SMPA financial planning prevented a bigger 2024 rate increase

The San Miguel Power Association Board of Directors approved a $2 increase in the monthly access fee during its October 24, 2023 monthly meeting at Nucla. The current residential General Service Non-Demand rate-group access fee is $23. This will increase to $25 beginning January 2024.

The major cause of the SMPA rate hike is a planned jump of more than 6% to the cost of wholesale power SMPA purchases from Tri-State Generation and Transmission Association. This follows 2% wholesale power costs reductions in 2021 and 2022.

SMPA announced the proposed access charge increase October 3, 2023 at its website, and in an October 9 news release. (see Appendix).

Other expenses have also increased. SMPA staff presented examples to the Board of Directors at its June 28, 2022 monthly meeting:

Ore Cart chart
based on SMPA presentation 

The effect of rising interest rates on the cost of borrowing was also described at the June 28, 2022 Board meeting:

Additional cost of $1 million
borrowed over life of loan

• U.S. Rural Utilities Service (USDA) $101,000
• National Rural Utilities Finance Corp $410,000

SMPA 2024 Budget

Ore Cart chart
based on SMPA presentation

"Nice, even trajectory" instead of "big jumps"

During discussion before directors voted on the access charge increase proposal, SMPA CEO Brad Zaporski emphasized a key point in the published announcement -- the $2 per month access fee increase is not enough to pay for additional added cost of the Tri-State wholesale rate change.

Revenues and expenses described below are annual:

ZAPORSKI: A $2 increase which equals $350,000 . . . . when we’re experiencing a $1 million increase in our power costs, is testament not only to the job staff did, but also testament to the job you all as board did in terms of long term financial planning, because as we pointed out just to cover the wholesale rate increase it would have been a $6 access fee increase.

. . .

Directors Tobin (Toby) Brown and board president Rube Felicelli commented about challenges in future years.

BROWN: The bigger challenge going forward Is going to be basically when the entitlement we have from deferred revenue begins to unwind, like an entitlement program from the federal government. . . .

FELICELLI: Obviously, 2025 is going to be a significant challenge.

ZAPORSKI: Thanks for that comment, Toby and we are certainly planning for it . The deferred revenue is just how you put it, it’s a tapering off. And the whole idea is to keep our rates as low as possible as long as possible. What we’re trying to do is a nice, even trajectory. Which is why we saw $2 last year, $2 this year, there will likely have to be another adjustment next year. The financial planning we’ve done allowing us to keep it as small as possible on a nice trajectory as opposed to big jumps that have kind-of a shock effect to our members. . . . No one likes a rate increase at all. . . . We are looking and planning for the future and doing everything we can to keep these as minimal as possible.

The annual amount of deferred revenue which may be added to actual annual revenue is defined in a plan approved by the U.S. Rural Utilities Service, one of SMPA's lenders, explained Wiley Freeman - SMPA Manager of Member and Energy Services - during a November 1, 2023 conversation with Ore Cart.

SMPA monthly charge "fixed charge" is one of the lowest in SW Colorado

Colorado Energy Office map
excerpt created by Ore Cart 

The October 3 , 2023 SMPA proposed rate increase announcement compared monthly residential fixed charges with six other southwest Colorado electric cooperatives - north to the Grand Valley (rural Grand Junction area), east to the San Luis Valley, south to the Four Corners, and southeast to Durango and Bayfield. SMPA's monthly fixed charge is one of the lowest in this region. (chart below).

source:
smpa.com

An Ore Cart chart (below) shows the monthly fixed charges from the SMPA table, and adds optional time-of-use (TOU) retail rate monthly fixed charges for the co-ops which offer a TOU option. Energy is kiloWatt-hours (KWh), demand is kiloWatts (KW).

Grand Valley Power's TOU is the only residential retail rate.

Empire Electric's monthly service charge for its all-energy (no TOU) rate is updated for 2024.

Ore Cart chart
with Empire Electric update

A 2024 retail electric rates change is expected for the Durango area, as reported in the minutes of the SMPA September 26, 2023 Board of Directors meeting, CEO Report (excerpt):

La Plata Electric Association (LPEA) is modifying its rate structure to follow Empire's rate structure, which includes a Time of Use energy rate with a peak demand rate.

Other electric cooperatives in the regional group may be considering changes for 2024, but had not published announcements as of the date of the chart.

Most electric co-ops in the region have time-of-use kWh rates

Kilo-Watthour retail rates among the group of seven electric co-ops are difficult to compare. Some monthly fixed charges are higher, some lower. If fixed charges are higher, KWh rates are lower. Some co-ops have a monthly demand charge which applies to a member's highest KWh consumption during a brief period, such as 1 hour, 30 minutes, or 15 minutes.

SMPA is the only co-op in the group which has only a flat rate in which all kiloWatthours cost the same every hour of each day, with no option for TOU. The other six co-ops have rate designs which include either KWh time-of-use (TOU), demand kiloWatt (KW) charge, or both.

