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Rate Redesign

At its June 2021 meeting, the association’s board of directors approved changes to update IREA’s rates and regulations that will go into effect beginning Sept. 1, 2021. They include:

• Elimination of the load factor adjustment (LFA);

• Implementation of a three-part residential rate that includes a demand charge, an energy charge and a fixed monthly service charge;

• Retirement of the temporary power cost adjustment (PCA) that began in April 2021 and introduction of a quarterly wholesale power cost adjustment (WPCA).

“With advanced metering infrastructure (AMI) technology in place, members now have much more precise data around their actual peak demand and usage patterns. The three-part rate more fairly allocates demand-based charges and puts control over those costs in members’ hands,” said Jeff Baudier, IREA’s CEO.

The new rate structure will result in an average increase of about 2.25%, which is the first increase in general rates since 2013. As a not-for-profit cooperative, IREA raises rates only when absolutely necessary to meet the costs of reliable service and returns a portion of annual margins to members in the form of capital credits.

Formal notice of amendments to the rates and regulations is available here, and a redlined version of the changes is available here.

Please read on for important information that explains the changes and why each is necessary.

In the eight years since IREA last raised general rates, the rate of inflation has been more than 15%. The energy sources, materials and services IREA uses to provide electricity have all increased in price that much and more.

A rate increase of 2.25% is extraordinarily low compared to other products and services. An Apple iPhone that cost between $199 and $399 in 2013 now costs between $600 and $1,000 – an increase of about 200%. Netflix’s basic monthly service cost $7.99 in 2013 and is now $13.99 per month – more than 75% higher. The average price of a new automobile has increased 32% since 2013. IREA has been able to avoid similar impacts during that time because of our incredible customer growth, which offsets the cost of inflation.

In 2016, before we installed AMI meters, IREA introduced the load factor adjustment (LFA) to recover capacity costs from members with low monthly energy usage but not reduced peak capacity requirements. Now that we have AMI meters, the three-part rate accurately recovers costs from members based on how they actually consume electricity. As a result, the load factor adjustment is being eliminated.

The service charge
IREA previously applied a $12.50-per-month fixed service charge designed to recover some – but not all – of the costs associated with maintaining the infrastructure needed to deliver electricity. Our actual costs are closer to $20 per meter served, but the association’s board of directors believes that is too much to charge our members. The basic service charge will increase just $1 per month – to $13.50 – for all residential accounts. This $13.50 service charge is still well below the $20 average service charge for Colorado utilities.

The energy charge
IREA members are currently charged for the total energy they consume over a billing period via an energy charge. This charge is based on the volume of total kilowatt-hours (kWh) consumed and each member’s respective rate.

The demand charge
Electric demand is a measure of the rate at which your home or business consumes electricity over a short and specific period of time. The more energy you use at a given time, the higher your demand at that point. Your “peak demand” is the largest amount of energy consumed during any 60-minute interval during your billing period. The average peak demand among IREA customers is 7 kilowatts (kW), and 99% of peak demands are between the hours of 4 and 8 p.m. The introduction of a demand rate of $1.50 per kW consumed during the “on-peak” period of 4 to 8 p.m. will allow IREA to more accurately recover the costs associated with maintaining reliable service when our customer base is consuming the most energy.

With AMI now in place, IREA members have access to My Power, a free online portal that allows them to better view, manage and analyze their usage data; monitor consumption patterns; compare periods of energy use; and better understand how their energy habits can affect their monthly bill. My Power can also be used to identify peak demand, view usage data in weekly, daily or hourly increments, and set up custom alerts to notify members if their usage has exceeded an amount they specified in advance. My Power can be accessed through the My Account feature.

IREA has used a temporary power cost adjustment (PCA) on occasion to recover unexpected increases in power costs, such as those caused by the inoperability last year of the Comanche Unit 3 power plant. Due to the increasing volatility of power costs, IREA is replacing the temporary PCA with a new wholesale power cost adjustment (WPCA) that can be adjusted quarterly in response to, or in anticipation of, power cost variances so IREA may either recover from or return power costs to members. This variable rate rider will allow us to true-up actual wholesale power costs variances from previously forecasted amounts to better protect our overall financial stability.

