5.2. ERMUSR 11-17-2009 - Laserfiche WebLink

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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.