5.2. ERMUSR 11-17-2009Elk River -~-,
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
November 12, 2009
To: Elk River Municipal Utilities Commission
John Dietz
Jerry Gumphrey
Daryl Thompson
From: Troy Adams
Phone: 763.441.2020
Fax: 763.441.8099
Subject: Review and Consider Demand Electric Service Tariff Revision for Low Load Factor
Customers.
There was discussion during the October commission meeting regarding the possibility of
implementing an economic development rate and a low load factor demand customer rate. These
two concepts could be completely separate or one in the same. Because of some known low load
factor demand customer issues, the following analysis specifically addresses the low load factor
customers. Discussion of an economic development rate and/or program will be handled at a
future date.
The term load factor refers to the ratio of average load to peak load. It's a comparison of the
energy used to the maximum energy used if the rate of the peak usage was applied over the entire
time being measured. A customer with a high load factor would have a very consistent load over
time. For example, a data center that is in operation 24 hours a day and 7 days a week would
have a very consistent load and a high load factor. A gravel mine would have a low load factor
because the equipment has a very large load, but only runs for short periods of time.
Elk River Municipal Utilities Demand Electric Service Tariff applies to customers with demands
greater or equal to SOkW for 3 consecutive months. This tariff is enclosed for reference. The
demand rate structure charges for energy usage (kWh) and peak demand (kW). The energy
usage is the energy usage accumulated over time and the peak demand is a measurement of the
peak capacity required during that time. The peak demand is the component that recoups the
cost of sizing our distribution systems major components (substations, feeders, transformers,
etc...). With a low load factor customer, the capacity required would be high without the energy
usage to go along with it. These low load factor customers are often large enough that they can't
be classified as a non-demand customer. Because these customers fall into the demand rate
class, they pay the demand component of the rate for their contribution to the distribution system
sizing. This is the fair and equitable way to charge a customer for their usage. Our residential
and non-demand (small commercial) customers all contribute to the system demand to a smaller
degree, but this cost is not recouped through a demand component of those rates, rather blended
with the energy component. This isn't an absolute fair and equitable way to charge every
customer for their contribution to system costs. But their demand contributions are relatively
small so this method of billing for these rate classes is an industry standard.
Through research of these customers on our system, 12 customers where identified as low load
factor customers. Most are gravel or masonry type companies. These types of customers qualify
for a low load factor exemption with Connexus Energy and Xcel Energy. Both of these utilities
have the same demand adjustment factor (DAF) in their demand customer rate schedule: "But in
no month shall the billing demand be greater than the value in kW determined by dividing the
kWh sales for the billing month by 75 hours per month." This essentially caps the demand for
customers with a demand factor less than 10%. This DAF helps these low load factor customers
by reducing their electric bill.
If ERMU were to implement the same DAF into our tariff, the impact to revenue for the previous
12 months would have been a reduction of approximately $40,000. This is for the 12 customers
identified that would meet the low load factor requirement. This would not create an offsetting
reduction in expense.
This rate relief for these low load factor customers may help keep them in business during these
current difficult economic times. This would also help ERMU compete for new customers with
our competitor that already offer a DAF. This may be a tool used to promote economic
development to attract these types of businesses. But the reduction in revenue through a DAF is
really just socializing an incentive for a few over the entire electric customer rate base. It would
be more appropriate to cover this incentive directly through the demand rate class. Especially
with the downward trend in sales, the budget is not designed to absorb this reduction in revenue.
An increase in the demand customer energy rate of 0.5% would generate offsetting revenue for
the DAF.
There are a few options. One, ERMU doesn't implement a DAF in the demand customer tariff.
Two, ERMU implements a DAF similar to Connexus and Xcel and absorbs the reduction in
revenue. Three, the DAF could be implemented and the costs could be recovered through rates.
Another variable to consider would be to set a time requirement along with the DAF. Although
Connexus and Xcel don't have this requirement, that's not to say ERMU could specify time
requirements. If a requirement to quality for the DAF were for the customer not to have their
peak between 2pm and l Opm, this would shift their contribution to the system peak away from
the billing peak for ERMU's wholesale power purchase. This type of clause would help to
mitigate the cost to ERMU of implementing a DAF. This also places some effort requirement on
the customer in exchange for some rate relief.
