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A Virginia electric co-op is proposing a fee increase critics say will discourage customers from investing in solar or energy efficiency and harm low- and moderate-income customers.
Shenandoah Valley Electric Cooperative has filed paperwork to raise fixed charges on residential customer utility bills by $5 a month next year — a 20% increase that doesn’t align with members’ needs, argue advocates with the nonprofit Solar United Neighbors.
“This seems like a small fight,” Aaron Sutch, Solar United Neighbors’ Richmond-based Mid-Atlantic regional director, said about the opposition being mounted before a regulatory hearing scheduled for Oct. 6. “But it’s a big deal.”
“We’re taking off the kid gloves here,” Sutch continued. “It’s a sneaky back-door way they can raise rates and make a higher portion of customers’ bills unable to be controlled by solar and energy efficiency.”
Shenandoah Valley Electric Cooperative, or SVEC, is headquartered in Rockingham County’s Mount Crawford and serves roughly 96,000 meters in the city of Winchester and 11 counties.
Co-op leadership maintains that the fixed-rate increase is a large piece of $5.3 million in annual revenues it needs to cover “expenses, service debt, fund capital additions, and meet the financial goals established by the Board of Directors,” president and CEO Greg Rogers noted in his testimony to the State Corporation Commission filed March 16.
Co-op spokesperson Preston Knight limited his response to the Energy News Network’s questions, saying it is SVEC’s policy to debate such issues via the forum of the rate case pending before utility regulators.
“Our application and testimony filed with the commission provides overwhelming support for our rate proposals,” Knight said. “Our filing complies with the statutes and regulations that the [State Corporation Commission] considers when deciding whether to adjust an electric cooperative’s rates.”
Heavier energy burden for low-income customers
Shenandoah Valley Electric Cooperative Vice President and CFO J. Michael Aulgur said that advanced two-way meters and a fiber optic communications system are among the upgrades in the co-op’s work plan.
Tellingly, he also noted that co-op members are not only becoming more energy-efficient, but investing in rooftop solar for some or all their electricity needs.
“These shifts in member behavior necessitate the cooperative to rethink its cost recovery methodologies,” he said. “That means moving away from a methodology largely based on energy consumption to one that better reflects demand.”
Karl Rábago, a member of Solar United Neighbors’ board of directors whose extensive resume includes work as a Texas utility regulator and deputy assistant secretary with the U.S. Department of Energy, is serving as an expert witness in the intervention.
Broadly, he characterizes the proposed rate hikes as “unjust, unfair and unreasonable” and not in the best interests of customers or the public.
He zeroes in on the proposed jump in the monthly fixed charge from $25 to $30 as “unreasonable on its face” and “wildly inconsistent with rates in the region,” in 70 pages of testimony presented to the State Corporation Commission in late July.
Rábago recommends that regulators deny the proposal and order the co-op to reduce the fixed charge by $5 each year until it’s no higher than $15 a month.
“Just to compare, imagine if your water bill was $100 every month whether you used 10 gallons or 1,000 gallons,” Sutch said, pointing out a lack of incentive to conserve resources. “No matter how much you used, the cost is the same.”
Rábago said the requested increase is especially unfair after the co-op already almost doubled its fixed rate from about $13 at the beginning of 2020.
It’s punitive that close to one-third of a member’s bill would be “non-bypassable” as a fixed charge, he said. High fixed customer charges encourage excessive, wasteful, and polluting energy use because they send a strong price signal against the efficient use of electricity and investment in distributed generation, distributed storage, demand response, and other distributed energy resources, he added.
Rábago emphasized that such charges are economically regressive because they disproportionately burden low-income customers who, for the most part, use less electricity.
He noted that the co-op doesn’t know how its proposed rates will affect energy justice because management has not evaluated how its proposed rate changes will impact its elderly, low-income and minority members.
An analysis by the advocacy organization Appalachian Voices reveals that about 17% of the co-op’s households — about 14,800 — would qualify as low-income with an average income of $16,206 per year.
Their energy burden of about 14.2% is four times more than the 3.5% burden carried by the average household in the co-op’s service territory, with an income of $77,591.
