CFC: Created and Owned by America’s Electric Cooperative Network Electric Rate Concepts In an Era of Change Oregon Statewide Directors Workshop Rod Crile Regional Vice President, Member Services, CFC

2 Created and Owned by America’s Electric Cooperative Network Three Step Process to Rate Making  Revenue requirements  Cost of service  Rate Design  The first two are straight forward exercises but require assumptions to be made  The last requires a lot of thought –Many outside influences

3 Created and Owned by America’s Electric Cooperative Network Caveat Oregon is not, but If your cooperative is in a state that is rate regulated, that regulator may have specific rules and/or preferences about the rate making process.

4 Created and Owned by America’s Electric Cooperative Network Why Is Everyone Talking About Rate Design  Yesterdays rates don’t work as well when: –Sells of Kwh are flat or decreasing –Sending proper message to distributed generators –Helping explain how we incur cost on their behalf  Why hasn't everyone changed –Keep it simple –Member exceptence –Regulator –Decisions based on old rate design

5 Created and Owned by America’s Electric Cooperative Network What Members Need To Pay For Some costs are fixed. Some are variable*. *Variable cost are only incurred when a kWh is produced

6 Created and Owned by America’s Electric Cooperative Network Mitigating Risk  Weather – volatility in kWh usage  Up front investment  Falling kWh usage  Members won’t understand rate  Covering fixed cost  Generating necessary margin  Sending the right message  Not charging the right people  Not rewarding the right people  Matching power supplier rate  Setting a new peak  Unnecessary generation expansion / spot purchases

7 Created and Owned by America’s Electric Cooperative Network Traditional Residential Rate Design  Three part cost –Consumer –Energy –Demand/capacity Generation Distribution –Margin  Cost of Service –$ Fixed – Variable –$ Fixed –$5.00- Fixed

8 Created and Owned by America’s Electric Cooperative Network Traditional Residential Rate Design  Two part rate design –Consumer* charge $22.00 –Energy cost –Had to make an assumption of how many kWh the cooperative will sell –Consumer charge $22.00 –Block 1 – First 850 kwh.1400 –All above 850 kwh.1000 –May not send a very clear message *Facilities, service, availability, fixed, distribution, etc.

9 Created and Owned by America’s Electric Cooperative Network Moving Away from Yesterday’s Two Part Rate  Keep raising the “customer charge” up to match cost of service –Which number? Just customer? $36.00 Customer and margin?$41.00 Customer, margin, demand? (assume 4 kw)$81.00 Are they all customer related? –All at once? –Couple dollars a year? –Can have huge impact on low users – decrease for high users

10 Created and Owned by America’s Electric Cooperative Network Moving Away from Yesterday’s Two Part Rate Three part rate (bill demand separately) ― Is your coop ready for this? ― Are your members ready for this? –Very few doing it today –The industry is watching Those that are already doing it What utilities are thinking about –More/better communications on how cost are incurred –Print the demand usage on the bill with no associated charge –Starting to bill demand, but at a low rate $.50 per KW

11 Created and Owned by America’s Electric Cooperative Network Moving Away from Yesterday’s Two Part Rate  Interim steps – to get where you want to be –Communications –Break out charges differently on the bill Customer charge$22.00 Distribution cost per kwh$.0256 Generation per kwh$.040 Energy per kwh$.060 Total$.1256

12 Created and Owned by America’s Electric Cooperative Network  Interim steps – to get where you want to be –Margin stabilization – formulary rate Equity TIER Annual adjustments Does not help rate design issues Moving Away from Yesterday’s Two Part Rate

13 Created and Owned by America’s Electric Cooperative Network Summary  Communications is critical –Inside and outside the cooperative  Technology –Properly bill the rate –Properly support the rate –Give the member the information they need  Review rates annually are they: –Generating the required margin? –Getting the desired member response? –Matching the power supplier’s rate structure?

14 Created and Owned by America’s Electric Cooperative Network Summary  Caution –No one rate design concept is necessarily the correct one for your cooperative to adopt. Each system is unique and may be facing different circumstances  Sources of additional information –2013 – Electric Rate Concepts In an Era of Slow Growth – Rate Strategies for 21st Century Challenges: A Guide to Rate Innovation for Cooperatives

CFC: Created and Owned by America’s Electric Cooperative Network