FAQs

Why are rates increasing?

As a not-for-profit electric cooperative, IREA strives to keep rates low for our members. We have not had a general rate increase since 2013. Over the eight years since IREA’s last rate increase, the cost of living has increased more than 15% and many of the energy sources, materials and services IREA uses to provide electricity have increased in price that much and more. We were able to forego any rate increases last year, even as a prolonged outage of the Xcel-operated Comanche Unit 3 increased our costs substantially.

IREA is not alone in the need to redesign rates to better recover increasing costs. Most, if not all, of our neighboring electric utilities have already announced proposed rate increases far higher than those being implemented by IREA. This rate adjustment is necessary now to help IREA better recover the increasing costs it has seen over that time and forestall the need for a larger increase in the future.

How will this impact my bill?

The impact to individual bills will vary based on factors including individual usage and peak demand, but the new rate redesign will result in an average increase of about 2.25%. For the average residential customer, this would mean an additional $2.46 per month.

When will the rate changes go into effect?

The changes will appear on members’ bills in September 2021.

What is changing?

This rate redesign changes several sections of IREA’s residential rates, but the most important parts are these:

The elimination of the load factor adjustment (LFA) – This rate rider was introduced in 2016 as a way for IREA to recover some costs from customers who had low monthly energy usage, but not reduced peak capacity requirements. This rider was an interim step to recover costs until Advanced Metering Infrastructure (AMI) meters were installed. With AMI, IREA can now measure the demand each consumer places on the grid in hourly intervals, allowing us to introduce a demand component to our rates that more accurately recovers costs based upon the demand each member places on the system. This allows IREA to eliminate the less predictable LFA in favor of a true three-part rate structure.

Implementation of a three-part rate – Two parts of this rate are already in place. The new piece is the demand charge, which is explained in more detail below. IREA’s new three-part rate is as follows:

The service charge
This is a flat rate assessed to customers designed to recover some – but not all – of the costs associated with maintaining the infrastructure needed to deliver electricity. This is the cost IREA incurs to operate before supplying even one kilowatt-hour of electricity to members. Our actual costs are closer to $20 per meter, but IREA’s board of directors feels that would be too large an increase to charge our members from the previous $12.50 monthly fee. This charge is increasing $1 , from $12.50 to $13.50.

The energy charge
IREA members are currently charged for the total energy they consume over a billing period via an energy charge. This charge is based on the volume of total kilowatt-hours (kWh) consumed and each member’s respective rate. This charge will decrease slightly for most residential customers.

The demand charge
Electric demand is a measure of the rate at which your home or business consumes electricity over a short and specific period of time. The more energy you use at a given time, the higher your demand at that point. Your “peak demand” is the largest amount of energy consumed during any 60-minute interval during your billing period. On average, IREA’s residential customers have a peak demand of between 5 and 6 kilowatts (kW). About 99% of our customer’s peak demands occur between the hours of 4 and 8 p.m. IREA is introducing a demand charge of $1.50 per kW, and will apply this charge to only the demand that occurs during the “on-peak” time of 4 to 8 p.m. If, during a billing period, a customer has a higher demand during off-peak hours than during on peak hours, the $1.50/kW charge will be applied to the lower on-peak demand. For example, if a customer has a peak demand of 7 kW that occurs at 2 p.m. at some point during the billing period, but their highest on-peak demand is 5 kW, they would pay a demand charge of $7.50 (5.0 kW x $1.50/kW = $7.50).

A useful analogy for this new three-part rate is the cost of owning and operating a car. There are several factors that go into the cost of owning and driving a car that are not dissimilar from the components of a three-part rate:

The service charge is similar to the minimum cost incurred by a car manufacturer to produce the car before it is sold. It costs IREA close to $20 per member to operate before we provide any electricity. We are only charging $13.50 per member, which would be like a car manufacturer selling a vehicle “below cost.”

