By Sarah Pridgeon
Powder River Energy Corporation is looking to increase its base rates in January, 2017 and will be hosting meetings during March to provide information to its membership. The cooperative hopes to increase its annual revenue by $1.46 million in a move that is expected to see cost of service increases for 14,407 customers.
PRECorp has filed to increase its system revenue requirement by around $11.5 million to address a revenue shortfall, rebase its rates and reset its Cost of Power Adjustment (COPA) to zero, while moving all rate classes closer to cost of service and increasing the monthly basic charge for several classes to better recover fixed costs.
“The events creating PRECorp’s revenue shortfall are the product of forces beyond our control, as were the events leading to the coal bed methane boom that began in early 2000,” said Mike Easley in testimony to the Public Service Commission, explaining that the cooperative has gone through a boom and bust cycle that saw near-exponential growth, with its load doubling over a decade followed by a “significant downturn” at the current time.
“Coal bed methane has been in decline since 2010 due to competition with other more profitable production areas in the U.S. and increasingly difficult environmental regulations in the Powder River Basin area.”
The impacts of this downturn have been exacerbated by a combination of low natural gas prices, low oil prices and a shrinking demand for Wyoming coal, he continued. PRECorp conducted a Cost of Service Study for 2014 and, after adjustments for known and measurable changes, saw a negative operating margin of $8,375,852.
“There are three main things that we need to do in order to manage effectively through this downturn. First, we must reduce the chance of revenue loss due to nonpayment of monthly electric bills,” Easley said.
“Then, we must ensure that PRECorp remains financially healthy and is able to maintain appropriate service levels to our member owners. Finally, PRECorp must step back and look at the bigger picture to assess the entire landscape of risk and then develop a portfolio of risk management strategies and related initiatives to manage through this bust cycle.”
Easley stated that the PRECorp Board has historically been conservative with the rate increases it has requested through the Public Service Commission and relied on alternative strategies to maintain its revenue stream.
“We depended upon system growth and our various risk management strategies to produce or support margins and ratios in excess of minimum requirements. Also, PRECorp relied on capital credit retirements from its power supplier, Basin Electric Power Cooperative…but Basin has been unable to retire capital credits due to its equity position and financial covenant requirements,” he said.
“This approach has served us well during times of growth and is workable for short duration in times of stability. However, this approach does not work during periods of declining sales, as we are currently experiencing.”
The COPA is used to pass through changes in wholesale power costs to customers. The amount expected for 2016 is $11,308,464, said Easley.
“Members who have a higher-than-average load factor in a class may pay a percentage of the wholesale power cost increases when both demand and energy cost increases are collected on the basis of kilowatt per hour sales,” he said.
“Rebasing the rates and zeroing out the COPA factor is a way to keep members’ rates closer to cost of service.”
PRECorp will host a meeting on March 8 at its Sundance office, beginning at 5:30 p.m. Additional meetings will take place at its offices in Gillette on March 9 and Sheridan on March 10, at the same time.
For more information about the rate case, go to www.precorp.coop and click the “2016 Rate Case” icon.