Lamar Utility Board Begins Study on Rate Structure

The Lamar Utility Board received an update on its customer rate structure during their March 13^th meeting.  Members heard from Andrew Ross, Director of Utility Services and Member Relations of the Nebraska Municipal Power Pool, an organization used by the Light Plant to evaluate their rate structure.  The Lamar Light Plant is one of several in Colorado and the southwest that is advised by NMPP.

Ross highlighted three areas of finance for the board: its financial plan, cost of services and rate design study.  His general finding, based on current finances, was the Light Plant was in good shape regarding its cash balance/cash on hand at about $8M.  He concluded that at current operating levels, a rate increase would not be warranted until 2021, but he did suggest a rate restructuring procedure which would balance out the cost of service between two classes of customers.  He explained the board should, “start to restructure your rates so that your efficient high load factor customers are not subsidizing your low load factor customers,” said Ross.

As an example, he told the board, “What happens over time, when you have efficient customers with high load factors, which means somebody who is using a lot of energy compared to their system, they are subsidizing your low load factor customers. An example would be a grocery store open a lot of hours, with 24 hour refrigeration.  They tend to have high load factors and are using a lot of energy compared to the infrastructure that you have invested to serve them.  Now, a low load factor customer might be a grain elevator who requires a large amount of energy, a lot of capacity, or large transformer and a lot of service, and then they’re not using a lot of energy through the year.  You’ve put in a lot of investment for a customer who has a large draw and may only be drawing twice a year.  You need to cover those investments as you’re not going to recover it on the commodity kilowatt.  Your efficient good customers, the high load who are good and cheaper to serve, are paying a lot more because a lot of your revenues are on that commodity charge.  So we’d like to not have a rate increase at all, but move your rate structure so that Lamar collects the same amount of revenue, they just do it more equitably.  You’re not looking to rate shock anyone, with adjustments in one year, but it’s been ten years since we’ve made base rate changes.”

Ross suggested using cash reserves to pay down existing debt of $1,814,748 which will retire the wind bonds and save the plant $143,000. “This will remove the debt coverage ratio that’s been driving your ECA (Electric Cost Adjustment) for the past two years,” he explained, adding, once you’ve cleared that debt, your rates won’t be dictated based on bond holders, including the debt minimum coverage of $1.25M.

The rate restructuring procedure will make the rates more equitable among the classes of customers and tie them closer to the cost of services. Ross explained that will mean capacity charges or fixed revenues should increase while commodity and energy charges decrease.  He said, “It’s not how much energy Lamar uses that drives your cost, it’s when and how much your peak costs are really driving that.

The fixed costs are independent of how much energy is being used. This won’t be a rate increase; it is a rate design that has more equitable and fairer rates.  Your high load factor customers are subsidizing your low factor customers.”  He said the ECA’s won’t go away completely, but can be used to accommodate any unanticipated expenses to the Plant and only as long as they are needed to do that.

Ross recommended NMPP develop a plan that has a 3% window so no customer class gets more or less than that on their bills. The zero rate adjustment will see that changes enacted over a lengthy period to time, makes the adjustment in this manner.

Light Plant Superintendent, Houssin Hourieh, said several public hearings will be required before any adjustments are made and on the board’s recommendation, the NMPP will put together a plan that, if approved, could go into effect by the start of 2019.

By Russ Baldwin