The energy charge is based on consumption of energy over time. This is similar to using one’s odometer to track miles driven and paying for gas for your car. In short, electric energy is like the distance you drive. The only difference is that you pay for gasoline in advance, while IREA charges for the energy consumed in arrears.

The demand charge is based on the highest amount of electricity you use during any single hour of a billing period. Remember, IREA further limits that single hour to the four-hour on-peak window of 4 p.m. to 8 p.m. Using the car analogy, electric demand is like the speed of the car. If you have a high demand, it is as if you like to drive really fast. And, to drive fast safely, both the car and the road need to be built with high speeds in mind. IREA has provided a grid — analogous to the road — and a service drop and meter — analogous to the car — that allows our members to drive nearly as fast as they would like. The demand charge is applied to each specific customer based on how fast they use electricity; those who have a higher peak demand between 4 and 8 p.m. will pay more.

The replacement of the temporary PCA with a wholesale power cost adjustment (WPCA) – In April 2021, IREA introduced a temporary Power Cost Adjustment (PCA) to recover unexpected increases in power costs, such as those caused by the inoperability of Xcel’s Comanche Unit 3 power plant. IREA has also received an unexpected bill from Xcel Energy of over $8 million for what Xcel deems as IREA’s share of the costs Xcel incurred during Winter Storm Uri in February 2021. Due to the increasing volatility of power costs, IREA is replacing the temporary PCA with a new wholesale power cost adjustment (WPCA) that can be adjusted quarterly (instead of monthly) in response to, or in anticipation of, power cost variances so IREA may either recover from or return power costs to members. This variable rate rider will allow us to “true-up” actual wholesale power costs variances from previously forecasted amounts to better protect our overall financial stability. It will also allow IREA to return money to members more quickly when power costs are less than forecast.

What can I do to reduce the impact to my monthly bill?

One of the first and best things IREA members can do to reduce their bills is to use My Power to monitor and better understand their energy usage. My Power is a free online portal that allows them to better view, manage and analyze their usage data; monitor consumption patterns; compare periods of energy use; and better understand how their energy habits can affect their monthly bill. My Power can also be used to identify peak demand, view usage data in weekly, daily or hourly increments, and set up custom alerts to notify members if their usage has exceeded an amount they specified in advance. My Power can be accessed through the My Account feature.

How will this affect IREA’s finances?

We are a not-for-profit, member-owned cooperative. We exist to provide our members reliable, low-cost power. Any margins (profits) we receive are invested in infrastructure to improve the reliability of the service we provide and accommodate continued growth, and are allocated back to members in the form of capital credits. We are required by our lenders to meet certain loan covenants, but we are also sensitive to the impact any rate increase has on our members, which is why we have worked to delay such a move until absolutely necessary.

What steps has IREA taken to minimize the impact of rate increases on its members?

Those members who have been with IREA for a while realize that we have returned more that $120 million to our members over the last decade. Colorado is an amazing place to live and work, and the continued rapid growth within our service territory has helped us overcome some cost increases in previous years without the need to raise rates. As growth continues, we anticipate keeping future rate increases to a minimum.

In the past year, we have absorbed several very large and unexpected expenses. With Comanche 3 down for nearly all of 2020, IREA’s power costs were far higher than could have been anticipated. We also received an unexpected bill from Xcel Energy for $8 million of the costs they incurred during Winter Storm Uri. The implementation of the Wholesale Power Cost Adjustment will allow IREA to forecast future costs on a quarterly basis and distribute any unexpected costs – or credits – to our members over time on a more level basis, without the need for a one-time rate increase or rate credit to our members for unanticipated future events.

IREA's board of directors has approved changes to the association's rates and regulations that will go into effect in September. For additional info, visit our Rate Redesign page.
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