PRECorp to fight "off the grid" bill

Lawmakers are considering a bill that would allow third parties to produce and sell electricity to industrial members of an electricity cooperative, to all intents and purposes permitting some of Wyoming’s largest energy consumers to take themselves “off the grid”. Powder River Energy CEO Mike Easley believes the bill is “irresponsible” and could have detrimental effects on the cooperative.

“This legislation opens that up so that anyone can contract with a member to generate power for them,” said Easley in a statement to PRECorp Local Action Network members.

“This could create a situation where we lose some of our largest member-consumers. Our power supplier has already constructed the resources to provide power to these loads and their loss could lead to higher wholesale power costs.”

SF-124, introduced by President of the Senate Eli Bebout (Fremont), would permit a third party, non-regulated entity to produce and sell electricity to cooperative industrial members. It responds to testimony provided in September from Wyoming Industrial Energy Consumers (WIEC), an unincorporated association of 20-plus companies that are mostly customers of Rocky Mountain Power.

WIEC says it has aimed to keep electric rates reasonable and fair since it was organized in 1996.

“SF-124 does not address all of the concerns that WIEC has with electric rates in Wyoming. But it is a positive step. Specifically, this bill could result in more generation being built in Wyoming and customers having more control over their electric bills,” says Thor Nelson, Holland & Hart, who represents WIEC.

“This could also result in new generation being less expensive than if customers try to do it themselves since customers are generally not in the power plant construction and operation business.”

According to the presentation WIEC gave to the interim corporations committee, electric rates are one of the most significant expenses for Wyoming companies and have been increasing more quickly than in surrounding states. WIEC suggested there are ways to allow electric customers to “control more of their own destiny” and put competitive pressure on Wyoming’s electric rates.

One of WIEC’s suggestions was to make self-generation easier, amending the law to allow a customer to contract with a third party. The suggestion included provisions that a coop is fully paid for back-up services, which WIEC claimed would ensure other customers would not be negatively impacted.

PRECorp feels differently, based on the makeup of its membership. Unlike some utilities, the cooperative generates around 80 percent of its revenue from its top 50 customers – coal, gas and oil companies whose loads are not just large in local terms, but in national terms too.

Rural service territories are already expensive due to the low density of customers per mile, says Jeff Bumgarner, Vice President of Member Service. PRECorp purchases 100 percent of its power requirements from fellow cooperative Basin Electric, representing around ten percent of Basin’s load.

Basin, says Bumgarner, must plan for future infrastructure and market contracts based on forecasts up to 20 years in the future.

“Our loads are factored into their investments and a portion of the power costs every month that our customers pay through their power bills are based on those investments and hard assets. If your sales go down, they still need to recover the costs of those investments that they’ve made to serve those loads into the future,” Bumgarner. “So you have fewer sales in which to recover those costs, so it puts upward pressure on the sales you do have, which is how you see a raise in wholesale power costs.”

Nelson says it’s impossible to know whether the legislation would cause Basin’s costs to change.

“If a customer self-generates, that could actually lower Basin Electric’s costs by allowing them to avoid making expensive new investments in generation or transmission services. But if Basin Electric has surplus generation and can’t otherwise sell that generation into the market, then a customer electing to self-generate could cause Basin’s costs to rise on a per kilowatt hour basis,” Nelson says.

“But if Basin Electric’s prices are not competitive, customers already have the ability to avoid buying from Basin through self-generation that they own and construct.”

Nelson also points out that customers would not really be able to go “off the grid” if the bill passes, because they would be required to remain customers and purchase regulated back-up service.

But while a customer could sign up with an out-of-state provider to buy all their energy, Bumgarner says this would not remove PRECorp from its obligations. The coop would become a “back-up battery”.

“This would be another company coming in, probably building on-site generation at the member’s location. Our role would be in isolating the system from those loads,” he says.

“They typically in these situations would require utilities to continue to provide back-up. If their generation goes down for some reliability or maintenance issue, they want us to continue to be responsible for providing them with back-up service.”

PRECorp would receive payment in the form of a stand-by charge from the customer that paid for the lines and capacity to have energy ready should it be needed, but it would be unlikely to cover the future investment costs that have yet to be recovered, he says.

“We have an obligation to serve – we don’t have the option to say no. We still have to build and plan for the capacity, we still have to plan for the lines and service to be there and we have to maintain those lines in case they need that service,” he says.

An additional problem for the coop could be that external company is not likely to serve all available loads, but to pick the most profitable in the service area, he says.

“That’s going to have a ripple effect to the rest of the membership of increasing costs,” he says.

“Obviously not all of them would find it advantageous, based on the contract they’d probably have to sign with the provider for whatever term, but if you have customers that large, as you can imagine it doesn’t take very many of those to start putting a lot of pressure on the rest of the system. It’s going to make it very difficult to continue to deliver a good, low-cost product into a rural market.”

Meanwhile, Easley pointed out that state law already allows cooperative members to self-generate.

“Allowing for this type of irresponsible ‘cherry picking’ of larger loads, particularly within a rural cooperative service area like PRECorp’s, would have an adverse financial impact on the cooperative’s ability to continue to provide affordable rural electric service to our remaining member/owners, large and small alike,” Easley said.

Easley’s message also said WIEC has already cost PRECorp’s membership hundreds of thousands of dollars in “needless legal costs” in cases before the Wyoming Public Service Commission.

“This is another effort on their part to reduce electric costs to their members, at the expense of the rest of the members of our cooperative,” he said.

“This bill would make self-generation a bit easier but it doesn’t change the fundamental opportunity for customers that has always been present in Wyoming,” says Nelson.

“Ultimately, WIEC’s hope and expectation is that this legislation would help encourage companies like Basin Electric and the other monopoly utilities to be as efficient and competitive as possible. In the long-run, that can only benefit everyone in Wyoming.”

Cooperatives like Powder River Energy could still suffer though, says Bomgarner.

“The problem is, we are a rural not-for-profit cooperative trying to deliver affordable power into a rural market and these kinds of things make it very challenging,” Bomgarner says.

“It’s hard enough right now because of the declining sales with the coal and coalbed methane markets. We’re seeing energy rates down in general even with the new administration and lifting of regulations that have occurred and the resetting of all those expectations. The die was cut for declining sales.”

If those large loads sever themselves from PRECorp, he says, the rest of the membership will suffer. It’s impossible to know exactly what the impact would be if larger customers were lost.

“We’re basically objecting to the concept at this point in time. Right now, if one of those industrial customers wants to self-generate, they can,” he says.

“Intellectually, if you start losing large chunks of load and you have investments that you’re still paying for, that’s going to put upwards pressure. As a not-for-profit, any margins we make go back to our membership, but any costs that are required to serve the membership, the membership pays for.”

PRECorp hopes members will contact their legislators and make their thoughts known on SF-124.