Rate structure changes would more fairly cover costs

Posted: Sunday, December 05, 2010

Editor's Note: This is a response to the Thursday, Dec. 2, OP-ED piece submitted by HEA Members Forum spokesman Mike O'Meara.

During 2010, Homer Electric Association (HEA) embarked on an extensive rate review process that resulted in a new rate design proposal that was approved by the HEA Board in October and submitted to the Regulatory Commission of Alaska (RCA) on Nov. 1.

HEA's proposal is the result of a year-long effort to more fairly recover the costs of providing electric services to its members. HEA has consistently encouraged its members to participate in the rate review process. In August, many members attended a workshop on the issue, this rate process has been the subject of several articles in local newspapers and HEA's newsletter, and HEA recently ran ads in local newspapers alerting members of the RCA review process. Additionally the draft rate proposal was discussed in September at [six] HEA area meetings.

In an effort to respond to some questions raised by the HEA Members Forum, HEA offers the following responses:

Q. How much will my electric bill go up?

A. The impact on most of HEA members' bills will be minimal. For example, the current monthly charge for an HEA residential member using 500 kilowatt hours is $87.68. Under the rate restructuring proposal, the charge for 500 kilowatt hours is $89.77, a 2.38 percent increase (using HEA's projected costs for purchased power for the balance of 2010).

The percentage increase will be greatest for the HEA residential members who are using less than 150 kilowatt hours per month. This is the where the hard decisions were made by the HEA Board. The Cooperative incurs a significant amount of fixed costs (approximately $90 a month per meter) to provide electric services to members, costs that do not vary based on the amount of energy each member uses. These costs relate to billing, metering, customer service, poles, wires, substations, generation plant, transmission lines, and insurance. Currently, HEA charges an $11 monthly residential customer charge which obviously falls far short of the $90 needed to cover the fixed costs.

HEA is proposing a two-pronged approach to address the issue. The first element is to raise the current customer charge for all HEA residential members from $11 to $15. The second element is to implement a minimum residential energy charge equal to 150 kilowatt hours, which at today's rates equals about $18 per month.

As a result of these two changes in the rate proposal, all HEA members will be paying a minimum monthly bill (about $33 for residential members), except for those exempt members involved in HEA's net metering program.

Q. Does the rate proposal penalize those trying to save energy? Why doesn't the plan do more to encourage energy efficiency and conservation?

A. HEA does not believe this proposal penalizes members trying to save energy. The rising cost of energy is reason enough to encourage wise energy usage by all HEA members. It is important to realize that 150 kilowatt hours is a minimal amount of energy use: It basically covers the energy for one refrigerator, a television used five hours per day, and two 60-watt light bulbs used 10 hours a day. The average HEA member uses more than 600 kilowatt hours per month and with continuing economic pressures, we all have incentives to reduce our energy usage to lower our bills.

Energy efficiency and conservation are important goals to HEA and its members, and HEA will continue to support cost-effective energy efficiency and conservation measures.

Q. What things are included in the cost of power adjustment? How does this differ from what we are paying now?

A. A key component of the rate proposal is a new cost of power adjustment (COPA) charge which covers the variable energy costs that HEA incurs for fuel and purchased power from Chugach Electric. The new fuel and purchased power charge is not a rate increase and only reflects HEA's variable costs to provide electric energy to its members.

HEA currently uses a complicated rate mechanism called the Wholesale Power Cost Rate Adjustment (WPCRA) that mainly reflects the difference in both fixed and variable charges for purchasing power from Chugach Electric as compared to these costs when HEA had its last rate case. The balance of fixed and variable charges for power purchased from Chugach Electric is currently being recovered through HEA's base rates.

HEA is proposing this change to the fuel and purchased power charge so that it will clearly reflect on members' bills HEA's fuel and purchased power costs in a more transparent manner. Only the more stable or fixed costs of purchasing power will be recovered through base rates.

Q. Isn't the cost of providing service higher south of Kachemak Bay? Why should HEA members on the north side subsidize service to those on the south side?

A. The independent cost of service analysis completed for HEA indicates that the cost to serve HEA members south of Kachemak Bay is not significantly different than providing service elsewhere in the HEA service area.

Brad Janorschke is general manager of Homer Electric Association.

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