DMEA considers challenge to Tri-State industrial rate change
Delta Montrose Electric Association (DMEA) appointed a four-person committee on Feb. 26 to investigate whether it should partner with any of its major industrial member-owners to challenge the new wholesale rate increase by Tri-State Generation and Transmission Association. The wholesale rate change went into effect on Jan. 1.
DMEA board member Ed Marston wrote the resolution that was passed.
According to the resolution, board president Nancy Hovde and general manager Dan McClendon will investigate the financial costs and the regulatory risks to the association if DMEA were to file a complaint with the Colorado Public Utilities Commission (PUC).
Three Colorado electric cooperatives have filed a challenge to Tri-State's A37 rate increase with the PUC. Those include La Plata Electric Association, White River Electric Association and the Empire Electric Association, along with some of their industrial member-owners.
"[The wholesale rate increase] will result in higher rates for the coal mines," Marston said. "Basically what it is doing is penalizing the coal mines for being efficient in how they use electricity.
"Secondly, we installed automatic meters, in part to help our member-owners use electricity more efficiently, and with this new rate there is now no reason for anyone to use electricity in a regular steady way. This rate takes away that incentive to be careful with how we use electricity.
"The third reason I drafted [the resolution] is because this will encourage the construction of new power plants. And new power plants are really expensive and everyone's rates will go up if Tri-State goes ahead and builds new power plants."
Marston explained that almost every utility company in the U.S. charges consumers roughly one half of their bill for the kilowatt hours of electricity they use, with the other half paying the fixed costs of transmission lines, distribution lines and transformers at homes and businesses.
"If you use electricity in a steady way then you don't need to oversize the physical structures. If you use a lot of electricity in the early morning and in the evening, you're expensive to serve because you have to oversize the system. It's like a rush hour. You have to size it for the rush hour ... So, [residential consumers] aren't really very good customers. But the coal mines and then the gas compressing loads in La Plata and Empire, they're good customers and we're penalizing them for being good customers," Marston said. "What we had hoped to do with the automatic meters is to help people like you and me, residential consumers, to use electricity in an efficient steady way ... . Now there is no point in even thinking about that unless this rate is overturned."
DMEA is unsure how much of a rate increase the mines will be charged. No rate increase has been passed on by DMEA as yet.
"It's an unfortunate [situation]. I don't understand Tri-State penalizing the best customers on their system, but that's what they've chosen to do," Marston said. "[The coal mines] have been singled out for special treatment."
Tri-State's wholesale rate design is the cost of the power that Tri-State provides to its member electric systems. It's not what consumers pay to their electric co-op.
Lee Boughey of Tri-State said their board spent over two years evaluating the principles behind a new rate design, educating themselves on rate design options, and then thoroughly evaluating the new rate design before approving it.
The Tri-State board of directors is made up of 44 members — one from each of their electric cooperatives. While not unanimous, the board voted to approve the rate design change in late 2011.
"One of the Tri-State board of directors' strategic goals was to examine Tri-State's wholesale rate design and look for options to modernize the rate and address some of the board's key principles that they believed needed to be part of the rate design," Boughey said.
"One of the challenges we saw going forward was that there was an increasing discrepancy between the amount that large industrial consumers would pay for electricity and much higher costs for residents and small businesses. In the end we determined that the cost to supply power to large industrial customers were being subsidized by residential customers and small businesses. So the new rate design brings more equity between our smaller consumers like residences and small businesses and those large industrial consumers," Boughey stated.
According to Tri-State, under the new rate design large industrial customers, like the coal mines, will still get the best wholesale rate for the power they use.
"We've also developed a range of demand response and energy shaping products that can help those residential member owners, small business owners, and large industrial member owners better manage their energy use to try to reduce costs. The demand response and energy shaping products are designed not only to help member owners to save money but help to save the cooperatives money by helping us to be more efficient and better manage our electricity demand," Boughey said.
Concerning the claim that Tri-State must have it's rate increases approved by the PUC, Tri-State responds it's wholesale rates are regulated by its own board of directors.
"Tri-State is a generation and transmission association that solely does business in interstate commerce," Boughey said. "No utility commission has authority over Tri-State's rate setting."
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