Highlights of of the September 19, 2017 Meeting of your Board of Directors
Twenty thousand workers labored from 1848 through 1854 to build a railway over the Alps through Semmering Pass connecting Venice, Italy, to Vienna, Austria. Construction required 14 tunnels, 16 twotier viaducts and more than 100 stone bridges as well as 11 iron bridges. Across an overall track length of 25 miles, the Semmering Railway climbs 1,509 feet, an unprecedented feat for the time.
When construction began, there were no locomotives capable of making the journey. Most were too long to go around the tight curves and lacked the traction necessary to climb the steep grades. Train builders in Bavaria, Austria, Hungary and Belgium designed and built locomotives specifically for this railway, but all four proved incapable of crossing the Alps. Lessons from those failures inspired a Polish engineer to create a new design which finally conquered the mountain.
The moral of the story is that sometimes we must build the path long before we make the journey to our destination.
Electricity rate designs are far less glamorous than the Semmering Railway. However, for members of Wells Rural Electric Company who rely on electricity to keep their businesses going, their crops growing and their homes comfortable and connected to the rest of the world, rates have an effect on their journey. For that reason, WREC’s member-elected Board of Directors has been looking at the path looming ahead to make sure your rates are structured so you can successfully navigate any oncoming twists and turns.
It’s easy to think WREC only provides one service: electricity. Just as there are many uses for electricity, there are many services WREC provides for you to ensure that your supply of electricity is safe, reliable and affordable.
These services begin with acquiring electricity on your behalf. WREC works with several alliances of utilities to ensure the Bonneville Power Administration continues to be a competitive source of wholesale electricity. WREC also acquires some of your electricity on the open market, which requires precise estimates of your future electricity needs and strategically timed contracts.
Once the wholesale acquisitions have been made, that electricity flows through hundreds of miles of transmission lines in Oregon, California, Idaho and Utah. The path for electricity varies sometimes changing a often as every 15 minutes depending on where electricity is being generated at the lowest cost and where consumers are using the most. BPA has an entire department that manages the transfer of electricity across the complex network of transmission lines.
The costs for generation and transmission are primarily collected through the kiloWatt hour component of your monthly bill. Those charges vary according to how much electricity you use.
Transmission lines connect to substations, which convert 138,000 volts to 25,000 volts so electricity can begin its journey across WREC’s primary distribution power lines to your neighborhood. There, transformers convert 25,000 volts to 120, 240 or 480 volts before the electricity flows through secondary power lines, through the meter and into your home or business.
The cost of maintaining and operating 19 substations and 1,419 miles of distribution power lines spread across 10,554 square miles of service territory to serve 6,047 accounts held by 4,054 members fluctuates very little from month to month. Those costs are incurred to make electricity available at each meter on demand, regardless of how much you use. Debt service, depreciation, taxes and other expenses associated with the distribution system are also fixed, regardless of your usage, so these costs are also collected primarily through the Basic Service Charge.
The practice of collecting fixed and variable costs through both fixed and variable rates has been adopted by many services. The bill for your landline telephone has several fixed components and a variable component, which depends on the minutes of long distance calling. The same is true of most water bills with a fixed charge for making water available and a variable charge based on how many gallons you use. In contrast, bills for TV, internet, Netflix and cellphones have transitioned almost entirely to a fixed monthly fee based on making the level of service you select available regardless of how much you actually use it.
Over the past dozen years, your Board of Directors has gradually but steadily moved the collection of fixed costs out of the variable kWh charge and into the Basic Service Charge. This transition will continue over the next few years.
We began the journey toward rates that reflect costs because it is in keeping with the cooperative principal that the members who create the costs pay those costs. Cost-based rates empower members to use their bills to evaluate the impacts of their energy choices. Enjoying savings from installing energy-efficiency measures is a great example. Cost-based rates will preserve our member’s ability to make choices if the Energy Choice Initiative, also known as Question 3, passes again in the next general election.
Members who want to chose an electricity provider from the market may be able to do so but members who want to rely on WREC to acquire the most cost-effective electricity available on their behalf will be protected from cost-shifting.
As we have reported for several months, BPA will implement a wholesale power supply rate increase in October. Your Board heard a presentation on the Cost of Service Study. We discussed various scenarios for adjusting rates to collect the costs associated with the BPA wholesale rate increase. After lengthy discussion, we directed staff to prepare a phased implementation. Passing the BPA rate increase through to our members will occur by rate class over the next few months. Increased electricity costs will be collected entirely through the kWh charge, which varies with your usage.
In contrast, WREC has worked diligently to reduce its own internal costs for the past two years. For most rate classes, the fixed costs recovered through the Basic Service Charge have actually held steady or gone down. However, as the transfer of the collection of fixed costs through the Basic Service Charge, rather than the kWh charge, continues, it might appear that the Basic Service Charge increased because of the increase in wholesale power rates. It is actually being adjusted to better reflect the costs.
Our meeting also included a presentation on the extensive work required to calculate accurate rates. The process includes:
- Development of a load forecast.
- Determination of a margin requirement.
- Wholesale power re-marketing rates.
- Assignment of Tier II power costs.
- Cost of Service Study results.
- Notices of rate adjustments.
The data, analysis, methodology and recommendations are all documented in a record of decision.
For the average residential member, who uses approximately 1,200 kWh per month, the total monthly bill will likely increase by about 3.5%. Members who use more or less electricity than average, as well as members with accounts in other rate classes, may see a somewhat different percentage. In every case, the increase is driven by the underlying costs. Additional information will be provided before the adjusted rates affect your monthly bill.
Our meeting continued with the approval of the agenda for the current meeting, the minutes of the August 14 Board meeting, the summary of those minutes for publication in the October edition of Ruralite magazine, the minutes of the Safety Committee meeting held August 17, and the Safety First Verse. We then reported time devoted to Board business between August 15 and September 19.
We accepted the Election Committee Report. During the 2017 Election for the Board of Directors, WREC members voted to retain Jerry Anderson, Kirk Dahl, Lois Nannini and Bruce Widmer.
Our review of financial matters included discussion and approval of the July Form 7 Financial Report, submission of the IRS Form 990 for 2016 and authorization of a letter of credit.
We reviewed, revised and adopted the strategic plan, through which the Board decided to form three committees to facilitate our work with the management staff. Board members met in the Executive Committee, the Policy, Finance and Administration Committee, and the Member Relations and Company Procedures Committee. Recommendations from the committees will be presented to the entire Board.
Changes in governance included revisions to Article III of the bylaws to allow electronic participation in Board meetings.
Seven students made presentations to the Board on their experiences at the Michael F. Peterson Youth Leadership Challenge hosted by Utah Rural Electric Cooperative Association and the Idaho Consumer-Owned Utility Association’s Youth Energy Seminar.
The CEO reported on his meetings with BPA Administrator Elliot Mainzer to discuss components of wholesale rates, and with Jim Wadhams, legal counsel to the Nevada Rural Electric Association, regarding ECI.
Presentations were given on Member Services, Energy Efficiency Programs, Operations and on securing rights-of-way from the Bureau of Land Management.
Finally, we appointed a delegate to represent WREC at the Nevada Rural Electric Association Annual Meeting, authorized one Board member to participate in the Cooperative Finance Corporation Forum and received a report on the Northwest Public Power Association board meeting.