A new charge on your bill
EEA members are used to getting a bill with two charges on it: a grid access charge; and purchased power cost. The grid access charge is the same charge every month for every customer (currently $34) and is used to cover the “fixed costs” associated with operating and maintaining the utility such as customer accounts and service, administration, and taxes.
The purchased power cost is a flat rate applied to the amount of electricity used by the member each month measured in kilowatt hours (kWh).
The total monthly bill is the grid access charge plus the number of kWh multiplied by the power purchase cost. For example, the average EEA member who uses 680 kWh each month, pays the $34 grid access charge plus $39.67 (680 kWh x $0.0583/ kWh) for purchase power for a total bill of $73.67. Currently, the only way that this average customer can reduce their monthly bill is to use less electricity.
Under the new rate structure, there will be a new charge on each member’s bills based on the customer’s maximum monthly demand for electricity, generally called a demand charge. In addition, the power purchase cost will be based on time-of-use (TOU) rates. The demand charge captures how much it costs EEA to deliver power to an individual customer.
One of the quirks of electricity is that it only flows when there is a load or demand for power. We all expect that when we turn on an appliance, computer, or battery charger at the same moment that there will be enough electricity ready and waiting to serve us.
It is obvious that the larger the demand for power, the larger the wire or pipe and valves need to be to provide that gush of power (to use a waterworks analogy). Under the present rate structure, an EEA member that plugs in their electric vehicle, turns on the electric dryer, and all the lights in their house demanding a big gush of electricity at the same time, pays the same rate as the average customer who demands much less at that same moment. It costs the cooperative much more to serve the first member because it must provide the infrastructure (wire and transformers) large enough to meet their maximum demand as well as pay for the power.
According to Carter, “The demand charge will distribute the cost of meeting a customer’s maximum electric demand more fairly across cooperative members because the members that cost the cooperative more will pay more.” Carter gave an example of how the cooperative was hurt by the current rate structure and demand charges EEA pays to its power provider, Tri-State Generation and Transmission Association.
October 2019 was a relatively warm month, meaning that EEA didn’t sell much electricity during the month. However, a Halloween storm caused EEA members to crank up their heat and lights at the same moment incurring large demand charges from Tri-State.
Since these charges occurred at the end of the month, EEA didn’t collect enough revenue in October to cover its bill to Tri- State. The new rate structure will reduce the risk of these uncovered demand costs.
In addition to a new demand charge, members will pay different purchase power rates, depending on when they use electricity. These rates will be divided into peak and off-peak rates based on Tri-State’s demand charge structure.
In practice, EEA members will pay one rate for electricity (kWh) used during peak hours (noon to 10 p.m.) and a lower rate for electricity used during off-peak hours. Members can reduce their bill by shifting their electricity use to off-peak hours.
But beware, by turning on everything in the house at 10:01 p.m., a member could incur a large demand charge that would more than offset the savings gained by the offpeak rate.
How much more will the average EEA member pay?
When asked this question, Carter responded as expected, “It depends on the member.”
He quickly added that EEA is taking great care in designing the new rate structure to ensure that the average member does not pay $10 more (or less) than their current monthly bill. Carter expects that “Most people won’t even notice the change in their total bill.”
In addition, members can opt out of the new rate structure. The new rate structure is scheduled to occur in September or October 2021 with discussion and approval of the new rates by the board of directors during the spring/summer.
Carter advised customers wanting to prepare for the new rate structure to review their monthly electric bill where they can find their maximum/peak demand reported in kilowatts (kW).
Starting in 2021, a member’s electricity consumption will be shown for peak and off-peak periods.
EEA’s net metered customers will also be subject to the rate structure change and will face the new demand charge.
Additionally, Carter noted that “their net meter bank will trade like for like” meaning that peak hour kWh generated can only be used to cover peak hour kWh demand. Since most net metered customers only generate electricity during the daytime, they may have to shift some of their electric demand from EEA to use up their banked hours accordingly.
It may take more advanced math to figure out the best time to charge an EV.
“Overall, the rate structure change will make the cooperative stronger and more resilient to coming changes in electricity use and demand,” said Carter.
In anticipating new loads and potential for bargain shopping on the electricity market, EEA is taking steps to transform rural communities yet again.