Empire’s new rate structure, explained

by Carolyn Dunmire | May 10, 2021 6:12 am

In an interview, Andy Carter answers basic questions about the coming change

Bills from Empire Electric Association will have a whole new look starting in Sep­tember, as it is upgrading its rate structure and customer billing system. The new Time-of-Use Demand (TOUD) rate structure will change how EEA charges its customers for electricity.

The Four Corners Free Press interviewed Andy Carter, Empire’s member engagement manager, by telephone and email and at­tended the member forum on April 12 to learn more about these changes that will take effect Sept. 1.

Four Corners Free Press: Why is EEA creating a new rate structure?

Carter: First thing, it is important to re­member that EEA is a member-owned co­operative and decisions about rates are made by the elected board of directors for the good of the cooperative. In other words, we aren’t out to make money for third-party in­vestors. EEA’s board of directors and staff have been looking at a change to the rate structure for years as a way to increase fairness, give mem­bers more control over their bill, and improve the finan­cial stability of the co-op. The TOUD rate structure is the culmination of this deliberation.

This new rate structure also will al­low EEA to take ad­vantage of changes to the electric market and give customers more control over their monthly bill. Tri-State Genera­tion and Transmission Association, EEA’s primary power provider, is allowing distri­bution companies like EEA more flexibil­ity in electric purchase and self-generation. This new rate structure will help us respond to these changes. In addition, EEA’s mem­ber/customers have changed the way they use electricity. Remember a time before cell phones and remote control of your light­ing and appliances? This new rate structure also allows EEA to more fairly allocate in­frastructure requirements to meet new cus­tomer demands such as electric-vehicle (EV) charging. For example, La Plata Electric Association has a program where they own the EV charging station at their customers’ homes, and they control when the EV can be charged. We know that EEA customers would prefer to own and control their EV charging stations. So, we needed to create a rate structure that would encourage custom­ers to charge their cars off-peak, minimizing the need to upgrade our distribution system to handle this new load.

FCFP: How did EEA design the new rate structure?

Carter: The main goal in designing rates is to balance fairness with practicality. EEA has always used the “cost causation princi­ple,” which means that rates are based on al­locating costs incurred by the cooperative to the ratepayer responsible for the cost. There­fore, to be totally fair there would be a dif­ferent rate for each of the 17,000 services. Obviously, this is im­practical. The way that we compromise is to group custom­ers using similar ser­vices into a manage­able number of rate classes. For example, a homeowner who uses residential-scale appliances is grouped in the “residential rate class” separate from, say, a restaurant or big-box store with commercial-scale ap­pliances like large re­frigerators and thou­sands of square feet of buildings to light and heat.

The art to rate design, what I call “buck­et-ology,” is how to allocate the costs of purchase power from Tri-State, the cost of distribution equipment investment and maintenance, and the administrative costs of running the co-op and billing our customer/members across these rate classes. The easy way would be to take total costs each month and divide them by to­tal number of custom­ers. But that wouldn’t be fair. We would be over-charg­ing custom­ers who use less power to cover the costs and main­tenance of larger equipment needed to meet cus­tomers with high de­mand.

FCFP: What is a TOU rate?

Carter: A time-of-use rate is based on en­ergy use over time as measured in kilowatt-hours (kWh). EEA’s current rate structure is often referred to as an “all-energy rate,” meaning that we allocate all costs to our rate classes based on energy use. It requires that we allocate energy and demand costs across the amount of kWh a customer buys each month. This can lead to payment shortfalls when customers don’t buy “enough” energy during a month. This happened a few years ago during a particularly warm October when customers did not buy much energy until the last few days of the month, when a cold snap hit. When everybody turned on their lights and heaters at the same time, EEA’s demand charge from Tri-State was large because we have a contract with them that says they will meet “all of our require­ments” for power no matter how big that spike in demand may be. Yet, because cus­tomers hadn’t used much energy during the rest of the month, we weren’t able to recover this demand cost in that monthly bill. This risk of potential shortfall is not good for the financial position of the cooperative.

The TOU rate better matches how Tri-State charges EEA for energy. The rate charged per kWh will change depending on the time that it is purchased, on-peak or off-peak. Energy purchased between noon and 10 p.m. Monday through Saturday will be billed at the on-peak rate of $0.15114 per kWh for residential consumers. Energy pur­chased all other times will be charged at the off-peak rate of $0.04428 per kWh (about half the current all-energy rate). The on-peak and off-peak times mirror EEA’s con­tract with Tri-State.

The TOU rates offer customers a new way to reduce their monthly bill without using less energy. For example, the average EEA residential customer purchases about 40 percent of their energy during on-peak hours. Just by shifting the time of day that they, for instance, run their electric dryer, the average customer could save money.

This side-by-side comparison of the old “all energy” rate structure and new TOUD rates was included in the April 2021 issue of Colorado County Life.

What is the new demand charge that will be on EEA’s residential customer bills?

