PRECorp files for rate adjustment

Powder River Energy (PRECorp) has filed an application to adjust its rates for 2020, which would in turn impact what residential and industrial users can expect to pay for their electricity. The move will also change the basic charge and introduce cost-saving Time of Use rates for members.

The application would also see Coal Bed Methane (CBM) classes largely reintegrated into the General Service and Large Power classes to acknowledge the decline in usage by these members.

If the Wyoming Public Service Commission (PSC) approves the move, PRECorp would aim to implement the changes this September.

According to the cooperative, the impact on residential members would be an increase in basic charge of $1.50, increasing from $25.50 to $27, and a rate increase averaging 8.87 percent. The general service basic charge would meanwhile increase by $5 and the general service rates by around 8.86 percent.

Rate Change Reasoning

“PRECorp’s purpose is to positively influence and improve lives for those we serve by providing reliable energy and services at an affordable price,” said Brian Mills, Deputy General Manager, in testimony to the PSC. “This rate filing was developed because of a threat to PRECorp’s ability to meet these member expectations in a responsible fashion.”

According to PRECorp’s application, a comprehensive Cost of Service Study for 2018 was adjusted for known and measurable changes and “resulted in a negative operating margin of $445,583”.

“When we did the analysis this past year, financials showed that we were in a loss condition for operating margin and weren’t projecting that to improve. So we knew a rate filing needed to happen,” says CFO Joanne Kolb.

What typically happens with electric utilities, says CEO Mike Easley, is that costs decline while the utility is in growth mode because there’s more energy use to spread fixed costs over. “When you’re in declining sales, then what basically happens is there’s upward pressure on your rates,” he says.

PRECorp has been in a significant period of declining sales for at least the last five years, Easley continues, but until now the cooperative has been able to offset the problem.

“We’ve reduced our workforce by 20 percent since 2015, and it’s been mostly due to attrition – we’re just not hiring positions back when people have either left or retired,” he says.

The cooperative has also been cutting costs elsewhere and using technology to improve efficiency.

“We’ve been doing that year after year for the past five years and we’ve got to the point now that…if we were to do any more cutting in our budget we think we would be reducing reliability and our quality of service would go down,” Easley says.

“In order to maintain the service quality levels that we think our members want, the rate case is going to do that plus give us additional revenue so we can operate.”

Negative operating margin, says Easley, is “code for losing money”. “Even though we’re continuing to reduce expenses and work efficiently, the fact is we can’t really keep pace with the declining sales,” he says.

Decline in Sales

PRECorp says the reason for the application is a continued decline in sales, particularly in the CBM industry and coal mines, caused by industry consolidations and idling facilities.

“PRECorp has not been immune to the atrophy the fossil fuel energy industry has experienced nationwide. We have seen several selloffs of CBM assets in the Powder River Basin,” said Mills in direct testimony to the PSC. “Since 2015, over half of our large coal mine members have filed for bankruptcy.”

The decline in both CBM and coal has been significant – double digits, in the former case, says Kolb.

“From a revenue standpoint, CBM and the coal mines are about 50 percent of our revenue,” says Kolb. “It’s different when you look at the sales side: they’re about 59 percent on sales in kilowatt hour usage. Coal itself is 46 percent and CBM is 13 percent.”

At one point, CBM represented 32 percent of sales – it’s been a significant drop, Kolb says.

“Coal is every year declining and I’m sure you can see that in the news and you can see that in U.S. reporting as well – it’s not just happening in Wyoming, it’s happening all over the place,” she says.

PRECorp is taking action with this rate case to soften the landing as energy declines, says Kolb.

“We’ve been talking about making some changes to classes as some classes are declining – our CBM class in particular is becoming smaller and smaller. We did an analysis on that and determined now was a good time to reintegrate those into the general classes,” she says.

There appears to be some growth in oil, says Easley, which will help; however, coal is expected to continue on a downward trajectory and gas prices remain low.

Says Mills, “We’ve been able to insulate ourselves, the membership, a little bit from those cliff events of the industrials – when we talk about readjusting some of the classes, [we’re preparing for the worst]. Essentially, CBM could fall off the map tomorrow and have a significant impact, but it will have a less of an impact after September because of the different way that the classes will be structured.”

