Fall Foliage, Ovando, Montana

Changing Rates for Changing Times

Posted: April 1, 2022
Mark Hayden, GM

With all of the advancements in technology and connected devices in our world, the importance of a reliable and affordable electrical supply is more important than ever, and the trend shows little sign of slowing. Our transportation sector is rapidly transitioning to an electrically-powered future; more and more members are choosing to generate a portion of their own electricity using rooftop solar and battery storage; and base load generation- the reliable power supply that is necessary to keep the electric grid operational and power available 24/7/365 is undergoing significant change.

72 years ago this month, Missoula Electric Cooperative (MEC) signed its first contract with Bonneville Power Administration (BPA). A lot has changed in that time relative to how BPA bills us for the power we need, however, the one thing that hasn’t changed is our rate structure for residential members. The basic two-part rate (base charge + energy charge) is a formula that has been with the Cooperative from day one.

Every few years, MEC engages a third party to review its rates in a process known as a cost-of-service study (COS). In 2021, we completed a COS, and the results indicated that across the board, MEC’s current rates are recovering costs consistent with the costs of serving each member category. In other words, the total rate we charge for residential members generated sufficient revenue to cover the costs related to serving residential members without being subsidized by any other rate category. This is excellent news and means that no rate increase is required in 2022.

The COS did indicate, however, that alternative rate design opportunities do exist, which would charge members more equitably within the residential class. This is not possible with our current two-part rate, because, while the way we bill our members has not changed over the years, the way MEC is charged for the power we purchase has changed. With BPA’s current rates, MEC pays more for power during certain times of the day when demand for electricity in the region is at its highest. In addition, improvements to our metering technology allow us to measure usage on an hourly basis, allowing MEC to more accurately determine each member’s contribution to our daily peak.

So, what is the solution? Beginning later this spring, MEC members will see a couple of changes on their monthly bill. First, the Energy Charge, which is the rate per kilowatt hour (kWh) that has been in effect since 2017, will be reduced for all energy purchased during the month to reflect the lower cost of power most hours of the day. Second, a new billing component called “Peak Charge” will appear on all bills. We will talk a lot more about the new charge in the coming months, but a member’s peak is simply the maximum amount of power they require, measured in kilowatt (kW), during a one hour period each month. The Cooperative’s peak hours are Monday through Friday from 7 am to 10 am and 6 pm to 9 pm. This reduction in the Energy Charge, coupled with the new Peak Charge is designed to be revenue neutral, and will treat residential members more equitably by collecting a little less from those who have a lower impact on the system during peak periods, and a little more from those who do.

In the past, the only way to reduce your energy bill was to use less energy (i.e., turn appliances and devices off). Likewise, if the Cooperative raised the base charge or energy charge, members had few options to reduce the impact of the change. The new rate design, on the other hand, will give members more control over their electric bill because it will create opportunities to save money by shifting electricity usage away from the Cooperative’s peak hours. When members reduce their individual peaks, it lowers overall system costs, in tum, reducing all our bills.

As your not-for-profit electric cooperative, MEC will continue to do everything we can to control costs so we can continue to provide the same reliable service at the lowest possible cost. The implementation of a time-of-use Peak Charge is an excellent first step in a multi-year plan to better align our rate structure to one that is most equitable to our members, and durable for years to come. Please check future issues of Rural Montana to read more about our new rate structure, how it will affect your bill and how you can control or reduce your peak.