General Service Residential
kWh electric rates comparison

Ore Cart chart
October 31, 2023

San Miguel Power Association (SMPA)
flat KWH

Empire Electric Association (EEA)
flat KWH
TOU KWH with demand KW charge

La Plata Electric Association
flat KWH with demand KW charge
TOU KWH

Grand Valley Power (GVP)
TOU KWH

Delta-Montrose Electric Association (DMEA)
flat KWH
TOU KWH

San Luis Valley Rural Electric Co-op (SLV REC)
flat KWH with demand KW charge
TOU with demand KW charge

Gunnison County Electric Association (GCEA)
flat KWH
TOU KWH

. . .

SMPA is reviewing the time-of-use rates strategy option. Timing Matters is SMPA's campaign to educate members about 4-9 PM peak hours and how a TOU monthly bill might look.

Appendix

SMPA Board to Consider Raising Access Charge to Build Financial Stability & Cover Rising Costs

October 3, 2023

It’s well-known that worldwide inflation has affected practically every economy, and the market for electrical equipment and tools has not been spared. Business expenses for local power provider, San Miguel Power Association (SMPA) have risen and are likely to remain higher than pre-pandemic levels. Additionally, SMPA is anticipating a cost hike of over 6% for its wholesale power, which accounts for approximately 52% of the non-profit cooperative’s overall expenses.

With these factors in mind, the SMPA staff is planning to propose a $2 increase to its access charge. Currently, the single-phase access charge that most residential members pay each month, stands at $23.00 per month. If approved, the increase would bring the fixed charge, which is intended to cover fixed costs of grid maintenance and system hardening, to a total of $25.00 per month—still one of the lowest grid-access fees in the region. 

"This $2 increase will not cover the projected increase in our wholesale power costs,” says SMPA Chief Executive Officer, Brad Zaporski. “However, through tightening our belt and successful long term financial planning we will be able to cover our expenses while giving our members room to adjust to market conditions.

Several times over the past four years, the SMPA Board of Directors has taken advantage of opportunities to defer revenue. This practice, a rate-stabilization tool, will make up for any losses SMPA may realize next year.

A temporary measure, the deferred revenue mechanism will help SMPA bridge a gap between the current rate environment and a yet-undefined future state. Currently, a number of rulings to affect the future relationship between SMPA and its current wholesale power provider, Tri-State Generation and Transmission (Tri-State) are under deliberation at the Federal Energy Regulatory Commission (FERC). “While questions remain about the future of our power supply,” stated Zaporski, “…one truth is becoming more and more evident: the timing of electrical power use will be one of our most powerful money-saving tools as we move forward."

To help draw member attention to this fact, SMPA has launched an information campaign called “Timing Matters.” Part of the movement can be read on your power bill. The hours of 4 PM to 9 PM have been identified as the system “Peak.” New line items, on the bill indicate “On-peak” and “Off-peak” power use, and members can now see when their account used the most energy within the billing period. This information, combined with the announced metric that “On-peak” power costs the cooperative 4X as much as power used at other times, can help raise awareness of the challenge and of the opportunity that it presents.

“The challenges we face are real,” summarized Zaporski. “However, your democratically-elected Board of Directors has been and will continue to be vigilant and responsive.”

The SMPA Board of Directors will consider the proposed access charge increase at their October Board Meeting on Tuesday, October 24^th at 9 AM. The meeting will be held virtually and in the Board Room at 170 W. 10^th Ave. in Nucla. Members are invited to attend in-person or as a Zoom participant to provide comment at the beginning of the meeting before the Board considers the proposal. Members may also submit written comments to rates@smpa.com prior to the October meeting.

Source:
smpa.com

Tri-State to impose Electric Power Rate Hike. SMPA to partially cover costs with Access Charge Increase.

October 30, 2023

Wholesale electricity provider, Tri-State Generation and Transmission, has filed a rate case with the Federal Energy Regulatory Commission (FERC) that is expected to raise wholesale rates paid by local non-profit, San Miguel Power Association (SMPA) by over 6% in 2024. This, in combination with inflationary pressures on the prices of tools and materials, prompted the SMPA Board of Directors to approve an increase to its monthly access charge at its October Board meeting. However, the increase will not be enough.

“This $2 increase will not cover the projected increase in our wholesale power costs,” says SMPA Chief Executive Officer, Brad Zaporski. “However, through tightening our belt and successful long term financial planning we will be able to cover our expenses while giving our members room to adjust to market conditions.”

Several times over the past four years, the SMPA Board of Directors has taken advantage of opportunities to defer revenue. This practice, a rate-stabilization tool, will make up for any losses SMPA may realize next year.

The increase will raise the fixed access charge with no change to the kWh energy rate. For most residential consumers, the $2 increase will place the monthly Access Charge at $25, which remains one of the lowest grid access fees in Western Colorado.

Chief Executive Officer, Brad Zaporski summarized the 2024 rate increase by saying, “I am proud of the SMPA staff’s efforts in cost containment, as well as our Board’s multi-year financial strategy of using deferred revenue to keep this rate increase to a fraction of the rate of inflation.”

Before the board voted, they heard from members who wished to comment on the proposal. Once all comments had been made, the board continued with its meeting, and approved the recommended $2 increase.

For reference, a listing of the current rates and the approved increase are available on www.smpa.com/rates. The new rate will go into effect January, 2024.

Source:
smpa.com