Beartooth Electric CooperativeRate Design Analysis
October 24, 2019
Russ Schneider, Senior Financial [email protected]
A registered professional engineering corporation withoffices in Kirkland, WA, Portland, OR and La Quinta, CA
Telephone: (425) 889-2700 Facsimile: (425) 889-2725www.eesconsulting.com
Rate Setting Considerations
Rate setting is an art - Not a science
Existing rate levels and design
Member feedback
Utility goals and objectives
Regulatory constraints/requirements
Cost of service (COSA) results
• Provides COSA unit costs for energy, demand and facilities charges for each rate class
• Move toward COSA rates when it is within good utility practice for rate setting
2
Rate Setting from the Member Perspective Rates should foster fairness and equity
• Minimize subsidization within and between customer classes Rates should be comparable
• Members that place similar utility system demands should pay the same rate Rates should be affordable
• Since electricity is a necessity, service from the utility should be affordable to all members within its service area
• Since businesses compete with other businesses in other utility service areas, competitively priced electricity is important to the community
Rates should be understandable• Unless members can reasonably ascertain how their consumption patterns effect the
price they pay, they will not be able to make rational decisions pertaining to usage Rates should be stable, predictable
• Unstable rates can hinder planning for members, especially businesses
Rate should be cost-based• For member-owned not-for-profit utilities, there shouldn’t be a profit incentive
3
Rate Setting from Utility Stewards Perspective Rates must fully recover the utility’s revenue requirement
• Maintain fiscal responsibility Rates should allow for sufficient funds to cover needed capital improvements to
maintain and preserve the value of the system• Changing the oil preserves value of the vehicle
Rates should be fair and equitable and send proper price signals • Facilitate management of cost structure changes over time
Rates should promote good customer service• Fair rates promote good will with members
Rates should promote economic efficiency • Encourage efficient use of the existing system, efficient expansion, and location of new
lines and substations Rates should provide for revenue stability and predictability
• Avoidance of rate shock and allow for better forecasting of rate revenues Rates should be simple and easy to administer
4
Rate Design Scorecard
5
Rate Design Scorecard Current Rates Option 1
Option 2
Option 3
Option 4
Member PerspectiveRates should foster fairness and equity Rates should be comparableRates should be affordable Rates should be understandableRates should be stable, predictableRate should be cost-based
Rate Design Scorecard Current Rates Option 1
Option 2
Option 3
Option 4
Utility Steward PerspectiveRates must fully recover the utility’s revenue requirementRates should allow for sufficient funds to cover needed capital improvements to maintain and preserve the value of the systemRates should be fair and equitable and send proper price signals Rates should promote good customer serviceRates should promote economic efficiency Rates should provide for revenue stability and predictabilityRates should be simple and easy to administer
Question 1 - How many different charges for service? 1-Part Fixed or Energy
• (uncommon)• Example = cell phone plan fixed charge for all energy, demand, and fixed costs
2-Part Fixed and Energy Rate • (traditional approach)• Example = facilities charge and flat energy charge
3-Part Fixed, Energy, and Demand Rate • (common for commercial, becoming more common for residential)• Example = facilities charge, demand charge, flat energy charge
4-Part Fixed, Energy, Demand, and Power Factor • (common for industrial)• Example = facilities charge, energy charge, on-peak demand, power factor
penalty 5-Part Fixed, Energy, Demand, Power Factor, and Renewable
• (special situations, etc.)
6
Question 2 – Design choice for each charge? 2A - Facilities Charge Design
• Basic Monthly Charge• Minimum Charge• Other
2B - Energy Charge Design• Flat Rates• Block or Tiered Rates• Time of Day Rates• Real Time or Market Pricing• Other
2C - Demand Charge Design• Non-Coincident Peak• Coincident Peak• Time of Day (On Peak only)• Annual Peak • Other
7
Question 2A - Design choice for fixed charge?
Facilities Charge Designs ($/customer)• Basic Monthly Charge
Most common, current Beartooth approach• Daily Charge• Minimum Bill
No fixed charge or with fixed charge • Bundled Energy
For example 200 kWh included with fixed charge
8
Cost Drivers – COSA Unit Costs - Facilities Charges Member Service
• Supervision• Meter Reading/Billing/Financial Systems• Member Services/Marketing/Communications• Other customer or general member related expense
Administration & General• Salaries and Benefits• Office Supplies and Equipment• Outside Services and Legal• Property Insurance and Damages• Maintenance of General Plant
Customer-Related Distribution System Costs• Customer-related portion based on minimum system assumptions and other
allocation factors• Most of these included in demand unit costs for 100% Demand approach
9
Rate Design Scorecard – Facilities ($/customer)
10
Rate Design Scorecard* Basic Charge (Current)
Minimum Charge
Bundled with Energy Daily Charge
Member PerspectiveRates should foster fairness and equity + +/- - +Rates should be comparable + + - +Rates should be affordable + - +/- +Rates should be understandable + - + +Rates should be stable, predictable + +/- + +Rate should be cost-based +/- +/- +/- +/-
Rate Design Scorecard
Utility Steward PerspectiveRates must fully recover the utility’s revenue requirement + + + +Rates should allow for sufficient funds to cover needed capital improvements to maintain and preserve the value of the system + + + +
Rates should be fair and equitable and send proper price signals + + - +Rates should promote good customer service +/- - + +Rates should promote economic efficiency + + - +Rates should provide for revenue stability and predictability + + + +Rates should be simple and easy to administer + - - +
*Analyst perspective - some aspects depend on the level/design of charge relative to embedded cost
Question 2B- Design choice for energy charge?