Carter: The demand charge is based on a customer’s energy use without the time com­ponent and is measured in kilowatts (kW). It reflects how much power a customer re­quires all at once. Just as Tri-State has a duty to meet all our power requirements, we have the duty to meet our customers’ power re­quirements, no matter how many appliances, lights, heaters, or chargers they turn on at the same time. Just like when you blow a fuse in your house because you turned on the elec­tric oven, electric broiler, and microwave at the same time, we need large-enough equip­ment available to allow you and your neigh­bors to turn on your appliances, lights, and chargers at the same time. EEA owns, oper­ates, and maintains the wires and equipment that bring power to your home. Currently, we charge all residential customers the same rate for this equipment in the energy charge whether we must upgrade that equipment to meet a large demand at their house or not. The new demand charge will allow us to more fairly allocate these equipment and maintenance costs.

The new demand charge is based on the maximum number of kW used by a cus­tomer each month. Each meter’s total kWh is measured every 15-minutes. The demand charge for a residential customer will be $2.74/kW for the maximum kW level on their meter during that month. Currently, the average EEA residential customer has a maximum demand reading of 5 kW. That would result in a demand charge of $13.70 per month. You can find the maximum de­mand for your household on your monthly bill under “Peak Demand: X kW.”

FCFP: Wait a minute, I am confused by on-peak hours and peak demand.

Carter: Yes, I know that is confusing and we apologize for that. We are also upgrading our customer database and billing system. Your September bill will look completely different and better explain this TOUD rate structure. In the meantime, we are working within the constraints of our existing sys­tem.

To clarify: there are on-peak and off-peak times of day that will determine the rate used to charge your energy or kWh purchased. Your maximum demand in kW (currently listed as peak demand on your bill) will de­termine your monthly demand charge.

FCFP: So, what’s my monthly bill go­ing to be under this new TOUD rate structure?

Carter: In addition to making the coop­erative more financially stable and distrib­uting costs more fairly, one of the goals of the new rate structure was to be revenue-neutral. This means that EEA is not plan­ning to collect more money from the entire membership with the rate structure change. Individual member bills will go up or down based on usage habits but the average cus­tomer will see less than a $10 change, up or down, of their current monthly bill even if they don’t make any changes to the way they use electricity.

For the average residential customer, their monthly bill would be about $3 lower each month under the new rate structure. But like every other user cost promise out there, “your mileage may vary.” It will depend, in part, if you are higher or lower than the hypotheti­cal average EEA customer. If your monthly energy use is higher than 600 kWh per month your bill could be higher or lower depend­ing on when you purchase electricity. If you switch to running your electric dryer to the morning instead of the evening, you could see a lower monthly bill. If your maximum demand during the month is higher than 5 kW, you would see a higher monthly bill.

FCFP: What about the special case of residential net-metering customers?

Carter: Just like all other residential cus­tomers, net-metering customers will auto­matically go to TOUD rate structure in Sep­tember unless they opt to stay at all-energy rate. The difference will be that they will bank and be charged for energy at the on-peak and off-peak rates. It is a like-for-like system. They will essentially have two banks to draw from. Those kilowatt hours gener­ated and banked during on-peak hours can be used to meet demand during on-peak hours. They will be charged according to the on-peak and off-peak rates if there is no bank available. For folks with solar panels, they have a good opportunity to bank a lot of on-peak energy during the noon to sunset period. And just like regular residential cus­tomers, they can save money by purchasing energy during off-peak hours if their bank is depleted.

FCFP: When do I have to decide?

Carter: Starting in September, the default residential cus­tomers will be billed with the TOUD rate structure. Cus­tomers/mem­bers will have the opportunity to “opt-out” of the change starting in July or August. If it takes a few monthly bills to figure out which rate structure is better, you will have a second chance after September to make the change.

FCFP: What can I do now to prepare for the change?

Carter: My recommendation is to con­sider “Cuando y Cuantos,” which translates to when (cuando) you use appliances and how many (cuantos) at the same time. (See article in February 2021 Colorado County Life.). Think about when you use power and if you can change your tasks to more off-peak use. There are a few ways to do this. Try setting an alarm for noon each day and inventorying the number of electric appliances that are currently turned on. Are you running your electric dryer? The dishwasher? Do the same thing at 6 p.m. Could you run the dishwasher and dryer during off-peak hours?

Be careful, because it won’t do you any good to turn everything on at 10 p.m., when the off-peak period starts, because you could rack up a high demand charge. Consider staggering the starts. Run the dishwasher and when it is finished, then turn on the dryer.

Look at your past monthly bills to see how yours compare to average. Consider re­placing some appliances with more efficient ones. EEA offers rebates on EnergyStar ap­pliance purchases. It might be time to retire that extra refrigerator in the garage. You can get credit for recycling that fridge at local ap­pliance dealers. See the EEA website, www.eea.coop, for details.

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