Staff recommends implementing a DAF on the demand electric service tariff for low load factor
customers with the requirement to not peak between 2pm and l Opm. The revenue impact could
be closely tracked for a year and at that time make a determination whether or not to build into
the rates a method to recoup the expense.
ELK RIVER MUNICIPAL UTILITIES
Demand Electric Service
Available: Within established Elk River Municipal Utilities Rate areas.
Applicable: Existing Customers, or to new Customers with demands of 50 kW or more
for three (3) consecutive months whose entire requirements are taken through one meter,
under a contract of standard form. (Not applicable to resale, standby or auxiliary service.)
Character Of Service: AC, 60 cycles, 120 volts or 120/240 volts, single-phase; 120/208
volts, or 277/480 volts, three-phase. Four wire, 240 volts three-phase will only be
applicable to existing customers now being served by this voltage. A customer requiring
voltages other than that already established shall be required to provide suitable space
location of Elk River Municipal Utilities transformers, metering and associated equipment.
Special Conditions: One meter shall be installed to service one class of business. If
additional buildings are required for a given business, they shall be interconnected by the
customer to obtain one meter. If additional meters and services are requested by the
customer, each shall be treated as a separate customer.
Meter to be accessible to our service department at anytime.
Rate: Subject to application of Cost Adjustment (CA).
Demand Service:
Account Maintenance Charge: $50.00 per month.
Summer Winter
Demand Charge: $15.50 $10.75 in KW /month
Energy Charge: $ 0.0515 $ 0.0515 in KWh /month
Minimum Biil: Maximum billing demand during previous twelve months times 3.0% of the
demand charge, or the actual demand multiplied by the demand charge, whichever is
greater plus $1.00 per kVA per month of excess transformer capacity requested by
customer.
Sales tax applicable unless exemption is filed.
ELK RIVER MUNICIPAL UTILITIES
Demand Electric Service
Summer: The summer rate shall apply to the Customer's use from May 1 through
September 30.
Winter: The winter rate shall apply to the Customer's use from October 1 through April
30.
Determination of Billing Demand: The billing demand shall be the highest measured
demand (corrected for power factor if required) during any fifteen (15) minute period
occurring in the current billing period.
Fluctuating Loads: Customers operating equipment having a highly fluctuating or large
instantaneous demand, such as welders and X-ray machines, shall be required to pay all
non-betterment costs of isolating the load from the balance of Elk River Municipal Utilities'
system so that the load will not unduly interfere with service on Elk River Municipal
Utilities' lines. In addition, Customers who fail to provide adequate corrective equipment
shall be required to own and maintain their own transformers. No motor larger than ten
(10) HP will be allowed to be across-the-line started without notification and written
authorization from Elk River Municipal Utilities.
Power Factor Adjustment:. For loads of 50 KW or more, or at the option of Elk River
Municipal Utilities for loads of less than 50 KW, power factor adjustments will be made in
the billing demand, when the power factor, as determined by test, at the time of the
Customer's maximum use is less than 95%. If the power factor, as measured by Elk River
Municipal Utilities' electric department, is lower than 95%, the monthly demand charge
may be multiplied by the ratio 95% to the measured power factor, or at Elk River
Municipal Utilities option, the power factor may be corrected at the Customer's expense.
Terms of Payment: Bills are due and payable upon receipt and delinquent if not paid by
the due date noted the bill. There will beaten (10) percent late payment charge added to
all accounts that are not paid by the due date.
Terms and Conditions:
1. Usage may be fractionalized on the actual days of service for application. of a
change in rate.
2. Service will be furnished under Elk River Municipal Utilities rules.
3. Extensions made for service under this schedule are. subject to the provisions of Elk
River Municipal Utilities' rules governing Extension of Service and Facilities.
4. The rates set forth herein may be modified by the amount of any governmental
changes imposed and levied on transmission, .distribution, production, or the sale of
electrical power.
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Approved Adopted December 9,2008
Effective January 1, 2009