This is because CBM currently pays a very large portion of PRECorp’s fixed costs, says Easley.

“When they come off the system, we would have a $7 million shortfall. This rate case would bring in $5 million, so that closes the gap on what that shortfall would be,” he explains.

Time of Use Rate

If the rate case is approved, it will also introduce a new rate for members called Time of Use. Though similarly named, it is not a replacement for Time of Day.

“The Time of Day rate has a requirement for installation of equipment for heat. The Time of Use rate has no requirements for that, it is completely dependent on when the member is using their power,” explains Kolb. “During certain time periods of the day where we have less power cost, we’re passing that savings on to the member if they use the power during that time.”

The time periods in question will be mostly overnight, says Kolb, from around 9 p.m. to 5 a.m.

“If you use outside of those hours, you have a higher rate than if you use inside of those hours that are off peak, so to speak,” Kolb says.

Not everyone will be able to save by making this change, as rates will be higher during peak periods.

“There’s a balance. It obviously depends on what the usages are during different time periods but if there’s a significant amount of usage during the day at that higher rate, you’re obviously not going to save,” Kolb says. It may also be beneficial to a member at certain times of the year more than at others.

You could also choose to change your behavior, says Kolb. Almost every electronic can now be timed to run during off-peak hours so, “If you’re willing to look at how you’re using power and change some of those things, you could probably save a significant amount of money.”

According to Easley, the new rate is intended to be forward-thinking; when PRECorp designs its rates, it is looking down the road to the needs of consumers and the cooperative years from now. One of the things PRECorp knows will eventually arrive in Wyoming is electric vehicles, he says.

“We’d really like to have electric vehicles because they’d all be coal powered and that would help our load quite a bit. They’re not quite ready for Wyoming yet,” Easley says. “If you had an electric vehicle, you could charge that at night and the rate would be significantly cheaper.”

A project is currently underway to install new meters that provide the user with more data on their usage in real-time, says Easley. This will empower the customer to make decisions on such things as whether Time of Use is right for them.

Both the meters and approval of the rate case will be necessary for a user to switch to the new rate.

Timeline

The case has officially been filed with the PSC but, in terms of hearings and decisions, “We do not have a timeline at this point. At this point, we are answering written investigation requests,” says Kolb.

“They are working through that and once they determine are they getting the information they need from those investigation requests, then we’ll take it to the next step.”

As the rate increase would take effect on September 1, Kolb says that, under normal circumstances, PRECorp could expect to receive a hearing date around June.

It’s a rigorous process, says Easley. One piece of good news is that there will be no official interveners.

“The period for one of our larger customers to formally intervene and become a party to the case, and then go through the whole process of issuing discovery requests and all those things that you get in an administrative hearing, that timeline has passed,” he says.

It’s a good thing, Easley explains, because the additional steps when an intervener becomes involved can be expensive. Last time this was the case, PRECorp spent around $500,000.

“Without having formal interveners, we’re hoping our rate case will be about half that,” he says.

Public Involvement

“We actually have a series of town hall meetings that we’ve got scheduled,” says Easley.

These will take place on February 18 at 4:30 p.m. in Gillette; March 17 at 4:30 p.m. in Sheridan; and April 21 at 4:30 p.m. in Sundance.

“We’re having the public meetings to hear any comments from our members – and questions,” says Easley. Members are strongly encouraged to attend.

The topic will also be tackled at the regular telephone town hall meeting on February 26 at 6:30 p.m., which are held quarterly via conference call.

“I spend usually 25 to 40 minutes talking and telling people what’s going on, so we’ll also be talking about this,” Easley says.

“We talked about it last month and we’ll keep talking about it in our quarterly town hall meetings and members at that time, if they want to ask a question, they press a button and they get put in the queue to ask the question. I end up taking, in the course of the town hall, half a dozen to ten people with questions, so that’s another way people can participate in the process.”

The telephone town hall can also be accessed via Facebook Live.

“Right now, PRECorp and the commission staff are really working through questions and issues and then we are also taking comments from our members,” says Easley.

“If there’s anything new we learn that we weren’t aware of, we certainly have time to consider that.”