Energy Charge Designs ($/kWh)• Flat Rates
Same price for all units • Block or Tiered Rates
Inverted or Declining• Time of Day Rates
Different charges for use during on peak on off peak periods• Real Time or Market Pricing
Different charges based on a variable market or actual time-based costs• Other
11
Cost Drivers – COSA Unit Costs – Energy Charges
Power Supply• Wholesale Power Supply Costs
Typically power supply contract terms are the primary driver on choice of energy charge design:• If seasonal, then seasonal energy rates might be appropriate• If time-of-day variable or market, then time-of-day rates might be appropriate• If marginal or future costs are higher, then inverted block rates might be
appropriate• If marginal or future costs are lower, then inclining block rates might be
appropriate
12
Smart and Real Time Pricing - Example
13
Smart and Real Time Pricing - Example
14
Rate Design Scorecard – Energy ($/kWh)
15
Rate Design Scorecard* Flat (Current) Tiered Time of Day Market
IndexMember Perspective
Rates should foster fairness and equity +/- +/- + -Rates should be comparable + - - -Rates should be affordable +/- +/- +/- +/-Rates should be understandable + - - +Rates should be stable, predictable +/- +/- - -Rate should be cost-based + +/- + +/-
Rate Design Scorecard
Utility Steward PerspectiveRates must fully recover the utility’s revenue requirement + + + -Rates should allow for sufficient funds to cover needed capital improvements to maintain and preserve the value of the system + + + -
Rates should be fair and equitable and send proper price signals + + + -Rates should promote good customer service + +/- - -Rates should promote economic efficiency - / + + + -Rates should provide for revenue stability and predictability - / + +/- + / - +/-Rates should be simple and easy to administer + +/- - -
*Analyst perspective - some aspects depend on the level/design of charge relative to embedded cost
Question 2C - Design choice for demand charge?
Demand Charge Designs ($/kW or $/kVA)• Non-Coincident Peak
Most common, easiest for billing• Coincident Peak
Less common, more complicated for billing• Time of Day
Typically On Peak Only • Annual Peak
Highest demand in last 12 months or percentage Ratchet demand or load size charge approach
16
Cost Drivers – COSA Unit Costs – Demand Charges Power Supply
• Not demand related currently, but commonly a portion is demand-related and could be in the future for Beartooth
• Wholesale transmission charges based on demand (Northwestern) Distribution
• Utilities typically size the distribution system for peak demand but allocate costs based on minimum system assumptions and other allocation factors Supervision, Engineering, Materials, Fleet Vehicles, and Tree Trimming Line and Station Expenses, Overhead and Underground Lines Maintenance of Stations, Structures, Lines, Transformers, and Equipment
Typically Non-Coincident Peak is the primary driver on choice of demand charge• Other options if there are a significant portion of demand-related power supply
or transmission costs related to coincident peak, may be seasonal or time-of-day implications
17
Refresher on Demand Terminology• Kilowatt (kW) = A watt is the unit of measure of the instantaneous
demand for energy, or rather, for electrical work. One kW is equal to one thousand watts.
• Average Kilowatt (akW) = Total annual energy consumption in kilowatt hours divided by the number of hours in the year.
• Non-coincident peak (NCP) = the highest instantaneous demand for energy (kW) for a metering point in a period.
• Load Factor (LF) = the average energy (akW) divided by the maximum or highest demand for energy (NCP in kW).
18
Coincident (CP) vs. Non-Coincident Peak (CP) Demand
19
20
Residential Demand Drivers (other than Heating)
• Some of the appliances are inflexible
• Use of other appliances could be staggered to reduce demand
• Could potentially save approximately 40% (from 8.5 kW to 5 kW)
Rate Design Scorecard – Demand ($/kW)
21
Rate Design Scorecard* No Charge (Current)
Non-Coinc (NCP)
Coinc(CP)
Time of Day(On Peak) Annual Peak
Member PerspectiveRates should foster fairness and equity - + + + +Rates should be comparable + + - - -Rates should be affordable + +/- +/- +/- +/-Rates should be understandable + - - - +Rates should be stable, predictable + - - - +Rate should be cost-based + / - + + + +
Rate Design Scorecard
Utility Steward PerspectiveRates must fully recover the utility’s revenue requirement - + + + +Rates should allow for sufficient funds to cover needed capital improvements to maintain and preserve the value of the system - + + + +
Rates should be fair and equitable and send proper price signals - + + + -Rates should promote good customer service + - - - -Rates should promote economic efficiency - + + + -Rates should provide for revenue stability and predictability - + + + +Rates should be simple and easy to administer + - - - +/-
*Analyst perspective - some aspects depend on the level/design of charge relative to embedded cost
Working Group Ideas for Next Steps… Select rate designs for further analysis
Look at boundary conditions• These would be the outer bounds of potential rate designs
1-part rate - All energy rate 2-part rate with only wholesale power and transmission in energy 3-part rate with 100% Demand COSA unit costs
Look at realistic rate designs to consider implementing….• These would be rate designs that fall within the boundary conditions that pass
member and utility steward rate criteria Incremental 3-part rate - small demand charge of $1 or $2 dollars/kw Rates to address seasonal patterns – minimum bill and/or annual demand/ratchet
approach Others from Committee and/or Board?
22
