IREAâ€™s Board of Directors approved a temporary Power Cost Adjustment (PCA) at its January meeting to recover a 20% increase in 2020 power costs due to a prolonged outage of the Comanche Unit 3 power plant.
The PCA is a provision in IREAâ€™s Rates and Regulations that allows for a temporary or one-time credit or debit to customersâ€™ rates to adjust for the costs we pay for power. It was last used in December 2017 to refund $8.4 million to customers after IREA received a wholesale power credit. This time it will be used to recover the unanticipated 20% increase in power costs incurred in 2020 due to the prolonged outage of Comanche Unit 3.
The Xcel Energy-operated power plant, from which IREA typically receives more than 50% of its energy, was out of operation for nearly all of 2020 because of a turbine blade failure and subsequent repairs.
During that downtime, IREA had to purchase replacement energy from Xcel at more than twice the typical cost.
IREA will seek to recover the additional power costs from responsible parties but must in the meantime have enough revenue to cover expenses. Our forecasts show we need to recover $9 million this year and $9.3 million in 2022.
The PCA will recover costs in 2021 and 2022 through all rate classes, based upon usage. An energy rate will be calculated each month and applied to your monthly bill. Residential customers using average amounts of energy will have an estimated additional charge of $4.06 per month through the end of 2021. Small commercial customers using average amounts of energy will have an expected monthly charge of $7.04. Those monthly amounts will likely be smaller in 2022.
PCA charges will begin in April and continue through 2022, then be discontinued. The PCA will be reduced or eliminated before the end of 2022 if IREA recovers the additional power costs from another party.
Why pay capital credits and add a power cost adjustment?
Some members may wonder why we pay capital credits if we need additional revenue. Capital credit retirements refund money collected from IREA members in prior years. These retirements are paid on a 20-year cycle to both former and current members who have an equity stake in the cooperative based on their electric payments. The members receiving capital credits from the years 2000 through 2019 should not have to forego them because of increased power costs due to the 2020 Comanche Unit 3 outage. We need revenue from the PCA to offset these additional power costs and to maintain earnings sufficient to meet a key financial metric, Debt Service Coverage, which measures the cooperativeâ€™s ability to make its principal and interest payments.