In addition to raising its fixed charge, SVEC also plans to add a new demand charge of 10 cents per kilowatt to residential member bills. Simply put, demand is the rate at which power is consumed. Usually, utilities charge these additional fees to non-residential and commercial customers for maintaining a steady supply of electrons.
Traditionally, demand charges are calculated using the single highest 15-minute interval of power consumption over the billing cycle multiplied by the current per-kilowatt rate.
Jack Gaines of JDG Consulting pointed out in his commission testimony on behalf of SVEC that 2019 state legislation (HB 2547) authorizes co-ops to shift costs to existing demand charges on a revenue-neutral basis, with the approval of its board of directors.
“Incorporating a new demand charge into rates that did not previously include a demand charge makes those rates more cost-based,” Gaines explained. “After the demand charge is fully implemented, each consumer will pay for his or her actual demand, rather than pay an estimate collected through the consumption charge.”
Not surprisingly, Rábago recommends that regulators deny the co-op’s demand charge proposal.
He castigated it as yet another fixed charge and a “Trojan Horse rate with the co-op planning unspecified and not-specifically timed changes to the charge in the future.”
Further, he said, the demand charge would likely be deployed with no expectation that it will operate as a price signal and without the tools that members, if educated properly, could use to manage costs.
Co-op members in the dark?
Solar United Neighbors and its allies have long been convinced that while electric co-ops pride themselves on being democratic, member-controlled institutions, in reality they function more like monopolies.
In SVEC’s case, Solar United Neighbors is concerned that the co-op’s board of directors and managers are too opaque with their members about the proposed increases, Sutch said. For instance, questions about visibility and accountability arise because customers are prohibited from attending board meetings.
To increase transparency, Appalachian Voices, Repower Rappahannock Electric Cooperative and other advocates are urging SVEC co-op ratepayers to become educated and speak out.
Knight, the co-op spokesperson, responded that “we understand the importance of communicating with our members.” Co-op leaders have addressed the State Corporation Commission filing with members via telephone town halls in March and June and at the annual meeting earlier this month. As well, a November event will be dedicated to a Q&A with customers.
SVEC is under contract through 2053 to buy wholesale power from Old Dominion, its generation and transmission co-op in Glen Allen. Both SVEC and Old Dominion are expanding their solar footprints.
As renewables boom, Sutch said, co-ops are reconfiguring rates because they fear being bogged down with big, expensive, fossil fuel-powered stranded assets.
“Co-ops say, ‘We love solar,’” Sutch said. “But they’re really looking out for their power providers at the expense of their member-owners. We’re actively saying we’re not going to let you stop solar and energy efficiency.”
Rábago echoes those sentiments by pointing to a voluntary “Beat the Peak” program that allows SVEC members to reduce wholesale price costs and their bills in the relatively short term by cutting usage, especially when Old Dominion experiences high demand.
He answered a succinct “No,” to a query from utility regulators asking if SVEC’s proposed rate structure supports members reducing their monthly and long-term bills by reducing usage and demand.
“The co-op’s loading of costs onto the fixed customer charge sends a contradictory price signal to members that disincentivizes the very behavior that would save them money,” Rábago said. “It is almost as if the co-op management was expressing a preference for higher ODEC revenues and member bills than for lower co-op costs and lower member bills.”
In an interview earlier this year, Kirk Johnson, Old Dominion’s senior vice president of member engagement, said the co-op is fully aware of criticism that solar advocates level at the contract.
He countered that such a contract is beneficial because it prevents co-ops from being subject to the whims of the wholesale market and “keeps us together as a family.”
“Some people misconstrue what the contract is,” Johnson said. “They think it’s a contract for coal instead of an underlying financial arrangement that allows us to cost-efficiently build what we need to build.”
Sutch said co-ops need to control their load profiles and peak demand by encouraging members to invest in solar, energy storage, demand response, electric vehicles and other evolving technologies.
“This isn’t a zero-sum game, he said. “It’s not like if we win, they lose.”
Advocates are obligated to challenge a co-op they perceived to be overstepping its bounds, he said. “We are really going for the jugular here because we don’t have the luxury of time.”