Consultants hired by the Pedernales Electric Cooperative unveiled a proposed new rate design plan at the PEC Board of Directors meeting in Marble Falls on Monday afternoon. David Hedrick, Vice President of C.H. Guernsey & Company said their proposal “balances conflicting concerns” and like any change in business philosophy, it will “create winners and losers.”
Hedrick and two other Guernsey representatives explained the major changes contained in the report. They propose increasing members’ monthly establishment fee charge and eliminating the “one size fits all” line extension charge.
The consultants suggest increasing the current monthly establishment fee of $20 for residences to $35, and the $17 for water wells to $32, along with a lowering of the rates charged for energy use. They calculate that the bill for residences using 1,271 kWh per month will decrease by a dollar a month under the proposed system.
The “losers” under this plan will be residences that use 1,000 kWh or less per month. Monthly bills would increase approximately $2.50 for 1,000 kWh users and $14 for 50 kWh users. The “winners” would be residences that consume more energy. Guernsey calculates that residences using 5,000 kWh per month will realize a monthly saving of $47 if the PEC adopts the concept of raising the monthly establishment fee from $20 to $35 and lowering energy charges.
PEC is hosting a public forum on the rate design plan at their Johnson City headquarters on Monday, March 23 at 6:30 p.m. The Guernsey consultants will be available to explain the proposals and members can give input on the type of rate structure they deem best for the cooperative.
Guernsey also suggested eliminating the current $1,050 establishment fee to new locations and replacing it with a line extension policy that PEC pay for the first $1,800 cost in providing the new service and the new member paying the balance, if any, over $1,800. Paul Hilgers with the PEC gave an “extreme example” of the cost to PEC for extending service to a new location near Junction in 2008 that required running 4 ½ miles of line. The new member paid $1,050 of PEC’s $337,000 in costs.
Guernsey consultant Mike Searcy said that making a rate design decision is “not entirely economic” and is really more a question of philosophy for cooperatives. The Guernsey rate report is available on the PEC’s website.
PEC General Manager Juan Garza announced that the PEC’s bond rating was lowered from AA- to A+ by its bond rating agency, Fitch, Inc. Garza said the downgrade was in part due to the agency’s “concern” about PEC owner equity decreasing from 36% to 19% as a result of the PEC having to “recast financials” to conform to accepted accounting standards.
In a statement Monday, Fitch gave its reasons for the rating. “The downgrade to 'A+' reflects ongoing pressures on PEC's new management team and Board of Directors to implement management reforms and cost controls in response to past management practices and excessive costs. Initial steps have been taken to remedy numerous areas of risk identified by management and detailed by a recent independent investigation ordered as part of a settlement agreement with its members. However, Fitch believes that PEC's transition from such long-established practices will take time and that PEC will face continued pressure and scrutiny from its members.”
Fitch also cited positives about the PEC. “The 'A+' rating continues to reflect the low business risk profile and essential service nature of a solely distribution system.”
The PEC board decided to refund to members any membership fees paid in excess of the first membership fee paid by the member. Garza estimates the total refund to members will be approximately $2,583,000 out of the $11,800,000 in total membership fees.
Garza recommended this action to the board “as a matter of fairness” since the cooperative decided to eliminate the one vote per meter policy in favor of a one vote per member system. The amount paid for a membership certificate has risen from $5 to the current $50 level, so the amount of refund to each member will depend on the fee structure in place at the time the fee was paid.